Alexis Bossard, Fund Manager of an equity strategy to fight against climate change, goes over the highlights of the global warming theme in 2022 ahead of the COP 27, to be held from 6 to 18 November in Sharm El Sheikh in Egypt.
What are the year’s main events?
The major topics are inflation and recession, sped up by the conflict in Ukraine. Beyond the human tragedy, the invasion by Russia has led to an energy crisis that is at the core of discussions between the public and private sectors since the summer. Not only did this conflict start at the worst time (closure of nuclear capacities in Germany, drop in hydraulic reserves in Southern Europe, half of France’s nuclear network undergoing maintenance), but Europe’s dependence on Russian commodities was significant (about 50% of coal imports, 40% for gas and 30% for oil)1. As a result, gas (and electricity) prices more than tripled over 12 months in Europe to €150/Mwh2, amplifier the already present inflation.
This rise in energy costs represents a major change for the European economy, in particular German and Italian industry, which benefited from access to cheap gas.
What are the main consequences of the energy crisis in Europe?
It is difficult to specifically define and predict the consequences of this energy crisis. One thing is sure, we will have heating this winter, but the bill will be high, and certainly even higher in 2024. For our part, we note two very positive pieces of news.
Firstly, this crisis will have triggered awareness of our dependence on fossil fuels and has federated all of the countries of the European Union in seeking quick alternatives. In other terms, the conflict has accelerated the energy transition. We have moved from a climate emergency to a sovereignty emergency, which will lead to faster adoption of the measures worldwide. Beyond the commitments to energy sobriety, the European countries have resolved to accelerate the “green” transition, with a €300bn support plan called RePower EU, which aims to improve the efficiency of production tools and accelerate the development of renewable energies (biogas and hydrogen in addition to solar and wind).
The second positive point lies in the fact that the crisis has made the green transition much more attractive. With energy prices at high levels, companies are reviewing their models. Returns on investment are now higher. It has become more “profitable” for homo oeconomicus to practice sobriety, replace the old gas boiler with a heat pump, develop renewable energies or use the natural gas derived from waste. With this energy crisis, the green transition has taken a leap forward.
Has the acceleration of the energy transition been the same everywhere in the world?
The acceleration of the energy transition is not taking place only in developed countries or Europe. The rise in the cost of energy and the fight against global warming are a global reality and concern, as shown by the COP 27. In China, which two years ago announced its 2060 carbon neutrality target, renewable energy already accounts for 29.4% of its electricity mix and the country is set to easily exceed its objective of 33% in 2025. India has also unveiled an ambitious target to reduce its share of fossil fuels in the energy mix to 50%. Against this backdrop, in the summer the United States approved the biggest plan in support of the green transition: the Inflation Reduction Act (IRA). With a budget of $369bn, it intends to combat global warming by favouring 1) renewable energies (e.g. A 30% tax credit for the installation of batteries and photovoltaic panels), 2) sustainable mobility (e.g. $7,500 for the purchase of an electric vehicle) 3) the relocation of these “green” industries through major tax credits. The Biden administration wants to support the energy transition above all by strengthening the United States’ technological competitiveness vis-à-vis China, in particular in solar and batteries. Set over the next 10 years, this plan gives long-term visibility on end-demand to companies exposed to the energy transition. The only downside, contrary to what its name indicates, is that this plan is unlikely to help the Fed’s monetary policy in reducing inflation.
- Source: Eurostat. Data of 2020.
- Source: Bloomberg (Nat Gas TTF price). Data between September 2021 and September 2022.
- Source: NEA. October 2022.
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