The Climate Economy, Expensive Transitions, EU's Solar Summer, and Engineers
Here are 5 ESG insights you might have missed this week:
1. The Climate Economy Is About to Explode-
A new report suggests that the Inflation Reduction Act could be even bigger than Congress thinks.
Many of the IRA’s most important provisions, such as its incentives for electric vehicles and zero-carbon electricity, are “uncapped” tax credits. That means that as long as you meet their terms, the government will award them: There’s no budget or limit written into the law that restricts how much the government can spend. The widely cited figure for how much the IRA will spend to fight climate change—$374 billion—is in large part determined by the Congressional Budget Office’s estimate of how much those tax credits will get used.
But that estimate is wrong, the bank claims. In fact, so many people and businesses will use those tax credits that the IRA’s total spending is likely to be more than $800 billion, double what the CBO projects. And because federal spending tends to catalyze private investment, that could send total climate spending across the economy to roughly $1.7 trillion over the next 10 years.
Link to Source: https://www.theatlantic.com/science/archive/2022/10/inflation-reduction-act-climate-economy/671659/
2. The Energy Transition Will Be Expensive, But Not Catastrophically So-
To hit the net-zero targets to which 91% of the world economy is now committed, many transformations are necessary.
The world is continuously replacing boilers, cars and power plants regardless of any energy transition. Incremental spending to replace them with green alternatives is much lower than the gross cost would be. The McKinsey Global Institute estimates that an annual average of 9.2% of GDP must be spent on physical assets to achieve net zero by 2050, but reckons this is an increase of only 0.9% of GDP over current plans.
The second reason is that the private sector will pick up much of the tab. Households, for example, usually buy their own boilers and cars, and in the rich world private firms are responsible for about 90% of all energy investment. The obr’s central scenario assumes that the British government will pay about a quarter of the total cost of the transition.
Link to Source: https://www.economist.com/special-report/2022/10/05/the-energy-transition-will-be-expensive
3. Engineering the Transition to Net-Zero Carbon Emissions-
The theme of the National Academy of Engineering’s 58th Annual Meeting, to be held Oct. 2-3, 2022, was “Energy Transitions.”
As we make that big transition, what should the priorities be for engineering? What key technological hurdles still need to be solved for that to happen? The first priority is to deploy known technologies that have been developed over the past 20 or 30 years to address easy-to-decarbonize processes. So what’s easy to decarbonize? HVAC in homes, local transportation around cities, electric vehicles, household appliances, and so on, because we have various solutions already available.
The second priority is research and development and deployment of new technologies to apply to difficult-to-decarbonize processes, which account for about 25% of the U.S. energy consumption. These are sectors like aviation, shipping, long-haul transportation, and energy-intensive manufacturing such as steel and cement. There’s no easy fix for these energy uses.
Link to Source: https://www.nationalacademies.org/news/2022/09/engineering-the-transition-to-net-zero-carbon-emissions
4. EU’s Record Solar Summer Helps Avoid €29bn in Gas Imports-
The EU generated a record 12% of its electricity from solar from May to August 2022, helping to avoid a potential €29 billion in fossil gas imports.
From May to August, the EU generated a record 12% (99.4 TWh) of electricity from solar power – up from 9% (77.7 TWh) last summer. Solar surpassed the share of wind (12%) and hydro (11%) in the power mix and was not far from coal’s 16%. Without the record 99 TWh of solar generation over the past four months, the EU would have had to purchase another 20 bcm of fossil gas. Based on the daily gas prices for May to August, this equates to avoided gas costs of €29 billion.
Solar share records were broken in 18 out of 27 EU countries. The largest increase in solar generation since 2018 was in Poland, which increased solar generation 26 times, followed by 5-fold increases in Finland and Hungary. 10 EU Member States generated over a tenth of their electricity from solar panels during the summer of 2022. The highest share was in the Netherlands (23%), followed by Germany (19%) and Spain (17%).
Link to Source: https://ember-climate.org/insights/research/record-solar-summer-in-europe-saves-billions-in-gas-imports/
5. Credit Suisse's Guide To Sustainable Portfolio Construction-
How retail investors can use sustainable and impact investing strategies as building blocks to construct portfolios while meeting their investment objectives.
It is now possible to replicate a traditional portfolio with instruments that apply the four sustainable investing approaches outlined previously. Investors can now find sustainable strategies across asset classes, which have similar risk/return profiles as traditional approaches.
The SAA and TAA processes are largely the same for sustainable and traditional investors. However, there are a number of additional considerations for sustainable investors when developing an SAA and implementing a TAA.
Link to Source: https://www.credit-suisse.com/microsites/build-for-the-future/en.html
One more thing: From visual capitalist, The Top 10 EV Battery Manufacturers in 2022.
Find the infographic here: https://elements.visualcapitalist.com/the-top-10-ev-battery-manufacturers-in-2022/
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