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Clean energy and infrastructure

August 2021

Warning on global warming to accelerate energy transition

The latest report published by the U.N. Intergovernmental Panel on Climate Change (IPCC) last week sounded the alarm on the tangible impact of human activities on climate change.

As it concluded, the combined effects of human activity have already increased the global average temperature by about 1.1°C above the late 19th-century average. The report further warned that if global warming increases further, some compound extreme events with low likelihood in the past and current climate will become more frequent and such events are likely to occur with increased intensities and duration or even to an unprecedented extent.

Global governments to action

As the report noted, we will inevitably experience an increase in extreme heat events, as well as a decrease in permafrost, snow, glaciers, ice sheets.

In fact, we already saw some of that, as summertime in the Northern Hemisphere has been marred by severe flooding across Europe (e.g. Germany) and China, as well as alarming drought and the early onset of large wildfires in the Western U.S. and Canada. One of the coldest places on the planet, Siberia, has experienced severe heat and forest fires. Nearly all of this can be attributed to human influence.

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It’s worth noting that for the first time, the IPCC has signalled the imminence of the matter by using “unequivocal”, while in the past it typically wrote “with medium confidence” or “with high confidence”.

This important report reflecting collective work of more than 200 scientists globally, has been signed off and acknowledged by 195 countries, which means that they will act based on this.

We expect global governments to respond to the severity of this report by accelerating even further the energy transition, particularly in renewables and electric mobility.

Xavier Chollet
Xavier Chollet Senior Investment Manager

US$3.5 trillion package to boost energy transition

Just a day after the release of the IPCC report, the US Senate passed the bipartisan infrastructure bill, which includes a new funding of US$548 billion (US$1.2 trillion in total) over the next 8 years to support physical infrastructure projects.

The bill includes a number of energy-related initiatives, most of which focused on Climate/Energy Transition, including grid/energy efficiency, electrification (EV charging/batteries), carbon capture usage and sequestration (CCUS), hydrogen, methane reduction and others.

The most important elements to note are the US$73 billion in new spending for power infrastructure (electric transmission and distribution), as well as US$15 billion for electric mobility – half will go towards developing 500,000 EV charging stations nationwide, compared to ~100,000 charging stations currently available, and the remaining will go towards electrifying 50,000 transit buses over the next 5 years.

What is important to keep in mind is that this is only “part 1”, as a much bigger US$3.5 trillion economic package will now be debated in Congress in the form of a reconciliation bill, so that it will only require 50 senators and the Vice President tie-breaking vote to pass. There will be major focus on clean energy elements, such as extending tax credits for renewables, increasing subsidies so that consumers shift even faster to electric vehicles and etc.

While the infrastructure bill is positive for us, we should watch out for the US$3.5 trillion reconciliation package. We believe that many “short-term” clean energy investors are waiting for the reconciliation bill to materialize to get back to the US renewables stocks. This should happen in the September – December timeframe.

Powering the share of EVs

Earlier this month, President Biden signed an executive order, targeting 50% share of electric vehicles sales by 2030 in the US.

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We note that the major US auto producers have all pledged support for the executive order, and issued on the same day a joint statement to achieve 40-50% of annual US sales volumes of electric cars by 2030.

50% share of EVs in the US by 2030 would be significantly above current estimates, as the US is lagging Europe and China with E-Mobility adoption.

We think this is another positive news for portfolio exposed to E-Mobility space, following a similar announcement in Europe recently – the “fit for 55%” legislative package, with a 55% cut in car emissions by 2030 compared to current levels, and a 100% share of electric cars by 2035.