Green Light to a Greener Economy: Three Investment Trends

While many may remember 2007 as the year the global economy slid into a massive financial crisis, it was arguably the launch of the iPhone that revolutionized the way many people work and live today. Similarly, and in hindsight, 2020 may be remembered as the year the world finally took decisive steps to address climate change and shift toward a greener future. This shift will have significant consequences for markets and investors.

This year, several major governments designed their economic recovery programs to be more digital and sustainable, with “Net Zero” widely adopted as a motto. Climate change is likely to become a major theme and factor in the global power competition, with Europe and China promoting green strategic efforts such as hydrogen energy, and the U.S. likely to join the race. Whether it’s due to countries pursuing geopolitical domination, or because of good-hearted intentions, or just due to the need to preserve limited resources, the green wave has turned into a tsunami, as the following facts signal:

  • China: The country is making significant investments in green technology, and it aims to peak its carbon dioxide (CO2) emissions by 2030 and achieve carbon neutrality by 2060.
  • Japan: The fifth-largest global CO2 emitter has pledged carbon neutrality by 2050. Since 87% of Japan’s current energy needs are met by fossil fuels, the task ahead is substantial. To help reach this goal, the country recently proposed a 10% tax deduction toward producing goods that decarbonize the economy.
  • Europe: Though the target is not yet finalized, the European Union (EU) Parliament has voted a CO2 emission reduction target of 60% by 2030 (relative to the 1990 level), exceeding the EU Commission’s recommendation of 55%. Germany’s lower house recently approved a tax on greenhouse gas emissions, to begin in 2021, which will increase the prices of heating oil, car fuels, and natural gas. Additionally, Spain joined other European countries by allocating 70% of its 2021–2023 stimulus budget to green and digital projects. Even the sacrosanct European Common Agricultural Policy (CAP) is getting a major overhaul: From now on, farmers, even small ones, who fail to meet requirements in support of the EU climate target will become ineligible for aid.
  • U.S.: We expect President-elect Joe Biden will enhance the country’s green efforts, with important implications for the renewable energy industry and the full ecosystem around it. As one of his first moves, Biden has said he will have the U.S. rejoin the Paris Climate Agreement, a landmark multinational accord to fight climate change. And if the U.S. joins the “Net Zero” club, then 60% of world GDP would be devoted to the cause (see Figure 1).

Figure 1 is a map of the world highlighting countries that have made various commitments to net zero carbon targets as of October 2020. In some cases the targets are under discussion or proposed legislation; in other countries they are already policy. Among major economies, several countries in Europe as well as the UK, Japan, South Africa, and New Zealand have net zero targets as part of law or policy. China, Argentina, Mexico, and several other emerging market nations have carbon targets under discussion.