{"id":2431,"date":"2021-12-01T00:00:00","date_gmt":"2021-12-01T00:00:00","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-eu\/2021\/12\/01\/green-energy-transformation-opportunities-and-realities\/"},"modified":"2023-11-01T11:12:01","modified_gmt":"2023-11-01T15:12:01","slug":"green-energy-transformation-opportunities-and-realities","status":"publish","type":"post","link":"https:\/\/www.rbcwealthmanagement.com\/en-eu\/insights\/green-energy-transformation-opportunities-and-realities","title":{"rendered":"Green energy transformation: Opportunities and realities"},"content":{"rendered":"<p>The green energy transformation is moving forward with ambitious carbon reduction goals set by countries, major cities, corporations, and multilateral organizations. <\/p> <p>Some experts believe that meeting the goals would take the largest industrial mobilization ever in peacetime\u2014and on a global scale. International agreements seek to lower global carbon emissions 30 percent by 2030 and reach near net-zero emissions by 2050 for most countries, with the ultimate aim of limiting the global temperature increase to 1.5 degrees Celsius this century compared to pre-industrial levels. <\/p> <p>Such a transformation could require a grand economic realignment, affecting a wide swath of sectors, and at least rivaling the industrial revolution of the late 19th century and the technological revolution of the second half of the 20th century, if not surpassing them. <\/p> <p>There is little doubt in our minds this would bring opportunities for investors. We believe it could be a boon for companies involved with the multi-industry, multi-trillion dollar infrastructure buildout over the medium and long term. We view this as an important investment theme and anticipate it will attract capital from institutional and individual investors. <\/p> <p>But there are practical considerations and challenges associated with getting from the fossil fuel-based energy system of today to a cleaner, advanced low-carbon energy system of tomorrow. Therefore, we believe the transition will have to strike a balance between comprehensively addressing climate change and helping to ensure economic growth and the well-being of populations. <\/p>  <h2>A hefty price tag <\/h2> <p>The infrastructure and mineral requirements for the energy transformation are immense, and are compounded by the simultaneous shift toward a digital economy that demands an abundance of electricity. <\/p> <p>Yale Professor William Nordhaus, recipient of the 2018 Nobel Prize in Economics, estimates it would take roughly $100 trillion to $300 trillion in new capital on a global basis to reach net-zero emissions by 2050. \u201cAnd much of that new capital must come in the form of technologies that are largely unproven or immature today. Research and development is urgently needed to make this possible,\u201d he wrote in an October 2021 <span class=\"italic\">Foreign Affairs<\/span> article. <\/p> <p>Capital spending would come from governments, industry, and other private sector sources. <\/p>  <p>BloombergNEF (BNEF), a research firm concerned solely with the energy transition, estimates that over the next 30 years spending on energy and other infrastructure could range from $94 trillion to $175 trillion. <\/p> <p>Within this wide range, BNEF highlights three scenarios that vary according to the main sources of decarbonization technologies. If spending is primarily focused on renewable energy (wind and solar) and <a href=\"\/insights\/five-things-investors-should-know-about-hydrogens-global-potential\" title=\"Five things investors should know about hydrogen\u2019s global potential\">hydrogen<\/a>, the firm\u2019s \u201cgreen scenario,\u201d the price tag is estimated at $161 trillion. If a meaningful portion of new power generation comes from low-carbon, advanced nuclear power reactors (which some countries advocate) and hydrogen, in addition to renewables, the infrastructure buildout would be around $138 trillion, which represents BNEF\u2019s \u201cred scenario.\u201d A lower-priced \u201cgray scenario,\u201d at around $96 trillion, incorporates renewables but gives a relatively greater role to the combination of natural gas and other fossil fuels, and carbon capture and storage compared to the other two scenarios. <\/p>  <h3 id=\"ex1heading\" class=\"h6\">Estimated required investments in energy infrastructure by 2050 in three different scenarios<\/h3> <div class=\"container-break mb-4\">  \t<div class=\"row mb-1 migrated\"> \t\t<!-- 1a Green scenario --> \t\t<div class=\"col-md-4\"> \t\t\t<div class=\"row\" id=\"greenheading\"> \t\t\t\t<div class=\"col-sm-12 mb-1\"> \t\t\t\t\t<h4 class=\"mb-0\">Green scenario<\/h4> \t\t\t\t\t<p>Renewables and hydrogen: $161&nbsp;trillion<\/p> \t\t\t\t<\/div> \t\t\t<\/div> \t\t\t<div class=\"row mb-2 mb-md-0\"> \t\t\t\t<div class=\"col-md-12 col-sm-5\"> \t\t\t\t\t<img decoding=\"async\" src=\"https:\/\/www.rbcwealthmanagement.com\/en-eu\/wp-content\/uploads\/sites\/9\/2021\/12\/green-energy-en-chart-1a-green-in-page.png\" alt=\"Green scenario pie chart.\" class=\"img-fluid mb-1-half\" \/> \t\t\t\t<\/div> \t\t\t\t<div class=\"col-md-12 col-sm-7\"> \t\t\t\t\t<ul class=\"row list-unstyled\" id=\"greenlegend\"> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-dark-blue mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tPower generation: 19% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-blue-tint-2 mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tBattery storage: 1% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-blue-tint-3 mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tPower grid: 15% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-seaweed mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tHydrogen production: 22% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-apple mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tHydrogen storage: 24% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-yellow mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tHydrogen transport: 10% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-carbon mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tCoal, oil &amp; natural gas: 9% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-carbon-tint-1 mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tCarbon capture &amp; storage: 0% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t<\/ul> \t\t\t\t<\/div> \t\t\t<\/div> \t\t<\/div> \t\t<!-- 1b Red scenario --> \t\t<div class=\"col-md-4\"> \t\t\t<div class=\"row\" id=\"redheading\"> \t\t\t\t<div class=\"col-sm-12 mb-1\"> \t\t\t\t\t<h4 class=\"mb-0\">Red scenario<\/h4> \t\t\t\t\t<p>Nuclear power and hydrogen: $138&nbsp;trillion<\/p> \t\t\t\t<\/div> \t\t\t<\/div> \t\t\t<div class=\"row mb-2 mb-md-0\"> \t\t\t\t<div class=\"col-md-12 col-sm-5\"> \t\t\t\t\t<img decoding=\"async\" src=\"https:\/\/www.rbcwealthmanagement.com\/en-eu\/wp-content\/uploads\/sites\/9\/2021\/12\/green-energy-en-chart-1b-red-in-page.png\" alt=\"Red scenario pie chart.\" class=\"img-fluid mb-1-half\" \/> \t\t\t\t<\/div> \t\t\t\t<div class=\"col-md-12 col-sm-7\"> \t\t\t\t\t<ul class=\"row list-unstyled\" id=\"redlegend\"> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-dark-blue mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tPower generation: 35% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-blue-tint-2 mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tBattery storage: 2% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-blue-tint-3 mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tPower grid: 18% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-seaweed mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tHydrogen production: 16% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-apple mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tHydrogen storage: 12% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-yellow mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tHydrogen transport: 5% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-carbon mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tCoal, oil &amp; natural gas: 11% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-carbon-tint-1 mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tCarbon capture &amp; storage: 0% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t<\/ul> \t\t\t\t<\/div> \t\t\t<\/div> \t\t<\/div> \t\t<!-- 1c Gray scenario --> \t\t<div class=\"col-md-4\"> \t\t\t<div class=\"row\" id=\"grayheading\"> \t\t\t\t<div class=\"col-sm-12 mb-1\"> \t\t\t\t\t<h4 class=\"mb-0\">Gray scenario<\/h4> \t\t\t\t\t<p>Natural gas and carbon capture: $96&nbsp;trillion <\/p> \t\t\t\t<\/div> \t\t\t<\/div> \t\t\t<div class=\"row mb-2 mb-md-0\"> \t\t\t\t<div class=\"col-md-12 col-sm-5\"> \t\t\t\t\t<img decoding=\"async\" src=\"https:\/\/www.rbcwealthmanagement.com\/en-eu\/wp-content\/uploads\/sites\/9\/2021\/12\/green-energy-en-chart-1c-gray-in-page.png\" alt=\"Gray scenario pie chart.\" class=\"img-fluid mb-1-half\" \/> \t\t\t\t<\/div> \t\t\t\t<div class=\"col-md-12 col-sm-7\"> \t\t\t\t\t<ul class=\"row list-unstyled\" id=\"graylegend\"> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-dark-blue mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tPower generation: 32% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-blue-tint-2 mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tBattery storage: 2% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-blue-tint-3 mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tPower grid: 23% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-seaweed mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tHydrogen production: 1% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-apple mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tHydrogen storage: 7% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-yellow mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tHydrogen transport: 1% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-carbon mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tCoal, oil &amp; natural gas: 20% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t\t<li class=\"col-sm-12\"> \t\t\t\t\t\t\t<div class=\"d-flex align-items-center\"> \t\t\t\t\t\t\t\t<div class=\"b-carbon-tint-1 mr-1 flex-shrink-0\" style=\"width: 12px; height: 12px\"><\/div> \t\t\t\t\t\t\t\tCarbon capture &amp; storage: 15% \t\t\t\t\t\t\t<\/div> \t\t\t\t\t\t<\/li> \t\t\t\t\t<\/ul> \t\t\t\t<\/div> \t\t\t<\/div> \t\t<\/div> \t<\/div>  \t<p class=\"disclaimer\">Source &#8211; BloombergNEF \u201cNew Energy Outlook 2021\u201d; the charts present the median value for each investment category wherever a range is presented in the original data<\/p> <\/div>  <p>Regardless of which path the transition takes\u2014or if it\u2019s some combination thereof\u2014BNEF estimates annual global energy and infrastructure investment would need to more than double, rising from about $1.7 trillion today to $3.1 trillion to $5.8 trillion per year, on average, over the next 30 years. <\/p> <p>These massive investment figures can be difficult to grasp. Narrower industry examples can help put into perspective the scale of transformation and potential opportunities for investors: <\/p> <ul> \t<li>In the U.S., 20 percent of electricity is currently produced by renewables. In order to reach the country\u2019s goal of 80 percent by 2035, it would take at least three times the current level of renewable power, which means building roughly 55 gigawatts (GW) of renewable electricity capacity per year. The U.S. has never built more than 15 GW of renewable power in any given year. <\/li> \t<li>Consultancy firm McKinsey points out that the transformation is about more than just the energy and power industries. In the next 10 years, it anticipates a number of major sectors could be involved in decarbonization, including transportation, agriculture, as well as building and housing construction. <\/li> <\/ul>  <h2>The reality of getting from here to there <\/h2> <p>Where there are opportunities, there are also realities and challenges. \u201cThere is a vast chasm between aspirations and policies,\u201d according to Nordhaus. The aggressive carbon reduction goals don\u2019t currently line up with the steps proposed to achieve them. <\/p> <p>One example: Nordhaus believes \u201cthe single most important step to achieve climate objectives is to put a market price on the emissions of carbon dioxide and other greenhouse gases.\u201d He asserts that the price of carbon needs to be high and harmonized across sectors and countries in order to \u201cchange behaviors\u201d of \u201cmillions of companies and billions of consumers.\u201d Currently, <a href=\"\/insights\/putting-a-price-on-carbon-emissions\" title=\"Putting a price on carbon emissions\">the market for pricing and trading carbon<\/a> is in its infancy and markets that have been established vary widely across regions. Nordhaus argues that the existing mechanisms are inadequate. <\/p> <p>In an April 2020 article McKinsey wrote, \u201cDecarbonizing global business at scale is achievable, but the math is daunting.\u201d It went on to state that sweeping action starting now is required: \u201cOur scenarios reflect a world in which the steepest emission declines would need to happen over the next decade. Without global, comprehensive, and near-term action, a 1.5-degree pathway is likely out of reach \u2026 every part of the economy would need to decarbonize.\u201d <\/p> <p><strong>Analysts widely acknowledge that major economic, business, and societal shifts would need to take place to achieve decarbonization goals. With this in mind, we think investors should consider a few practical challenges: <\/strong><\/p>  <h3>People prioritize their pocketbooks <\/h3> <p>Will society tolerate the various lifestyle adjustments that could be needed to achieve the carbon reduction goals, particularly if there are additional costs and\/or consumption restrictions for households, and the process is disruptive at times? Polls indicate that populations in many countries overwhelmingly back proposals to reduce the effects of climate change and prioritize alternative energy solutions, including in the U.S., which is illustrated in the Pew Research chart below. <\/p>  <h3>Americans back a range of carbon reduction policies <\/h3> <h4 id=\"ex2subtitle\" class=\"h6\">% of U.S. adults who favor each of the following proposals to reduce the effects of climate change<\/h4> <div class=\"row mb-4 migrated\"> \t<div class=\"col-lg-10 col-md-8 col-sm-8 col-xs-10 col-xxs-12\"> \t\t<img decoding=\"async\" src=\"https:\/\/www.rbcwealthmanagement.com\/en-eu\/wp-content\/uploads\/sites\/9\/2021\/12\/green-energy-en-chart-2-in-page.png\" alt=\"Chart - % of U.S. adults who favor each of the following proposals to reduce the effects of climate change\" class=\"img-fluid mb-1-half\" \/> \t\t<div class=\"sr-only\" id=\"ex2description\"> \t\t\t<table class=\"sr-only\"> \t\t\t\t<thead> \t\t\t\t\t<tr> \t\t\t\t\t\t<th scope=\"col\">Carbon reduction policy<\/th> \t\t\t\t\t\t<th scope=\"col\">Percentage of U.S. adults in favor<\/th> \t\t\t\t\t<\/tr> \t\t\t\t<\/thead> \t\t\t\t<tbody> \t\t\t\t\t<tr> \t\t\t\t\t\t<th scope=\"row\">Planting about a trillion trees to absorb carbon emissions<\/td> \t\t\t\t\t\t<td>90%<\/td> \t\t\t\t\t<\/tr> \t\t\t\t\t<tr> \t\t\t\t\t\t<th scope=\"row\">Providing a tax credit to businesses for developing carbon capture\/storage<\/td> \t\t\t\t\t\t<td>84%<\/td> \t\t\t\t\t<\/tr> \t\t\t\t\t<tr> \t\t\t\t\t\t<th scope=\"row\">Tougher restrictions on power plant carbon emissions<\/td> \t\t\t\t\t\t<td>80%<\/td> \t\t\t\t\t<\/tr> \t\t\t\t\t<tr> \t\t\t\t\t\t<th scope=\"row\">Prioritize developing alternative energy sources<\/td> \t\t\t\t\t\t<td>79%<\/td> \t\t\t\t\t<\/tr> \t\t\t\t\t<tr> \t\t\t\t\t\t<th scope=\"row\">Taxing corporations based on their carbon emissions<\/td> \t\t\t\t\t\t<td>73%<\/td> \t\t\t\t\t<\/tr> \t\t\t\t\t<tr> \t\t\t\t\t\t<th scope=\"row\">Tougher fuel efficiency standards for cars<\/td> \t\t\t\t\t\t<td>71%<\/td> \t\t\t\t\t<\/tr> \t\t\t\t<\/tbody> \t\t\t<\/table> \t\t<\/div> \t\t<p class=\"disclaimer\">Source &#8211; Pew Research Center; survey conducted 4\/29\/20\u20135\/5\/20, excludes respondents who gave other responses or did not give an answer<\/p> \t<\/div> <\/div> <p>However, when push comes to shove, at this stage not everyone is willing to pay for it out of their own pockets. A large survey in Switzerland by domestic media outlets recently revealed that most Swiss citizens currently have little-to-no appetite for paying more for heating, fuel, and air travel in order to meaningfully reduce carbon output. The \u201cyellow vest\u201d protests in France, which began in 2018 in part because of opposition to a fuel tax increase, indicate that segments of populations could push back on carbon reduction initiatives if they negatively impact household finances or employment opportunities. <\/p> <h3>Geopolitical questions <\/h3> <p>Will countries that view each other with healthy suspicion or as rivals (or worse) use the green energy transformation as geopolitical and geoeconomic tools of influence, or as a cudgel to ultimately impose punitive economic restrictions, sanctions, or tariffs? The carbon reduction goals embedded in international agreements de facto assume that rival countries will at least loosely coordinate their energy and industrial policies consistently, for many decades. These are laudable objectives, but history argues this will be difficult to achieve. <\/p> <h3>The transition could be bumpy <\/h3> <p>The ongoing energy crisis in Europe and Asia is instructive. While this has a variety of root causes, including the unusual spike in demand for energy and manufactured goods following the COVID-19 shutdowns in 2020, the natural gas and coal price surges in these regions are intertwined with factors related to the energy transition. <\/p> <ul> \t<li><strong>Europe\u2019s growing pains:<\/strong> The shift toward clean energy sources is moving forward more quickly in Europe than in other regions. The UK and EU are now more reliant on renewable power, especially wind\u2014which is the goal\u2014but they do not yet have enough infrastructure in place to provide renewable power consistently and cheaply, especially when the weather doesn\u2019t cooperate, which occurred in 2021. They also don\u2019t have adequate networks of backup energy sources. Natural gas prices surged in the region amid lower-than-expected renewable power output and because of diminished storage levels for the commodity due to cold weather in early 2021. Furthermore, largely for geopolitical reasons, EU structures restricted Russian natural gas from flowing through the newly constructed Nord Stream 2 pipeline to Germany and then on to other European countries. On top of this, liquefied natural gas supplies anticipated from the U.S. were instead shipped to Asia, where they fetched higher prices. <\/li> \t<li><strong>China\u2019s ambitions collide with reality:<\/strong> Coal prices surged in China following increased power demand due to cold weather in early 2021 and because of the spike in goods demand globally, along with restrictions on Australian coal supplies over a geopolitical dispute. Also playing a role were natural disasters in coal mining provinces, a drought in a key hydro power region, and a reduction in the growth of wind power generation due to weather. All of this transpired following a decline in the number of domestic coal mining enterprises by more than one-third during the past six years, as part of the country\u2019s effort to improve air quality and reduce greenhouse gas emissions. To manage through these price and demand challenges, while at the same time attempting to fulfill lower power consumption targets, the Chinese government restricted electricity consumption at factories, and some cities experienced intermittent blackouts. China\u2019s long-range goal is to curtail its use of coal-fired power generation and significantly expand low-carbon nuclear power and renewables capacity, but this infrastructure will take years to build. <\/li> <\/ul> <p>The experiences of China and Europe illustrate that the path toward zero emissions and a clean energy economy won\u2019t necessarily be seamless. We think many countries will face obstacles along the way. <\/p>  <h2>A marathon, not a sprint <\/h2> <p>Despite the challenges and uncertainties, we believe the energy transition could be a boon for companies involved with the multi-industry infrastructure buildout and resource extraction associated with a green, digital economy. Even if the trillions in infrastructure spending forecast by BNEF, Nordhaus, and other experts is only partially met, the scale of change could revolutionize segments of the global economy. We think this will be a major investment theme going forward. <\/p> <p>For the time being, we would focus on opportunities that are likely to find their way to market in the next 5\u201310 years and are not as dependent on substantial, coordinated long-term government subsidies or private sector investments that have yet to be designated or allocated, or may not fully pan out. <\/p> <p>While individual equities of companies involved in the energy transition and exchange-traded funds that group such companies together can be good sources of investment ideas, we recommend investors also consider mutual funds and money managers that specialize in this area. This is a multi-decade marathon, not a sprint. We think portfolio managers who focus on the green energy transition day-in and day-out, keeping abreast of the near- and medium-term opportunities, with the long-term view in mind, could have the upper hand as developments unfold. <\/p>","protected":false},"excerpt":{"rendered":"<p>The transition could represent a grand economic realignment, but investors shouldn\u2019t lose sight of what it\u2019s going to take to get from here to there.<\/p>\n","protected":false},"author":0,"featured_media":8613,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"rbcwm_post_date":"2021-12-01 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