by Pierluigi Lonero, PhD, Buy-Side Equity analyst
and Ophélie Mortier, Responsible Investment Strategist at DPAM


COP26 is spearheading the race to net zero emissions. Though this goal is clearly laudable, sceptics wonder whether it is even achievable. Costs estimates put the price for the transition at USD 150 trillion over 30 years (i.e. two times the current global GDP1).

Cost is one thing, but to ensure a successful green transformation, we will also have to invest these funds in the right areas. Technology will undoubtedly play a major role in the transition, but some environmental projects are still in an embryonic phase or remain largely untested on a global scale.

Let’s look at the most promising options to limit carbon emissions and tackle climate change to achieve net zero by 2050. One thing is clear: COP26 has its work cut out.


We are running out of time to address climate change. Alarmingly, we are also behind schedule on Net Zero 2050 ambitions. The reasons for our sluggish wake-up to the urgency of the climate crisis are plentiful, but the slow roll-out of renewables is a definitely big contributing factor.

Indeed, the execution of greenfield projects on renewables take far too much time due to bureaucratic complexities. Countless permits, papers and checks can turn any renewable project into a cumbersome nightmare. As an example, the Italian Minister for Ecological Transition highlighted his ambition to limit the time to execute a renewable project from an average of 1200 days to 200. Meanwhile, the French government’s indecision over who should be responsible for delivering construction permits previously brought all wind energy projects to a complete standstill. Clearly, such governmental inefficiencies will need to be ironed out before we can fully commit to a sustainable revolution.

In addition, we should not forget that absolute consumption has only increased in the past decades and will likely continue to do so if left unchecked. Companies will have to move from a reliance on volume to a more value-based strategy, and consumers will have to cut out unnecessary consumption. This requires a full paradigm shift and such a reformulated concept of “growth” will produce significant ripple effect across our current resource-intensive markets. In concrete terms, energy, transport, manufacturing, construction, agricultural and food-system resource footprints must be addressed.

Improved bureaucracy and a dramatic drop in consumption will undoubtedly have a positive, albeit indirect, effect on carbon emissions. However, we also need to consider ways to directly address the carbon issue and tackle it at the source.


There are three direct approaches to achieve carbon neutrality: reducing (fossil-based) energy consumption (1), limiting emissions by selecting greener sources transportation (2) and increasing carbon capture and storage programs (3). To achieve the “net zero” target, climate change should be redefined as purposeful investment, and markets should shift to green, investment-led growth.

To effectively reform our fossil-based energy industry, renewables immediately come to mind as a viable alternative. Power generation is responsible for 25% of global carbon emissions; coal, oil and gas represent more than two-thirds of electricity generation. Even though renewables went from 25% of global power generation capacity in 2000 to 37% in 2019, these numbers are still a far cry from the goal of 80% by 2050. Obviously, additional efforts are still required. Hydro and wind energy have already been deployed on a large-scale. Solar could be the next renewable energy source to receive additional focus. This energy source has benefited from substantial cost reductions over the last decade, possibly making it the cheapest source of energy. Another renewable alternative is hydrogen. The refinement process for hydrogen has experienced significant improvements of late. We have switched from grey hydrogen (produced from fossil fuels), to green hydrogen (use of renewable energy to power the process of water electrolysis) or blue hydrogen (separation of the hydrogen from methane with carbon capture and storage). Several multinationals in the industrial, mobile and heating sectors are particularly enthusiastic about hydrogen’s potential. TotalEnergies, Air Liquide and Vinci recently launched a USD 1.5 billion Hydrogen Infrastructure fund. They hope to accelerate the growth of the clean hydrogen ecosystem by investing in large strategic projects and capitalising on an alliance of industrial and financial players. There are also some promising applications for the airline industry. Beyond airplanes, hydrogen has a diverse range of use cases: it is well-suited as a seasonal storage solution in power systems, as it is ideal for the long-term storage of big quantities of energy. In addition, it can contribute to the decarbonisation of buildings (e.g. heat pump installations, electrification of heating). It can also serve as clean fuel for transport (compressed-hydrogen tanks in vehicles using a fuel cell to convert the energy stored in the hydrogen to electrical power). Finally, hard-to-decarbonise industries, like the steel, cement for fertiliser sectors, can use it as feedstock. Regardless of its potential, the large-scale development of hydrogen unfortunately suffers from a lack of interest and from the comparatively low cost of other renewables. On a brighter note, green hydrogen production is expected to reach the same price point as blue and grey hydrogen by 2030 in the USA, at a cost of $1,07-1,28/kg2.

Our second tool in the fight against carbon emissions is the selection of greener sources of transportation. Electric vehicles (EVs) are the most-commonly cited solution to this problem. European electric vehicle sales should experience a high level of penetration in the near future. Chinese growth is also significant, mainly backed by regulation. India has taken some measures to promote EV penetration as well. Even with these promising prospects, there are still several issues to tackle for this to become a fully viable contributor to our net-zero goals. The biggest challenge remains the battery manufacturing process, the origin of the power to fuel these batteries and the size of vehicles. In addition, there is a real risk of resource scarcity. Nickel and lithium, both key elements in EV batteries, are already expected to run out by 2024. Recycling solutions and life-cycle products are essential to guide us to a successful electrification of mobility. However, EVs are not the only solution to revolutionise the transport industry. Biofuel is another option to help us replace diesel and gasoline in industries like aviation. Indeed, biofuels can play an important role in the future energy mix. They can be produced from food crops (1st generation), but this is largely unsustainable due to the impact on land and water usage. Biofuels can also originate from non-food feedstocks such as waste, wood, animal fats, etc. (2nd generation). Finally, they can also be manufactured from algae (3rd generation). Still, like hydrogen, the use of biofuel is still limited. However, it is expected to increase to 4% of global transportation fuels by 20303.

The third and final point is carbon capture and storage (CSS) . Although somewhat controversial, CCS remains the only way to capture emissions associated with hard-to-decarbonise industries like steel, cement and chemicals. If we want to stay under a 2°C increase in temperature, estimates for the requirements in terms of investments vary, but can range up to USD 2,5 trillion by 2050. Currently, carbon capture and storage programs are limited, with a slow rate of implementation. This has led some to advocate for carbon pricing instead. The question of cross-border taxes and the potential for a global carbon market will become ever more relevant.

In order to properly execute and manage the transition to a zero-carbon economy, we need to align the interests of three key parties: governments, companies, and end-users. In the long-term, decarbonisation should be deflationary for consumers. However, during the transition, costs may go up, as will volatility spikes (the recent spikes in electricity prices are an appropriate case in point). It is unlikely that consumers are willing or prepared to pay a significant premium for “green solutions”, so governments need to step in to facilitate the transition. This should ease the growing pains for corporates, and/or consumers. The car industry is currently leading the way, with clear path to transition to EVs, thanks to government-incentives that make the “green option” less or as expensive for final client. This helps companies to step up their investments to transition. Utilities will have to find a way to avoid electricity price hikes in the medium terms, before our societies have properly transitioned to a fully renewables-based economy. Finally, carbon prices also need to be significantly higher to further encourage the decarbonisation in energy-intensive sectors. In conclusion, it is still possible to carve out a sustainable path forward. However, we will have to juggle many different factors in an efficient and timely manner to ensure an effective transition towards a carbon-neutral future. Admittedly, it is a sizeable to-do list. Let’s see if COP26 can put these points into practice.

1Source: BoFa
2Source: Morgan Stanley
3Source: Decarbonisation: The race to net zero, Morgan Stanley Research (October 21, 2019)


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