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Investors moving faster than politicians in energy transition

May 11, 2021

FN Arena:

April’s Climate Summit appeared to give more air to the sceptics than the true believers; a notable lack of specificity leaving investors none the wiser.

China and India played their cards close to their chests; the US target appears unachievable without a methane commitment; and Australia’s commitments partly translated to subsidies for fossil fuel industries.

While the public message was steady as she goes, politics was the name of the game.

Despite solar being a cheaper option, particularly for developing countries, many are holding out for Paris Climate Accord pledges to mobilise US$100bn a year in public and private financing to aid the effort, says The Wall Street Journal.

So, while India was probably the biggest puzzle given it did not alter its carbon emissions policy (under which emissions are forecast to rise 50% by 2040), much of this bluster is part of the bargaining process.

While Morgan Stanley estimates that CCS will become a US$2.5trn market by 2050, the Institute for Energy Economics and Financial Analysis (IEEFA) does not expect the power sector will need CCS, which will only be achievable through massive subsidies.

IEEFA has also repeatedly highlighted the lack of viability of carbon capture & storage technology, suggesting that CCS subsidies are shaping up as a disguised fossil fuel subsidy. 

This suggests CCS is more of a fossil fuel play than an ESG play – for the time being at least – and not likely to yield the long-term sustainability premium for investors, short of quantum leaps in CCS technology over the next five years. 

[Sarah Mills]

More: ESG Focus: Climate Summit’s Coal Story

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