Randeep Somel, Fund Manager, M&G Climate Solutions Fund, is finding reasons to be cheerful as he uncovers some of the powerful drivers of change which are set to influence climate solutions in the months and years ahead
In what has been a very volatile start to the decade in humanitarian, economic and political terms, let’s take a look at the long-term challenge of climate change to understand how it is progressing and how it may have been impacted by recent events.
Will the collapse in fossil fuel prices destroy the economic case for renewable energy?
Subsidies for renewable power have been in the process of being phased out for some time. This is a positive step not a negative one. As scale has increased and the industry’s journey along the learning curve has continued, solar and wind are able to compete without external support. The cost of solar is a tenth of what it was a decade ago, both solar and onshore wind are now cheaper alternatives to natural gas, despite commodity price falls.
Source: Lazard Levelized Cost of Energy Analysis, Version 13.0. OurWorldinData.Org, December 2020.
Climate solutions…more than just renewables?
Over 50% of global CO2 emissions are caused by power generation, therefore it remains a critical part of reducing CO2 emissions. Yet, renewable energy alone will not be able to solve this issue, other areas of emissions will need to be scrutinised and solutions found.
Promoting the use of sustainable timber will also encourage the wider adoption of sustainable forestry, which addresses the release of CO2 in the industry. Companies such as US listed Weyerhaeuser, which operate over 25m acres of sustainable forests in North America will play a vital part.
Buildings are one of the biggest consumers of energy, improved technology enables them to be more efficient today. For example, a company such as Danish-listed ROCKWOOL International provides stone wool insulation for new builds and for retrofit. It enables a vast reduction in energy consumption of a building and helps reduce the amount of power generation needed. It will play a crucial part in addressing the climate challenge.
The circular economy will have a significant role to play in reducing emissions. We need to increase ‘re-use, reduce and recycling’ in order to stop products going to landfill at the end of their usefulness and reduce the level of pure product required for new products. This will have a major impact as up to 45% of non-energy greenhouse gases could be addressed by these measures according to some estimates.*
An example is US-listed decking producer Trex, which makes outdoor decking from recycled plastic. It has shown itself to be a higher-quality, more durable and lower-emission alternative to traditional timber decking.