The UK has announced a new commitment to cut net greenhouse gas emissions to zero by 2050. This extends the previous commitment for an 80% reduction from 1990 levels by 2050 and makes the UK the first G7 country to target zero net emissions.
The move positions the UK as a relative leader in the effort to address climate change, but it is part of an ongoing global trend to reduce carbon emissions. The 2015 UN Climate Change Conference (COP21) held in Paris has widely been seen as a "turning point" toward a manageable future. It resulted in 195 nations agreeing to the first-ever legally binding and universal climate deal.
We see a number of ways in which investors can support and benefit from the drive to reduce emissions, including:
1) Renewables. Political support initially boosted the attraction of renewables, but technological progress in recent years has also dramatically improved the economics. With falling costs and improving efficiency, solar and wind are now cost-competitive with fossil fuels. In some markets, they are already the cheapest way of producing electricity. We think the renewables theme has great potential, particularly for project developers and wind turbine manufacturers.
2) Smart mobility. Regulatory changes and technological advances will lead to greater electrification of cars, autonomous driving and new car-sharing mobility concepts. This will reshape the way we experience and use individual mobility. By 2025, we believe the annual addressable smart mobility market will be around USD 400bn, or eight to nine times today's size. We see opportunities in electronics and electric components related to electrification and autonomous driving.
3) Energy efficiency. Buildings offer great potential for reducing energy consumption; the buildings segment currently accounts for 40% of energy demand and emits 30% of CO 2 emissions according to the IEA. Based on various forecasts, the amount of energy consumed in buildings could be reduced by 30–50% through energy efficiency in the next decades. From an investment perspective, the range of companies active in this field is broad. Over the next five to 10 years, we expect growth rates of 5–7% a year depending on the segment, with the highest growth in building automation (7%).
Investors can learn more in our "Renewables," "Smart mobility" and "Energy efficiency" reports, which are part of ourLonger Term Investments series.