From the archive. First published on 19 May 2022 on weprivate.com.au. It reflects markets, rules and our views at that time and has not been updated. Figures quoted are from sources available at that time.

With Australian businesses devoting more time and money to cutting their carbon footprint, and investors ready to back them, some pivotal developments are already making waves on the investment horizon.

Andre Dirckze says decarbonisation is set to dominate the commercial landscape in coming years. That may threaten some sectors, but the scale of the transition already underway will create substantial opportunities for others.

According to the International Energy Agency (IEA), an estimated US$50 trillion is set to be invested to reach net zero emissions by 2050, implying incremental investment of US$1 to 2 trillion a year.

“Achieving net zero will require a combination of carbon pricing, changes in consumption, and new technology, and businesses are already preparing. For companies with the capability to disrupt, particularly those already climate-conscious, the investment required to reach net zero could represent significant revenue opportunities,” he says.

Why clean energy counts

The transition to clean energy has well and truly begun. Even without government mandates, the economics of solar, wind and batteries are already displacing fossil fuels.

“There’s still a long way to go, but that’s exciting for companies in the space and for consumers, who can look forward to lower prices over time,” Andre says.

The IEA assumes solar generation will grow 16% a year over the next 20 years, reaching 30% of total generation by 2040. “The market has consistently been too conservative on renewable energy growth. With the cost of solar generation already down 80% since 2009, we think the potential for renewables to overtake other sources is underestimated.”

Transport’s tipping point

Electric vehicles marked the first phase of transport disruption and are now at a tipping point. Historically, take-up of new technologies accelerates sharply once adoption passes 10%. Colour TV, the internet and mobile phones all went from 10% to 50% of US households in under 10 years. If electric vehicles follow a similar path, demand could surge as costs fall, with the main constraint being the supply of key components and materials.

“The second phase, a little further out, will be autonomous vehicles reshaping urban commuting. Moving much of the transport system to electric and ‘transport as a service’ should improve resource use dramatically, potentially reducing energy demand by as much as 80% and sector emissions by over 90%.”

The food production revolution

A process known as precision fermentation is set to transform food and agriculture, with major environmental benefits.

“Precision fermentation programs micro-organisms to create organic compounds including protein, fat, carbohydrates and vitamins. Natural foods can be replicated in a relatively simple process, with fewer safety risks and much less environmental impact.”

Andre says the technology is groundbreaking and opens up enormous possibilities. “Milk and ground beef look most vulnerable to widespread adoption, which could dramatically change the economics of cattle production. The social and political impacts are significant and will need to be considered as the technology evolves and costs fall.”

These are just three areas to watch. We’ll keep looking for opportunities across the investment universe as they emerge.

Source: International Energy Agency, Net Zero by 2050: A Roadmap for the Global Energy Sector, May 2021.

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