Vincent Juvyns, global market strategist at JP Morgan Asset Management, analyses strategies towards achieving net zero by 2050.
Global policymakers have long debated how to address climate change collectively, but neither the Kyoto protocol signed in 1997, nor the Paris Climate Agreement, signed in 2015, have led to the agreed reduction of greenhouse gas emissions.
Today, achieving net zero emissions by 2050 has become the new benchmark among policymakers. And while this ambition is welcome, its implementation will require major changes in our energy mix, given 73% of global emissions stem from the energy sector itself. The good news is that several options have already been identified to help achieve this goal.
From coal to clean
To reach net zero emissions, the share of oil, coal and gas in the global energy mix would need to decline from 85% today to around 20% by 2050, according to the BP Energy Outlook 2050 published last year. Coal would have to be almost eliminated as an energy source, as it creates more CO₂ per unit of energy than any other fossil fuel source. While there is broad agreement that coal needs to be wound down as soon as possible, major infrastructure upgrades will be required to increase production and enable the storage and transfer of clean energy worldwide.
Going electric
The large-scale electrification of existing industries is the next step. We have already seen the rise of electric vehicles, for example. For some industries, however, full electrification may not be feasible. Here, low-carbon biofuels and hydrogen power will likely form part of the solution.
Improve efficiency
Improvements in energy efficiency to reduce the overall level of energy demand will also be an important part of reducing emissions. The recent expansion of LED lightbulb usage in India is a good example of this. In terms of scale and duration, this high-impact change in India generated a year’s worth of energy that powered the equivalent of Denmark.
Offset emissions
On the basis that emissions cannot be fully eliminated by 2050, offsets will be required if net zero targets are to be reached. Natural habitats, such as forests and peatlands, are the most effective carbon sinks, yet they are disappearing rapidly. In this context, huge investment will be required in technology-based emission offset strategies, like the carbon capture, utilisation and storage.
These different options all present promising solutions to address climate change but require major investments. Plus, any return on investment may not be immediate or financially measurable.
And while we believe the drive for change needs to come from governments, the private sector will also play a key role, both in terms of research & development and financing of public-private partnerships.
This shift to a lower carbon world will create many opportunities to invest in sectors that need to reinvent themselves to reduce their carbon footprint. Investors, therefore, have an important role to play in the fight against climate change.
*Vincent Juvyns is global market strategist at JP Morgan Asset Management.
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