There are too many important topics to choose from today and we will cover many of these in our ESG and Climate report tomorrow. Here we focus on the IEA report published this week, which shows a path to net-zero on a global scale and looks at both the fossil fuel consuming sectors and the rate at which each must change (they are different by sector) and what fuel alternatives will be needed to replace them. Our review of the work would suggest the following:
- We believe that the IEA has the direction of travel right, in that it has correctly identified what can happen more quickly and what will take more time – the Industrial piece is the hardest to solve in our view also as new technology development is required – one of the reasons why we believe that the industrial sector, including LNG, need to embrace CCS for decades. Governments around the World (as opposed to just a few select countries) need to recognize this and make it an easier decision for industry participants.
- The IEA’s call for renewable power investment rates is in line with the decarbonization goals but they fail to take into account the likely rate-limiting effect of materials inflation. This will be the central topic of tomorrow’s report – and while we will focus on the inflation in the materials critical for the development of the infrastructure implied in IEA forecasts, we would encourage you to read the linked article from an old colleague – Stephen King – on inflation in general. Stephen has the advantage (like one C-MACC partner) of being old enough to remember the last period of hyperinflation in the developed world, and how painful it was.
- We have focused in recent reports on how the ESG crowd may make things worse for the renewable energy industry, by putting critical raw material suppliers in the penalty box, and either starving the industries of capital or dramatically increasing their cost of capital – some intervention is needed here also.
Source: IEA Net Zero by 2050 – A Roadmap for the Global Energy Sector, May 2021
Overall, the IEA report is worth a read, but it should be read by World leaders, who need to step in with a coordinated plan to support the enabling industries or inflation will spoil the party.
For more on this see today's daily report.