In today’s Money Morning…if there’s one thing the US and China see eye to eye on…COP26 is sending investors a clear message…this is the chance to invest in a decades-long megatrend…and more…
Dear Reader,
Well, COP26 — the United Nations Climate Change Conference — is over.
After a few hiccups and going into overtime, almost 200 countries ended up signing the Glasgow Climate Pact.
While some are saying the whole thing was a flop, the pact is still significant.
Not only is this the first COP text to mention fossil fuels, but it also commits those nations signing it to phase down coal and stop inefficient fossil fuel subsidies.
What’s more, the deal confirms the goal from the Paris Agreement to keep global average temperatures from rising more than two degrees in the next decades and ‘pursue efforts to limit’ the rise to 1.5 degrees. It recognises that this will need ‘accelerated action in this critical decade.’
This means pushing countries to be more ambitious, like asking them to come next year with updated plans instead of waiting five years as per the Paris Agreement.
The conference also included deals to cut methane emissions, stop deforestation by 2030, and a framework for carbon offset markets.
And with both Nigeria (by 2060) and India (by 2070) declaring a net-zero target, it means that all in all countries making up 90% of the world’s GDP already have a net-zero target.
But one of the main standouts of the conference was a surprise announcement.
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If there’s one thing the US and China see eye to eye on…
To say the US and China have been at odds for quite some time is an understatement. There’s been tensions in every area you can think of: technology, trade, cybersecurity, you name it.
That’s why the announcement — made in the last days of COP26 — that the US and China would be collaborating in climate was such a shocker.
And also, because…well, both countries started the conference by taking swipes at each other.
The US took a jab at China for Xi Jinping not coming to the summit, while China threw a cross by saying the US leaving the Paris Agreement under Donald Trump had slowed the fight against climate change.
Anyway, they left all that behind and stepped in to say that both countries will be working together to tackle methane along with cutting emissions in transport and energy this decade.
As they mentioned in their US-China Joint Glasgow Declaration of Climate Action in the 2020s (emphasis added):
‘The United States and China, alarmed by reports including the Working Group I Contribution to the IPCC Sixth Assessment Report released on August 9th, 2021, further recognize the seriousness and urgency of the climate crisis.
‘Moving forward, the United States and China welcome the significant efforts being made around the world to address the climate crisis. They nevertheless recognize that there remains a significant gap between such efforts, including their aggregate effect, and those that need to be taken to achieve the goals of the Paris Agreement. The two sides stress the vital importance of closing that gap as soon as possible, particularly through stepped-up efforts. They declare their intention to work individually, jointly, and with other countries during this decisive decade, in accordance with different national circumstances, to strengthen and accelerate climate action and cooperation aimed at closing the gap, including accelerating the green and low-carbon transition and climate technology innovation.’
The fact that the two largest economies in the world, who are also the two largest emitters, have agreed to collaborate on climate is huge.
COP26 is sending investors a clear message
COP26 is a clear signal that the world is moving towards a net-zero future.
While, let’s be clear, it won’t happen overnight, this means a shift out of fossil fuels.
I mean, even AGL admits it.
‘In general, it’s a clear sign the energy industry, in particular the carbon-heavy industry, has to go,’ said AGL’s Chief Operating Officer, Markus Brokhof, during this week’s UBS Australasia conference.
But it’s also a future with plenty of opportunity.
In their latest New Energy Outlook 2021 (NEO), BloombergNEF estimates that to get to net-zero carbon emissions by 2050, we will need as much as US$173 trillion in investments to go into the energy transition.
Let me spell that out: That’s US$173,000,000,000,000. A lot of zeroes…and a lot of money.
And just to give you an idea of what that means, let’s first take a look at the First Trust NASDAQ Clean Edge Energy Index [QCLN], which tracks US-listed companies involved in the energy transition.
In December 2020, the US passed a US$900 billion pandemic relief bill that included US$35 billion for renewable energy. In the next few weeks, the index jumped close to 30%. And it’s gained 27% since the beginning of October in anticipation of and through COP26.
And EV charging stocks have also had a great week after Biden’s infrastructure bill — which includes US$7.5 billion to build an EV charging network — was signed into law.
For example, Blink Charging Co [NASDAQ:BLNK] is up more than 30% in the last week after also announcing results, and ChargePoint Holdings [NYSE:CHPT] is up around 8% in the same time frame.
This is the chance to invest in a decades-long megatrend, one that’s accelerating.
Best,
 |
Selva Freigedo,
For Money Morning
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