Achieving net zero carbon emissions will be no easy feat. It will require major innovation and investment. Therefore, it presents incredibly lucrative opportunities for the companies and countries that succeed.
Listen to On the Minds of Investors
Last week, world leaders convened at the Leaders Summit on Climate, hosted on Earth Day, to build momentum and commitment around efforts to reduce greenhouse gas (GHG) emissions that warm the atmosphere. Many countries strengthened or reaffirmed their “nationally determined contributions” (NDCs) under the Paris Agreement, and the U.S. raised its emissions target to a 50-52% reduction below 2005 levels in 2030. Although the ambition is welcome, as we discuss in our paper Achieving net zero: The path to a carbon-neutral world, implementation is a daunting task.
First, it is important to understand the size and scope of the issue to tackle it effectively. The world emits 50 billion tons of greenhouse gases annually. Emissions are accelerating from emerging markets as they industrialize, and China is the world’s largest emitter. Although emissions are slowing from the developed world, the U.S. is still the largest emitter per capita. As shown in the chart below, the highest emitting sectors are energy usage, buildings, transport, and agriculture, where we need to target our efforts. This will require a combination of three strategies:
- Energy generation and electrification – Transitioning from coal and other fossil fuels to renewables, like solar and wind power, is essential. This also requires investing in the ecosystem around renewables – notably storage, transportation, and the power grid. Light vehicles account for 59% of GHG emissions from U.S. transportation, so traction in electric vehicles could drive significant progress.
- Efficiency – Reducing waste is critical. This can be done through upgrading buildings and appliances, developing precision agriculture, and reducing food waste.
- Emission offsets – We cannot eliminate emissions entirely, so we must find mechanisms to offset emissions, like reforestation, conservation, and carbon capture.
Achieving net zero carbon emissions will be no easy feat. It will require major innovation and investment. Therefore, it presents incredibly lucrative opportunities for the companies and countries that succeed. In fact, there are significant economic and strategic benefits to being the leader in these new industries, which in turn, can create powerful opportunities for growth in portfolios.
Note: In a three-part series of posts, we will explore the path to achieving net zero carbon emissions and the investment implications and opportunities that arise from it.
Share of global greenhouse gas emissions by sector
% of global greenhouse gas emissions (2016), CO2 equivalent tons
Source: Climate Watch, Our World in Data, World Resource Institute, J.P. Morgan Asset Management. Greenhouse gas emissions include CO2, methane, nitrous oxide and fluorinated greenhouse gases. CO2 equivalent tons standardize emissions to allow for comparison between gases. One equivalent ton has the same warming effect as one ton of CO2 over 100 years. Data as of March 31, 2021.