In the global effort to combat climate change, net-zero targets have become the new normal across the public and private sectors. 140 countries have announced or are considering net-zero targets, while about a third of the largest 2,000 publicly traded companies worldwide have committed to net-zero emissions.^1,2 Funding commitments, such as the USD 369 billion earmarked for accelerating climate solutions in the U.S. Inflation Reduction Act³ and the EUR 210 billion in financing toward clean energy, energy efficiency and diversification in the European Union’s REpowerEU plan,⁴ have followed. Attention is now shifting toward the technology and innovations that can enable rapid decarbonization of economies in the coming decades.

Over the last 20 years, public and private investments in decarbonization solutions have largely focused on developing and scaling renewable energy sources – essentially, investing in wind and solar power – to increase the global supply of clean energy.

However, most of the decarbonization during this period was actually achieved by avoiding or reducing emissions through improvements in efficiency – finding various ways to use less energy. Efficiency solutions are a critical part of decarbonization, especially for the highest-emitting industries. Over 80% of Scope 1 and Scope 2 global greenhouse gas (GHG) emissions come from four heavy industries: Industrials and Manufacturing, Food and Agriculture, Real Estate and Built Environment and Transportation and Supply Chain.⁵ The real estate sector is an especially ripe target for improving energy efficiency: as one of the largest asset classes in the world, contributes roughly 18% of total GHG emissions.⁶ Yet progress toward greening the sector has been slow due to a number of factors including limited technological advancements and economic incentives.

Percent of global greenhouse gas emissions, CO₂ equivalent tons

Chart 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. Emission data is as of 2016. Transportation and Supply chain is as defined in the Appendix at the end of the presentation. Note: Unless otherwise noted, J.P. Morgan Asset Management, as of April 2022. These examples are included solely to illustrate the investment process and strategies which have been utilized by the manager. It should not be assumed that investments in the portfolio including the examples above have been profitable. Please note that these investments are not necessarily representative of future investments that the manager will make. There can be no guarantee of future success.

An estimated USD 1.8 trillion in investment is needed annually⁷ to decarbonize these high-emitting industries through resource efficiency and climate adaptation, but just USD 300 billion was spent in 2020,⁸ meaning significant future investment is needed. As most efficiency advancements have originated with large incumbent companies making incremental improvements on their products, we see high potential for outside technological innovators to disrupt legacy processes.

In our view, now is the time to vigorously invest in technology that can ignite innovation in energy efficiency to reduce resource use and emissions. And we believe data could be the spark.

Data-driven innovation

We’ve seen the power of data to transform an industry before. In the 1990s, the volume and accessibility of telephony data exploded, catalyzing a digitized mobile communications industry dominated by data transmission and creating an entire ecosystem of new companies, ranging from mobile service providers to app developers.

More recently, we have witnessed the importance of data in catalyzing the fintech revolution. Only when the earliest fintech innovators had greater visibility into consumers’ financial needs, via high fidelity data with consumers’ bank accounts and credit profiles, could they create the infrastructure that would unleash a wave of fintech innovation to better serve consumers with higher value products and services. Today, 88% of U.S. consumers use fintech apps and services, which has created multi-billions of market capitalization.⁹

This signals the potential for energy data. Similar to consumer financial information, data on energy usage has always existed, but not in a useful and easily accessible format. The significant majority of energy consumers need some combination of new hardware or software solutions to access it in a way that can enable further uses or benefits. Continuous, accurate and granular energy usage data could help innovators provide critical information to enable homeowners and businesses to make smarter, more efficient and greener choices.

This technological innovation is beginning to happen. One example is a software company that has created a digital energy usage platform. Arcadia's Arc platform incorporates data from over 95% of all available electricity rates in North America, 16,000 rate plans and 9,500 utilities globally across electricity, water, gas and waste. Arc also features access to an unparalleled data set on rates and tariffs, maintaining current electricity market and hourly retail pricing, including 15,000 tariff rate updates every month.¹⁰

Application programming interfaces (APIs) on the Arc platform take this wealth of data and make it useful; for example, users can model and forecast costs for different tariffs and usage needs; calculate forecasted and actual electricity costs and savings for solar power and storage; and break out costs for large-use charging sessions.

Data drives innovation and technology adoption

Chart source: “Internet/Broadband Fact Sheet.” Pew Research Center.

As consumers and companies gain access to this data, it is catalyzing use cases while fueling demand and development of new products and services related to energy optimization. We see several broad use cases – ranging from consumer cost savings and grid optimization to corporate carbon emissions accounting – and expect many more to evolve over time along with continued innovation.

Converting energy saving to cost savings

As energy prices rise and electric vehicle (EV) ownership increases, consumers and businesses may be more focused than ever before on optimizing their energy use. Better data on energy costs and sources can help consumers optimize their energy use to times when it is cheaper and greener. For example, EV owners may be able to save 25% to 30% on their electricity costs switching to the best rate plan and optimizing their home charging.¹⁰ EV automakers have been quick to understand the importance of energy usage data and have already begun to integrate it into their customer service efforts. Ford has partnered with Arcadia to provide support to EV owners, especially for the home-charging experience, and other major auto companies have followed.

But energy cost savings are just the beginning. The benefits of actionable energy data for consumers and communities scale further if EVs, smart devices and systems are enabled for communications with the power grid.

A smarter, democratized grid

The integration of smart appliances and equipment into a “smart grid” could allow utilities to serve new customer segments, provide flexibility to residential customers and facilitate the monetization of appliances and EVs. Going back to the EV example, a mid-sized 100 kWh EV can power the average U.S. home for three days,¹¹ meaning EV owners in sophisticated utility markets could sell energy back to the grid.

In addition to the continued market adoption of smart devices, we anticipate a significant amount of real estate will be upgraded and retrofitted to connect with distributed energy resources (DERs), which has been accelerated by the Inflation Reduction Act. Like EVs, grid enablement of DERs position grid customers’ assets to become resources; homes, offices and other buildings can become mini power plants. This connectivity and the ability to leverage energy usage data could provide resiliency, curtailment and arbitrage opportunities that can benefit both utilities and customers.

California’s success in avoiding a blackout during the September 2022 heatwave is a prime example of collective action to reduce demand. While in this case the effort was dependent on energy consumers responding voluntarily to text messages from the government, in the future the entire process could be automated as smart devices receive a direct signal to dynamically cut or reduce the amount of power they pull from the grid.

Enhancing emissions reporting and carbon accounting

Beyond enabling immediate energy savings and further energy innovation, reliable, real-time energy data will play an important role in helping companies measure and calculate Scope 1 and Scope 2 emissions. Currently, businesses commonly work off of assumptions about the emissions of their real estate. Individual companies, property developers and carbon accounting firms all have the potential to access this newly available data, allowing them to monitor, report and act on true carbon emissions, and take informed action toward achieving their climate commitments.

Greening sectors of the economy that have been slower and more challenging to decarbonize will be critical to achieving net-zero emissions. We believe that more granular, high quality data on energy usage is the spark that can catalyze innovation focused on developing energy efficiency solutions from the home to the grid. Enabled by solutions that are powered by energy data, consumers and businesses will have the potential to save money while helping conserve natural resources. Smart energy usage data can help the highest-emitting sectors take a “byte” out of their greenhouse gas emissions.

¹ Climate Action Tracker, as of September 2022.
² Net Zero Tracker, as of June 2022.
³ “Inflation Reduction Act.” Senate Democrats.
⁴ "REPowerEU: affordable, secure and sustainable energy for Europe". European Commission.
⁵ 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. Emissions data is as of 2016.
⁶ Climate Finance Markets and Real Economy, December 2020. Represents annual global investment required for resource efficiency and resiliency, excluding investments in renewables and conventional energy infrastructure
^{7Climate 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. Emission data is as of 2016.
8}  Climate Policy Initiative, Global Landscape of Climate Finance 2021. Represents 2020 spend on resource efficiency and resiliency, excluding investments in renewables and conventional energy infrastructure.
⁹ ”The Fintech Effect: Fintech’s Mass Adoption Moment.” Plaid.
¹⁰ “ARC.” Arcadia.
¹¹ “How much Electricity does an American Home use.” U.S. Energy Information Administration
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