Zero Emissions Day: Where investors can help bridge the gap

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• Zero Emissions Day falls on 21 September and marks an annual call for a one-day moratorium on the combustion of fossil fuels
• Sectors emitting some of the highest levels of greenhouse gases are making progress with new technologies designed to reduce emissions
• As we move towards achieving net zero, investors are being presented with a greater amount of innovative long-term opportunities

The annual call for a one-day moratorium on the combustion of fossil fuels – Zero Emissions Day – falls on 21 September this year.

As the world stands right now, this is an impossible aspiration, but still acts as a timely reminder of the challenges we face in the transition to net zero.  

The COVID-19 pandemic resulted in a 5.4% decline in global carbon dioxide (CO₂) emissions in 2020, but the respite was short lived. From record droughts in Europe to devastating floods in Pakistan, the extreme climate events we experienced this summer demonstrate the pressing need for action against global warming.¹

Even with the unprecedented scale of government engagement in the net zero transition, analysis shows that just nine countries are “almost sufficient” in terms of aligning with the goals of the Paris Agreement to keep temperature rises to well below 2°C more than pre-industrial levels, and ideally not above 1.5°C.²

Rising greenhouse gas emissions, the main cause of global warming, are a result of human activities. If action isn’t taken, the situation will only get worse. The United Nations has warned us that to “avert the worst impacts of climate change and preserve a liveable planet” the global temperature needs to be limited to the Paris Agreement’s more ambitious target.³

But there are reasons for optimism. Across the sectors which emit the most greenhouse gases – industry, energy, agriculture, and transport – there have been some promising developments. Below, we look at some of the strides being made.

Industry

Industrial processes contribute around 30% of greenhouse gas (GHG) emissions as well as 40% of global energy consumption.⁴  But progress so far has shown the challenge is not insurmountable.

Semiconductors are one example – they can help make industrial production more energy efficient, for instance factories using sensors to better manage the power they use. While the industry itself is a contributor to GHG emissions, the level is falling – and the widespread use of the chips across a myriad of sectors underlines its role in the low-carbon-transition.⁵

Carbon capture, usage, and storage (CCUS) may be another promising area – designed to reduce CO₂ emissions from industrial processes, particularly when such emissions are difficult to avoid. CCUS projects can either recycle or store captured CO₂ – and importantly, can be retrofitted within existing industrial plants to remove up to 99% of emissions from production activities.⁶

In August, China’s Sinopec began operations of its largest CCUS facility, with expectations to remove 10.7 million tonnes of CO₂ in the next 15 years; meanwhile in the US, the Senate passed a new $369bn bill which should give a huge boost to the carbon capture industry.^{7  8} The UK government is also in the process of issuing licences for companies to capture, transport and store C0₂ in depleted gas fields under the North Sea.⁹

Energy

Heat and electricity production are responsible for 31% of global GHG emissions.¹⁰ However, when linked to the sectors that consume the power produced, then the energy sector can be said to represent more than three-quarters of emissions.¹¹

Therefore, it’s not surprising that carbon-neutral technologies and sustainable energy alternatives have already received huge amounts of investment as well as the backing of government policy.

The Ukraine war prompted an unprecedented energy crisis, and interest in renewable energy has soared. The International Energy Agency predicts a further 8% increase in renewable capacity by the end of 2022, on top of the 300% growth we have already witnessed in renewable energy generation in the last 10 years.^{12  13}

Though solar and wind facilities have witnessed the most growth, both are limited by their reliance on environmental conditions, leaving a gap for innovation in the sector but emerging smart tech and smart grids – as a means of optimising energy already produced – are areas to watch. 

Efforts to decarbonise the energy industry have also brought attention to alternatives such as green hydrogen – with the capacity to meet as much as 24% of future energy demands.¹⁴ Though still scratching the surface of its potential, the hydrogen industry has already received widespread support from governments around the world, including the US, China and Japan as well as the European Commission.¹⁵ And, as the world prepares for energy price hikes, the benefits of a more sustainable energy sector will become apparent.

Agriculture

The food system accounts for around one quarter of GHG emissions,¹⁶ as well as 40% of anthropogenic methane production.¹⁷

We’ve already seen many innovative processes and technologies to curb emissions emerge. For example, a feed additive that can reduce the amount of methane produced by beef cows by up to 90%¹⁸ – or GHG-efficient farming technologies which can achieve up to one-fifth of necessary emission reductions.¹⁹

Other areas within the agriculture sector may benefit from the transition to a circular economy – for example, the use of plastics in food packaging and preparation. Innovations in plastics recycling may allow businesses to benefit from the use of recycled plastics as a feedstock whilst ultimately reducing GHG emissions from the production of virgin plastics.²⁰

Transport

The transport sector accounts for up to one-fifth of global CO2 emissions.²¹ But the electric vehicle (EV) industry has witnessed immense growth on the back of policy support, technological innovation and changing public infrastructure.

For instance, California recently announced it will completely ban the sale of new petrol-only vehicles by 2035.²² Meanwhile, in June, members of the European Parliament voted to support a similar ban on diesel and petrol cars by the same year.²³

By 2030, EVs could represent over 60% of vehicles sold globally²⁴ – global sales have already risen strongly in 2022, with two million sold in just the first quarter, up 75% from the same period a year earlier.²⁵

Meanwhile, the aviation sector is tentatively moving from fossil-derived kerosene to sustainable aviation fuels (SAFs), such as biofuels or synthetic kerosene. The International Air Transport Association targets a 2% share in SAFs by 2025, but current production capacity of the alternative fuel is low and could benefit from further investment.²⁶

Supporting the transition

While the net zero transformation of the world’s economies appears a daunting, complex task, there are various ways for investors to act positively and potentially profitably against climate change.

There’s still some way to go, but progress is already being made in the sectors that emit some of the highest proportions of GHG, offering new investment opportunities on the path to net zero.

Each of these sectors is going through a transformation that will produce leaders and laggards, both inside the industry and among investors.

We believe it is vital for asset managers to adjust their portfolios and be an active part of that transition – not only with the goal of enhancing or protecting client returns, but to help build a net zero, sustainable future.