The decarbonisation economy represents a significant, multi-decade opportunity for long-term investors to generate alpha across a broad spectrum of sectors. The pursuit of carbon-reduction goals to drastically alter a wide range of industries, including electricity generation and transmission, infrastructure, transportation, forestry, and agriculture. At the same time, lower-carbon fossil fuels play a part in the journey, with cleaner fossil fuels acting as transition fuels.
Reliance on Fossil Fuels Expected to Continue
The inescapable arithmetic of global energy demand and supply means that fossil fuels will remain a major source of energy supply for decades to come – despite the ongoing and necessary transition to a low-carbon economy. Such a world will need considerable nuance – and a simplistic strategy that divides the investment world into “brown villains” and “green heroes” will not be the most effective investing approach.
Nobody is Perfect
Today, electricity accounts for 20% of all energy consumption. A major transition has been underway for two decades. At the current rate the world could more than double its renewable energy capacity by 2030. However, fossil fuels and zero-carbon sources present different trade-offs between dispatchability, affordability and carbon emissions. Diversifying energy sources amongst select renewable and fossil fuel sources can provide a much-needed element of resilience and security.
Broaden Your Decarbonisation Scope
Jennison Associates explores a diverse opportunity set as decarbonization initiatives and policies play out over the next decades. There may continue to be a role for Big Oil in the new energy system, such as oil majors that lean into the clean energy transition and find ways to remain energy providers. Lower-carbon fossil fuels – like natural gas – can play a significant role in the transition phase while the long-term transition is underway. Key metals and mineral components of the future energy system may also be overlooked by markets. The near-universal need for larger and smarter grids also present providers of key grid components and construction services a powerful macro tailwind.
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