Carbon neutral: Opportunities on the road of decarbonization

2021-04-13 14:57:01

The coronavirus might have dominated a lot of the headlines, but climate change remains a real threat to mankind

While the Covid-19 pandemic has temporarily reduced emissions, carbon dioxide levels are still at record highs – and rising.  The past decade was the hottest on record; Arctic sea ice in October was the lowest ever, and apocalyptic fires, floods, droughts and storms are increasingly the new normal.  Biodiversity is collapsing, deserts are spreading, oceans are warming and choking with plastic waste.  Science tells us that unless we cut fossil fuel production by 6 per cent every year between now and 2030, things will get worse.  Instead, the word is on track for a 2 per cent annual rise.

Global climate change caused by greenhouse gas emissions such as carbon dioxide has become one of the greatest challenges facing mankind in this century. Under the framework of the Paris Agreement, achieving carbon neutrality by the middle of this century is the most fundamental measure for the global response to climate change. "Strive to reach a peak in carbon dioxide emissions by 2030 and carbon neutral by 2060" is an important commitment made by China to the international community. In 2021, "carbon neutralization" has become a hot word in various fields.

What is carbon neutral

The scientific community and governments are forming a clearer consensus on the issue of climate change, that is, climate change will bring disastrous consequences to the world, and countries around the world should take action to reduce greenhouse gas emissions to mitigate climate change. Achieving carbon neutralization by the middle of this century is the most fundamental measure for the global response to climate change.

According to the definition provided by the Intergovernmental Panel on Climate change (IPCC), carbon neutralization, also known as net zero carbon dioxide emissions, means that global man-made carbon dioxide emissions are equal to carbon dioxide removal in a specified period of time (such as natural carbon sinks, carbon capture and storage, geoengineering, etc.). Carbon dioxide is one of the greenhouse gases that cause climate change, while other greenhouse gases (such as methane) can also be reflected in the form of carbon dioxide equivalent, so the broad sense of carbon neutralization includes a variety of greenhouse gases including carbon dioxide.

By the end of 2020, a total of 44 countries and economies around the world have officially announced carbon neutral targets, including countries and regions that have achieved the goals, written into policy documents, proposed or completed legislative procedures. Among them, the newly revised Climate change Act of the United Kingdom came into effect on June 27, 2019, becoming the first developed country to legislate to achieve net zero greenhouse gas emissions by 2050. The Trump administration withdrew from the Paris Agreement, but new President Joe Biden signed an executive order on his first day in office to return the United States to the Paris Agreement and plans to set a goal of carbon neutrality by 2050.

Investment opportunities brought by carbon neutral

When it comes to the investment side, it mainly involves two strategies:

The first is the negative screening strategy, which excludes companies that have negative impacts on the environment, society and corporate governance according to ESG guidelines. The goal of "carbon neutralization" will bring great risks to high-carbon industries and enterprises.

This strategy mainly involves energy saving and emission reduction companies, including coal, public utilities, building materials, petrochemical, basic chemical industry and so on.

The second is sustainable investment strategy, which involves sustainability-related themes or assets, including photovoltaic, power equipment, non-ferrous metals and so on.

From this, it can be seen that in the process of achieving the goal of carbon neutralization, low-carbon industry, environmental protection industry, green industry will usher in the benefits that can not be ignored. On the contrary, the high energy-consuming industry, chemical industry, coal industry or the upper and lower reaches of the related industrial chain will be greatly restricted, but it can not be ignored that the aforementioned industry structure will be readjusted, and transformation or restructuring will also create new investment opportunities. In the context of "carbon neutralization", the high-carbon emission industry may welcome a new round of "supply-side reform". According to Elaine Wu, JPMorgan’s head of environmental, social and governance (ESG) research, the Sustainability funds doubled in 2020 — and are set to double in Asia again.

Risk Warning: 

The above content is for reference only, and does not represent JRFX’s position. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.

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