Stockholm (NordSIP) – According to UBS’s 2020 Infrastructure Outlook, the energy transition will be one of the dominant trends in both Europe and the US in the coming twelve months.
The report highlights energy storage, smart meters and grids and electric vehicle charging stations as the standout emerging technologies with significant potential upside for investors in the next decade. It also considered specific trends and the different approaches to sustainable infrastructure on both sides of the pond.
Optimistic about the European Green Deal
According to Declan O’Brien and Alex Leung of UBS’s Infrastructure Research & Strategy Team, the commitment to fight climate change of the incoming von der Leyen European Commission is patent in the European “Green Deal”. Its proposals should be positive for sustainable infrastructure investors but their impact will depend on the nature and effect of accompanying taxes.
To achieve net-zero emissions by 2050, the EU is planning to unlock €1 trillion of funding for “climate action and environmental sustainable investment” over the next decade. According to the analysts, reforms of the EU Emission Trading Scheme (ETS) market and the exclusion of funding for new coal, oil and natural gas infrastructure projects by the European Investment Bank (EIB) add to the credibility of the EU agenda.
According to the researchers, transportation may be one of the most critical sectors for policy intervention, with estimated emissions 28% higher than in 1990 after increasing five years in a row. While the share of electric vehicles (EVs) in Europe will continue to grow, “it seems inevitable that the aviation industry will continue to face scrutiny”.
The lack of EU-wide policy on aviation taxes also creates room for policy intervention. To fill the gap, the analysts report that the EC seems to be considering applying VAT on all airplane tickets and a fuel tax on flights within and departing the EU, to reduce aviation emissions. The report argues that “flights across the EU could fall by 19% and 11% in the VAT and the fuel tax scenarios, respectively”, although reinvesting the funds in the economy, might cushion the measures’ impact on jobs and GDP.
Pragmatism, Disasters and Demand in the USA
“Although the climate change movement in the US has not reached the same level of fever pitch as Europe, there is still significant demand for both utility-scale and distributed renewable energy, which investors can capitalize on,” the study explains.
However, the report suggests that the approach to sustainable infrastructure in the USA is different. “Clean energy and fossil fuels are not necessarily seen as mutually exclusive in the US,” they argue. The pragmatic approach can help explain what may otherwise seem like a paradox to an outsider with a superficial knowledge of the USA. Discussing a bill to extend subsidies for the renewable energy industry that received bipartisan support, UBS’s report points out “that the top three wind power generating states are Texas, Iowa and Oklahoma – states that voted for Donald Trump in the 2016 election.”
The bipartisan support that politicians have given to the renewable energy sector is simply a reflection of their constituents’ views – people want cleaner energy. In part, this demand is the result of the increasingly salient costs of climate change. The report highlights research from the National Centers for Environmental Information according to which 2019 was the fifth consecutive year with more than ten natural disaster events in the USA. The average for the 1980s and the 1990s was four disastrous extreme weather events. With each of the recorded events costing at least a billion dollars, the impact of climate change is becoming more tangible, according to O’Brien and Leung. “Millions of families have to grapple with the fallout of these disasters. For example, wildfires in California in the last two years have driven the local utility, Pacific Gas and Electric Company, into bankruptcy. This has led to constant blackouts across communities, which are expected to last another 10 years.”