Investment Institute research

Europe and the race to net zero

In this deep-dive analysis, we map Europe’s pathway to a clean-energy future, and draw lessons for investors on how to navigate this unprecedented economic transformation.

Mar 26, 2021

45 minutes

Sahil Mahtani
Deirdre Cooper
Graeme Baker
In this deep-dive analysis, we map Europe’s pathway to a clean-energy future, and draw lessons for investors on how to navigate this unprecedented economic transformation.

The fast view

  • There are many paths to net zero, and each one has different implications for investors.
  • Europe’s destination is now clear. It is aiming for a high-renewables, high-electrification outcome, with a plan to build a hydrogen economy. It is also heavily incentivising energy efficiency.
  • Six key variables define Europe’s transition pathway:
    1. A strong emphasis on reducing energy demand
    2. A significant expansion of electrification
    3. Renewables increasing to a share of final energy demand of likely around 80%
    4. Tackling the problem of intermittency from variable renewables (e.g., solar and wind) with hydrogen (rather than battery storage)
    5. Use of carbon capture solutions, though the range of outcomes here is vast
    6. Big decisions are still to be made in transport. While battery electrification is the chosen route for smaller vehicles, the future is much less clear for heavy trucks and aviation
  • Analysis of Europe’s pathway sheds light on how the race to net zero is likely to be run differently elsewhere.
    • Early indications suggest China is much more likely to rely on demand efficiencies than Europe or the US, while also relying on nuclear to solve the problem of variability.
    • The US is likely to rely most on carbon capture, while also the most likely to keep a role for hydrogen from natural gas with carbon capture.

We know the destination is net zero. But how each region will get there matters enormously for investors. Europe is the first to make its net-zero strategy clear, shedding light on the potential winners and losers from decarbonisation.

In this deep-dive analysis, we map Europe’s pathway to a clean-energy future, and draw lessons for investors on how to navigate this unprecedented economic transformation.

Read the full research paper

Authored by

Sahil Mahtani
Strategist, Investment Institute
Deirdre Cooper
Portfolio Manager
Graeme Baker
Portfolio Manager

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