US vs. China on climate change — what investors need to know

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Investors must watch whether the current competition between the world’s two largest economies and its two biggest polluters – China and the United States – will be constructive or destructive in their efforts to slow global warming, as well as the health of portfolios. linked to the environmental efforts of these countries. giants.

This tension will only intensify as they and other economic powers submit to firmer climate change targets – if all goes according to UN plans – as part of the ambitious summit. Glasgow World Cup from October 31 to November 31. 12, known as the UN Conference of the Parties, or COP26.

Related: What is COP26 and when does this “ambitious” global event on climate change begin?

“A healthy competitive dialogue [between the U.S. and China] lead to accelerated investment in clean energy and advancements in emerging technologies, for example, green steel. A negative result would inhibit capital flows for low carbon LCTU solutions,
+ 0.31%,
Said Jeffries analysts led by Aniket Shah, global head of ESG research.

“Investors should watch for any new engagements signaling renewed cooperation or, at a minimum, any change in sentiment,” the team said in a research note. “The two countries enter the COP26 with difficult positions from the point of view of national political economy. “

Read: ‘Lack of leadership’: UN says emissions pledges from US and major countries are delaying much of efforts

Awaiting details

China, the world’s largest emitter of carbon dioxide and other greenhouse gases responsible for global warming, officially submitted its targets at the Glasgow conference last week. But, analysts said, this report offered no significant new targets to reduce emissions from climate change, especially in the short term. The announcement included targets previously spoken in speeches by President Xi Jinping, who will not be attending the Glasgow summit in person but will deliver a video address.

China says it aims to achieve peak carbon dioxide emissions, produced mainly by burning coal, oil WBS00,
-0.80%
and natural gas NG00,
-1.19%
for transport, electric power and manufacturing, “before 2030”. The country is targeting net CO2 emissions by 2060, a decade beyond the net zero commitments of the United States, the United Kingdom and the European Union.

Climate experts say key questions about China’s plans remain unanswered.

“The document gives no answer to the main open questions about the country’s emissions,” Lauri Myllyvirta, senior analyst at the Energy and Clean Air Research Center in Helsinki, told The Associated Press. “At what level will emissions peak and how quickly should they drop after the peak?” “

China’s seriousness in reducing emissions long before the self-imposed net zero deadline of 2060 marks an important unknown, but an important part of its overall policy.

“For China to embark on the path to achieving its carbon neutral goal by 2060, it is essential that the country further strengthen its new short-term goals and put in place measures to achieve them,” he said. said Helen Mountford, vice president, climate and economy. , with the World Resources Institute.

Proving that it can achieve such goals would be a position of strength for the country and its investors.

“China has strong economic and social incentives to adopt ambitious climate policies,” Mountford said. “WRI search shows that bold climate action from China could save $ 530 billion in fuel, operation and maintenance costs over 30 years. Ambitious climate action would also save China nearly 1.9 million lives and generate around $ 1 trillion in net economic and social benefits by 2050. “

China is set to face the decline of its economic rivals as it increases its production of coal, one of the “dirtiest” contributors to global warming.

China is currently embroiled in an energy crisis that is hitting Asia and Europe and has stifled the distribution of natural gas. As winter approaches, a tight natural gas market has led Beijing to request an expansion of coal production, an already significant part of its energy mix. This is a headwind for the country’s carbon neutrality objective.

This impact is also visible in the markets. The resurgence of demand for traditional fuel leaves the iShares Global Clean Energy ICLN ETF,
-0.16%
down nearly 12% since the start of the year.

And in the USA

President Joe Biden has said he will adopt policies to put the country on track to at least halve its emissions by 2030 and reach net zero two decades later.

But the administration did not receive as much help from Congress in this effort as it intended to do at the start of Biden’s first term.

A modified, i.e. smaller, spending framework was brought forward this week and remains under consideration in Congress. It includes $ 555 billion in low-emission clean energy programs through tax incentives and other approaches, with climate change efforts taking up the bulk of this spending proposal.

With executive powers, Biden restored stronger authority to the Environmental Protection Agency after the Trump administration’s lean regulatory approach and led greater coordination of climate change in financial markets at the Securities and Exchange Commission, the Treasury and through banking and insurance regulators. And he and climate envoy John Kerry have said private sector responses to climate change will be critical to the effort, a tip more Republicans and the US Chamber of Commerce are in favor of.

Read: Democrats compare oil companies’ response to climate change to tobacco and cancer denial

But the United States, the world’s second polluter behind China, and followed by India in third place, is lagging behind on the world stage.

“In view of their withdrawal [a Trump administration move] and the subsequent re-entry into the Paris climate agreement, we consider the United States to be somewhat behind in recent years when it comes to climate targets, ”said the Shah of Jeffries.

It was in Paris six years ago that governments set the voluntary goal of preventing the global temperature from rising by no more than 2 degrees Celsius and ideally no more than 1.5 degrees due to climate change. According to the UN, Earth’s temperature has already risen by around 1.1 degrees Celsius since then.

“Although the new [Biden] the administration recently took steps to step up its climate ambition, differences in the political apparatuses between the two countries have led China to adopt green policies and develop low-carbon solutions at a faster pace and more large, ”said analyst Jeffries.

He said this is most evident in China’s dominance in renewable electricity generation and, in particular, solar power generation.

China, analysts say, is also leading the United States, in how it uses the rest of the world to expand its green efforts. This includes, as part of its Belt & Road initiative, 30 NLR nuclear reactors,
-1.19%
in the world by 2030. And a Chinese operator has already opened the largest solar power plant in Latin America TAN,
+1.12%,
in Argentina.

Political risk

As for the American political climate, little cooperation with China takes place without taking into account other trade, labor and security issues. These concerns remain a major sticking point for Republicans.

And, many observers of the emissions commitment process do not want the United States to take on any additional responsibility.

“The United States could reach net zero, for the sake of debate, tomorrow, and that still only represents 11% of global emissions. We also care about the remaining 89%, ”said Heather Reams, executive director of US-based Citizens for Responsible Energy Solutions (CRES). “What is China doing? What is India doing?

Jeffries analysts said investors optimistic about clean energy and the transformation of the industry and construction sectors towards greener processes would be encouraged if China and the United States begin to cooperate on intellectual property. around emerging technologies – again, green steel – necessary for a zero-economy network.

And both would be better served to help emerging and frontier markets increase the workforce skills and infrastructure needed to manufacture this technology, analysts said.

Stubborn competition between the two “would limit the diffusion of green technologies and inhibit the flow of capital for low carbon solutions.” The cleantech market would become increasingly fragmented, inevitably spilling over to other sectors of the global economy, ”Shah said.


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