It has been a busy few weeks here in Europe. From international diplomacy and ESG disclosure requirements to taxation, government leaders have been on the same page to combat the climate crisis and setting a minimum percentage for corporate taxation. The apotheosis came last weekend in Cornwall, where the seven largest developed countries in the world (G7) agreed to support “the green revolution that creates jobs, cuts emissions, and seeks to limit the rise in in global temperatures to 1.5 degrees”.
The conclusions of Cornwall were a bit of a mixed bag as the G7 has failed to agree upon a concrete end date for the use of coal, a critical piece of the climate change puzzle. This leaves an unclear path to COP26, but one that is optimistic. Come November, a much larger group of world leaders will meet in Glasgow for the UN Climate Conference. It is on that stage that the US must continue to regain the world’s trust as a global leader on environmental policy as President Obama did in facilitating the formulation of the Paris Agreement.
In the first days of his Administration, President Joe Biden’s climate “report card” shows many key climate actions. From instating John Kerry as special envoy on climate, pausing oil and gas drilling leases on federal lands, to unveiling an ambitious clean energy investment plan within an infrastructure bill, it has been an impressive journey so far in the opposite direction of his predecessor.
Perhaps most excitingly for international onlookers of climate action, President Biden has also begun to mend the US’ relationship with China by securing a joint commitment to collaborate on climate. Special climate envoy Kerry met his Chinese counterpart Xie Zhenhua in Shanghai, where the two were able to not only see eye-to-eye on the urgency of climate action and diplomacy, but also released a joint statement on their commitment to climate. It states, “The United States and China are committed to cooperating with each other and with other countries to tackle the climate crisis, which must be addressed with the seriousness and urgency that it demands”.
While China was not invited to this year’s G7 meeting, they would have been eagerly watching the outcomes of Cornwall— particularly with the alignment of China’s Taxonomy to the EU Green Taxonomy. Alignment with Europe is one thing, a US-China collaboration on climate is another. The latter is paramount to bringing Paris goals into fruition, as the world’s two largest emitters. Behind the scenes of this climate diplomacy statement however, is the undercurrent of what is being called the new “space race”— that is a technological race to dominate the clean technology field.
During the Trump Administration, while China was busy investing in clean energy technologies (solar panels, wind turbines, batteries, and electric vehicles), the US all but sidelined its clean energy efforts. Four years later, China dominates these green industries, bringing down the price of renewables down to competitive levels with fossil fuels. Biden’s latest $2 trillion infrastructure plan sends a clear message: the US is back in the clean energy technology game, with ambitions to help shape the world’s clean technology future.
Indeed what a bright future clean energy technology must have if the world is to meet Paris goals. By 2050, modeling by Ortec Finance shows that solar PV will need to lead the way to be responsible for about half of the world’s electricity generation by 2050 (compared to just a 3% share in 2020) for example. As the share of renewables increases, the share of coal, oil and gas needs to reduce drastically as well— from a stark 66% in 2020 to a mere 2% by 2050. As the US and China sprint ahead with clean energy investments, one can only wonder if Europe is doing enough to keep up. In particular, is there a role that European institutional investors, such as pension funds, can play to facilitate Europe’s move towards entrepreneurial clean energy investments?
As eager onlookers here at Ortec Finance, many questions remain – Can President Biden successfully rebuild the US’ climate reputation as Obama once did? Will the US and China be able to achieve their emissions reduction targets? Will the US and China be able to set aside their historical differences and collaborate on the climate crisis? Will Europe be able to keep up with the race for (clean) technology leadership?
If the G7 Cornwall Summit is any indication of the trajectory ahead— we are cautiously optimistic for COP26 in Glasgow come November.