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Portfolio manager Tal Lomnitzer discusses how the global race to net zero is driving investment into the low-carbon energy transition, and why green hydrogen sits at the centre of this megatrend.
Imagine a future where cars don’t emit toxic fumes, but instead release only steam into the atmosphere. That may sound far-fetched, but that is exactly what harnessing hydrogen energy means. Applying this energy source across industries could prove to be a game changer in achieving net zero by 2050.
In 2021 alone, global investment into the low-carbon energy transition totalled US$755 billion, an increase of more than 25% from the previous year.1
While most of this investment was directed toward renewable energy and electrified transport, there is growing investment into green hydrogen, which may prove to be the next step in the decarbonisation journey.
While we’ve all heard about hydrogen as a sustainable fuel, there are different forms of it or colours and so one can be excused for not knowing which is which. The main ones are:
Green hydrogen only makes up a fraction of the energy mix, but it is expected to play a significant role in the future, with demand from heavy industries expected to multiply, including for rail, marine and heavy-road transportation.
Source: International Energy Agency, September 2020. Forecast data may not be realised.
Vital to the scaling up of green hydrogen production as its power source, renewable energy generation has dramatically accelerated, while the cost per gigawatt has continued to decline. In less than a decade, renewables have grown from supplying less than one per cent of energy in Europe to 15 per cent. As this trend continues, this will support the growth of green hydrogen production.
Today, more than 75 governments have announced hydrogen policies and goals compared with 2019, when only France, Japan and Korea out of the G20 nations had national strategies.2
The outlook is undeniably promising because hydrogen has the potential to transform the carbon footprint of entire energy-intensive industries, from manufacturing to transportation. As the world rushes to reach net zero emissions by 2050, green hydrogen sits at the centre of this megatrend.
In summary, we believe green hydrogen will fall in production cost and will be a net zero game changer as part of the energy matrix – including nuclear, wind, solar and long-duration energy storage (LDES).
1 Energy Transition Investment Trends 2022, BloombergNEF.
2 Global Hydrogen Review, 2021 – International Energy Agency.
Natural resources industries can be significantly affected by changes in natural resource supply and demand, energy and commodity prices, political and economic developments, environmental incidents, energy conservation and exploration projects.
Commodities (such as oil, metals and agricultural products) and commodity-linked securities are subject to greater volatility and risk and may not be appropriate for all investors. Commodities are speculative and may be affected by factors including market movements, economic and political developments, supply and demand disruptions, weather, disease and embargoes.
Sustainable or Environmental, Social and Governance (ESG) investing considers factors beyond traditional financial analysis. This may limit available investments and cause performance and exposures to differ from, and potentially be more concentrated in certain areas than the broader market.
Carbon Capture Utilisation & Storage (CCUS) involves capturing carbon dioxide produced by power generation or industrial activity, such as steel or cement making; transporting it; and then storing it deep underground. CCUS technologies also enable carbon removal or “negative emissions” when the CO2 comes from bio-based processes or directly from the atmosphere.
Heavy industries are capital intensive, involve large-scale undertakings including equipment, land, high costs and has also been extended to include those that cause harm to the environment.
Long Duration Energy Storage (LDES) is the technology that enables renewable energy to power grids and accelerate carbon neutrality in an affordable, reliable and sustainable way, as well as help increase the security of supply and create new use cases for renewable energy.
Net zero aims to reduce greenhouse gas (GHG) emissions to as close to zero as possible, with any remaining emissions reabsorbed from the atmosphere.