IPCC report fast tracks renewable technology innovation and investment opportunities that come with it

One of the things I’ve been watching closely in recent months is the price of carbon and the momentum behind carbon conscious investments. I’ve written a couple of notes in this newsletter (Europe’s Green Deal, Carbon Price Outlook, Purpose Driven Investing).

The latest Intergovernmental Panel on Climate Change (IPCC) report which came out last week paints a damning picture for the future of climate change on all facets of life, including business and the types of investments required to change course.

According to the report, annual temperatures now are warmer than they were during “the warmest multi-century period in at least the last 100,000 years”. That period stretches back to a time when homo sapiens were still able to bump into neanderthals and wonder who would go extinct first.

Globally, warming has now reached about 1.1C since industrialisation (1850-1900), according to the hundreds of scientists and governments that make up the IPCC. In Australia, warming has reached 1.4C.

The new report was a "code red for humanity", United Nations secretary-general Antonio Guterres declared.

What does this mean for the average investor

Many of the themes I’ve been writing about in recent weeks will now probably move faster, particularly the mandatory disclosure of carbon emissions by publicly listed companies. The IPCC report gives governments a precursor to mandicate business changes.

Voluntary disclosure becoming mandatory sets the basis for one of the most exciting growth market opportunities — carbon offsets. We’re yet to see a meaningful rise in carbon prices traded on-market, but I’m fairly sure we’re still in an infancy period and yet to feel the snowball effect. We’re probably 1-2 years away from carbon credits reaching a tipping point as investment options.

Outside of these areas, we’re likely to see more innovation within companies themselves to address this social and environmental change. One of the things I’m reading about more closely is hydrogen.

New study casts doubts on Blue Hydrogen

According to the NY Times, a new peer-reviewed study on the climate effects of hydrogen, the most abundant substance in the universe, casts doubt on its role in tackling the greenhouse gas emissions that are the driver of catastrophic global warming.

The main stumbling block: Most hydrogen used today is extracted from natural gas in a process that requires a lot of energy and emits vast amounts of carbon dioxide. Producing natural gas also releases methane, a particularly potent greenhouse gas.

The process causes more damage than the end benefit. This is a common problem with new and emerging mass energy solutions. The study found that the greenhouse gas footprint of blue hydrogen was more than 20 percent greater than burning natural gas or coal for heat.(Running the analysis at a far lower gas leak rate of 1.54 percent only reduced emissions slightly, and emissions from blue hydrogen still remained higher than from simply burning natural gas.)

Which creates an opportunity for Green Hydrogen

Here’s where I’m interested. Today, very little hydrogen is green, because the process involved — electrolyzing water to separate hydrogen atoms from oxygen — is hugely energy intensive. In most places, there simply isn’t enough renewable energy to produce vast amounts of green hydrogen.

But as the NY Times reports, “…if the world does start to produce excess renewable energy, converting it to hydrogen would be one way to store it…”

It’s not yet clear how we’ll get there, but I’m looking at adding energy exposure to my portfolio in the next few months and I’ll be using the above as a guide when making my selections. I’m looking at innovators such as Hazer in our own Aussie backyard.

As the world comes out of the pandemic, energy consumption will increase exponentially and the demands on meeting net zero targets by 2050 means now, more than ever, the companies of the future will be those who can offer a solution to the world’s huge energy problems.

Is hydrogen the store of power from renewables to overcome their periodicity? I’ll let you know in the coming weeks as I dig through the details.