Return to coal won’t last, but several industries unlikely to achieve net zero by 2050

Tasneem Samodien, research analyst at Old Mutual Private Client Securities

Reports abound regarding the increasing consumption of coal expected to hit 2013 record levels as the global energy supply crunch continues. This has fuelled fears that the use of coal is “returning”.

However, a research analyst at Old Mutual Private Client Securities, Tasneem Samodien, disagrees.

“Fossil fuels such as coal, oil, and gas have not “returned”, their prices are cyclically high driven by the invasion of Ukraine by Russia,” says Samodien.

The increase in fossil fuel prices is a transitory reaction to the Russian supply being detached from the market and “not an indication that global commitment to clean energy has reduced”.

The global transition to net zero emissions is underpinned by a legally binding international treaty on climate change adopted at COP 21 in Paris in 2015, commonly referred to as the Paris Agreement.

Investment in renewable energy sources remains well supported, with both the world’s largest emitter, China, and the world’s largest economy, the US, accelerating their investment in clean energy.

China tripled its investment in solar panels this year as the country intends to build the world’s largest renewable energy fleet and in August 2022, the US committed over US$380bn to clean energy through the Inflation Reduction Act in support of its bold attempt to increase clean energy production to 81% of the US total energy mix by 2030, from its current level of below 30% currently.

But the challenge that certain industries’ intensive energy requirements, such as chemical production, cannot be met by renewable energy alone is real, and as a result, these, according to Samodien, are unlikely to achieve the net zero emissions target by 2050.

Samodien cites as the cause the shortage of critical resources, the geographic spread of available resources, and the financial and socio-economic impact of a wholesale abandonment of fossil fuels on developing countries and those whose economies dependent on them.

The International Energy Agency estimates that five million people in the oil, gas, and coal-producing industries could lose their jobs by 2030, with job losses more pronounced in communities that are highly dependent on fossil fuel production and conversion.

Samodien says it is therefore unsurprising that governments have announced significant investments in renewable energy sources while simultaneously continuing to support their domestic fossil fuel industries.

“The commitments of the Paris Agreement relative to the supply and demand fundamentals in key natural resources highlight a looming mismatch between the world’s climate ambitions and the availability of resources that are essential to realising those ambitions,” says Samodien.

Industrial activity contributes an estimated 25% of global carbon dioxide emissions with four industrial processes responsible for 85% of emissions, namely iron and steel, aluminium, chemical and petrochemicals, and cement and lime production.

“At this stage, there are very few commercially viable solutions that exist to reduce emissions across these activities without compromising the quality and quantity of their output. While renewable energy will play a critical role in reducing the emissions profile of these activities, it will have to be supplemented by alternative fuels as well as advanced technologies such as carbon capture and storage and efficiency software to achieve the net zero emission target,” explains Samodien.

Based on the current selection of available alternative fuels as well as the current stage of technological advancement, The International Renewable Energy Agency also forecasts that the 2050 target is likely to be missed by at least a decade.

“While the transition to renewable energy is necessary and is well underway, we view this transition as a multi-decade, multi-generational process that will gather momentum well beyond the stated deadlines of 2030 and 2050. As investors, we have a responsibility to encourage and drive this change while closely monitoring investment opportunities and assessing the progress being made,” concludes Samodien.

ENDS