EU announces a range of initiatives aimed at accelerating its path to ‘Net Zero’ emissions

During July, the European Union (EU) announced a range of initiatives aimed at accelerating its path to ‘Net Zero’ emissions. In our view, the centrepiece is the proposed tighter emissions limits for cars, which appears likely to end new petrol and diesel vehicle sales in the bloc by 2035. Translating this to the opportunity in electric vehicles (and related supply chains), we believe this validates our base case assumption that annual electric vehicle production increases by 20x by 2030 (from c.2 million in 2020).
Some of the other significant proposals included:

• Taxes on aviation fuel, and tax holidays for its low-emissions alternatives – Neste (NESTE FH) which we wrote about last month is likely to be a significant beneficiary;
• A so-called ‘carbon border tariff’, which would require manufacturers from outside of the EU to pay more for importing emissions intensive materials like steel, aluminium and cement/concrete;
• A plan to accelerate the renovation of buildings which are not considered energy efficient (according to EU estimates, roughly 75% of buildings in the EU are not energy efficient, yet 85-95% of those buildings are likely to still be in use in 2050); and
• Far more ambitious targets for expanding renewable energy.

While these proposals remain in draft form, and still need to be approved by the EU’s parliament and 27 member states, we take this as a sign that the global commitment to clean energy, the magnitude of investment required and therefore the attractiveness of investment opportunities continues to increase. We reported last month that IRENA estimated that the world needs to spend c.US$4 Trillion per year (more than the annual GDP of Germany – the world’s fourth largest economy) until 2050 in order to meet global ‘Net Zero’ emissions targets.