The EU gets serious about net zero

green tower

The Green revolution is wide-ranging and will have a huge impact on all our lives and investments. The European Council was advised by the Commission on Thursday night last week that it needed to up its game and go for a much higher target of carbon dioxide reduction by 2030. The Commission proposes a 55% cut on 1990 levels, instead of the current cut of 40% which is the target. The EU managed a fall of 23% from 1990 levels in the 28 years to 2018 and is now considering a much larger additional cut of 32% in the next nine years.

Some member states pushed back, asking how much this would cost and what support there would be for struggling governments and low-income consumers. It is likely they will be satisfied with reassurances from the Commission about the deployment of EU funds over the next seven-year budget around these themes. The deficit and lower-income countries will see this as a good opportunity to gain more purchase over EU budgets and will seek money from the funds designed to deal with the economic areas that will contract from the decline of coal, oil and gas exploitation, and from the big changes to come in the industry. At the EU Summit in December, this will come up for final decision. It is unlikely that there will be no increase in the target reduction, and likely the Commission will have its way with the full 55%.

The vehicle industry faces the biggest waves of capital destruction and new investment.

It means a major programme of renovation and modernisation of the housing stock. The Commission has sent out guidelines for the encouragement and the execution of change over from gas and coal burners to electric heating and cooling systems for every home. It will mean the retirement of factory investment in all conventional boilers and fossil fuel heating systems and the rapid increase in investment capacity in electric systems. These systems will be subsidised by EU and national schemes into the homes of lower-income families and paid for in some public housing developments. There will be new regulations to ban some existing products and to guide specifications of the new permitted heating systems. New builds will also have to meet enhanced specifications in many places.

It means a similar programme of renovation and adaptation in commercial and public sector buildings. In total, the heating and cooling of buildings account for 40% of current energy burn and over one-third of carbon dioxide emissions that they wish to remove. Landlords fighting the rent declines and shifting tenant preferences brought on by the Covid 19 crisis and by the switch to online retail and other business, will also have to grapple with the financial need to upgrade the energy performance of buildings and to switch heating and cooling systems. Billions will need to be spent on meeting new higher standards assuming they come to apply to existing as well as to new build structures.

The vehicle industry faces the biggest waves of capital destruction and new investment. The existing majors have spent fortunes on cleaner diesel and petrol engines, and have perfected ranges of popular cars that produce practically no particulates, have greatly increased range and fuel economy and now contain more and more automated drive features. This brand, technical and factory capacity investment has to be written off. It needs to be replaced by new ranges of fully electric cars, which requires completely different technology for engines, drivetrain and fuel provision. Never has the car industry had to go through such a fundamental set of changes in such a short time. Honda whose sales have fallen substantially in Europe announced they are no longer going to sell diesel cars in the region and will end petrol car sales in 2022. Governments are now talking about banning new petrol and diesel vehicles in ten years time or so, and meanwhile wish to discourage purchases of current models through higher taxes, bans on the use of these vehicles in various urban environments, and general social pressure. So far these policies and speeches have led to a sharp reduction in sales of traditional vehicles which has not been offset sufficiently by increased sales of electric versions. Customers are still reluctant to commit to electric cars because they are dear, their range is often limited and the infrastructure for easy and rapid charging is not available in many places.

View Full Article– published by Charles Stanley on 19th October 2020