The buzz swirling around the electric vehicle (EV) sector has been front and centre for investors looking to profit from the world’s transition to a net-zero carbon economy. Tesla recently skyrocketed to a US$1 trillion market cap, joining an elite club that includes Apple and Amazon. And EV truck maker Rivian completed its blockbuster public stock offering. But electric cars are only part of a much larger story.

The International Energy Agency (IEA) estimates that as much as US$4-US$5 trillion of annual investments will be needed to achieve net zero by 2050. And the ramifications of the energy transition are likely to be felt widely across many industries, ranging from industrial metals to buildings.

Based on our internal research and discussions with corporate and government officials from around the world, our analysts are weighing investment opportunities in many other sectors that may also benefit in a net-zero world. Here are four areas they are watching closely.

 

1. Green hydrogen is an essential element of decarbonisation

For the world to cut emissions in line with the 2015 Paris Agreement, green hydrogen, a low-carbon fuel made by using renewable energy to split water molecules, is likely to be a critical piece of the puzzle.

Massive shift in energy consumption needed for net-zero transition¹

For industries like steel and chemicals, which consume fossil fuels but are not able to electrify their manufacturing processes, green hydrogen is likely to be a must. There are also plans to use green hydrogen to power ships and create artificial jet fuel. It may also help mitigate the need to develop huge batteries to store clean energy generated from intermittent sources like wind or solar.

Current economics may not work for using green hydrogen at scale, but that is rapidly changing. On an energy equivalence basis, green hydrogen today can be between 50%-100% more expensive than liquified natural gas. But regulatory mandates in Europe and large government subsidies are creating a demand base. If renewable energy prices keep falling and the prospect for higher carbon prices increases, the opportunity should only be expected to grow.

Hydrogen: a fuel for a green future ²

There are a handful of companies active in green hydrogen right now that should merit a closer look. But investors need to be selective. Given that the production of green hydrogen requires mostly capital costs, and very little operating costs, the potential for early movers to be stranded with high cost, underearning assets could be a material risk.

2. Industrial metals will be needed to unlock potential of clean technology

The growth of EVs is not just an opportunity for automakers. In order to achieve wide electric vehicle adoption, electric grids need to be improved, charging stations need to be built and the sustainability of the supply chain needs to be addressed. Cobalt, lithium and nickel are important for current battery technology, while the veins and arteries of the green economy run on copper. Rare earth elements are also crucial for renewable power technology like wind turbines.

The ever-increasing demand for some of these key materials, as well as the challenges with procuring some of them, could lead to supply shortages or price increases that could stall the energy transition.

 

1. Source: International Energy Agency. A joule is a unit of energy. Figures may not reconcile due to rounding.

2. Source: BP. Chart shows projections for hydrogen usage as a percentage of total final energy consumption for the industrial and transport sectors. Total final energy consumption measures total energy consumed by end users, such as households, industry and agriculture.

 

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