Mike Appleby

The realities of a lower carbon world

Mike Appleby

Electric vehicle

Climate change remains a hugely emotive topic around the world, with awareness and activism both surging in recent months. But while many might be aware of the Paris Agreement to limit global average temperatures and the UK’s recent pledge to be carbon neutral by 2050, it remains to be seen how far these goals are understood in practical terms.

We have looked to see what this net zero emissions target means for the average person in the UK, who directly emits 10 tonnes of carbon dioxide a year. Broken down, approximately 5.7 tonnes of this is from transport, 2.7 tonnes from heating with natural gas and a further 1.6 tonnes from the electricity used in the home. If people are so minded, there are a few simple steps to reduce these figures almost immediately.

Taking electricity first, moving to a 100% renewable provider (of which there are a growing number in the UK) can be done instantaneously and, for the most part, for the same price as existing tariffs. This ensures all the electricity people need is supplied to the grid via renewable sources and moving to such a provider reduces the annual emission by 1.4 tonnes.

On the heating side, ensuring homes are properly insulated can cut another 0.5 tonnes off that annual emission level – and while this work will mean an initial outlay of a few hundred pounds, the saving on future heating bills should more than offset that in fairly short order.

Coming finally to the transport question, electric vehicles (EVs) will become significantly cheaper as all the main car manufacturers bring more affordable EVs to market in the next few years. The charging infrastructure is also being expanded at pace. As these two barriers to adoption are reduced, we believe EVs will take a meaningful share of the car market. Moving to an EV shaves a further 1.7 tonnes off the annual level, and again, while there is a cost question at the purchase stage, there are considerable ongoing savings versus running a petrol or diesel car.

According to data from British Gas, for a small family hatchback over 10,000 miles, the average price per mile is 4.1 pence for an EV versus 18p for a petrol car, while a large diesel vehicle is considerably more expensive. Figures do vary according to car model and various other factors (including charging at home versus a public point).

A final measure is cutting down airline flights where possible and, as a last resort, offsetting the impact where you have to travel, which can take another 1.7 tonnes off the total. There are two main types of offsetting projects: investing in renewable energy projects or for the more horticulturally minded out there, either stopping existing trees being cut down or planting new ones.

If we take all these measures together, it is easy to more than halve the average person’s direct carbon emissions in the UK. In this example, it removes a total of 5.4 tonnes off the average annual emission of 10 – and with the possible exception of changing cars, these are all steps that can be taken in a few days, without excessive cost and with very little discernible impact on our daily lives.

Looking at the wider picture, getting to zero emissions requires halving current global emissions by 2030, halving again by 2040 and then halving/offsetting the rest by 2050. To be clear, current regulatory demands would produce nowhere near that kind of reduction and we predict much tighter global policies on emissions in the years ahead.

This is likely to create opportunities for companies on the right side of this energy transition, including those providing renewable energy, smartening our ageing grid infrastructure and providing more efficient transport, as well as waste sorting, treatment and recycling and innovations to reduce the carbon intensity of industrial processes.

In contrast, companies that produce carbon-intensive products or services will increasingly find themselves on the wrong side of regulation. In electricity generation, we see huge risks to coal, for example, which is effectively dead as it is the most carbon-polluting way to generate electricity.

Wind and solar are now the cheapest ways to generate electricity in many countries, including the UK, and this should logically translate into even higher demand for renewables: it not only makes sense economically but is also the answer to reducing the carbon intensity of the electricity we use. We believe the magnitude and pace of this change is underestimated and will be a major driver of investment returns over the next decade and beyond.

 

Key Risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital.  The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term. Some of the Funds managed by the Sustainable Future Equities team involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates.

Disclaimer

Issued by Liontrust Fund Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518165) to undertake regulated investment business. This document should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Friday, September 6, 2019, 2:13 PM