Entrepreneurs from around the world are creating innovations to mitigate climate-change impact from five key sectors.
A new report by Morgan Stanley’s Institute for Sustainable Investing, with The Economist Intelligence Unit, delves into five sectors closely tied to greenhouse gas emissions, and the technologies that governments, cities and companies are embracing to mitigate the impact. Here are some highlights for investors to explore in each sector.
Areas to watch:
- Large-scale wind and solar power in the U.S., India, China and Saudi Arabia;
- Small-scale off-grid solar where energy infrastructure is underdeveloped;
- Efficiency technologies worldwide.
Energy consumption accounts for 35% of the world’s greenhouse gas emissions,1 and industrial expansion in emerging markets will only increase that share if opportunities for climate change mitigation technology aren’t embraced.
The good news is that the use of renewable energy has reached a global tipping point, where the price competitiveness of solar and new technologies are raising demand for clean energy sources in emerging and developed markets alike. In fact, renewables are expected to become the cheapest form of new power generation by 2020, according to recent research by Morgan Stanley.
In the U.S, the solar industry already employs more workers than coal, oil and natural gas combined,2 and the solar market alone is expected to grow almost 25% per year on average through 2022, to reach $422 billion.3
Across the globe, smart-grid and Internet-of-Things technologies are making energy grids more efficient, reliable and low cost. Energy storage technology is also reaching a point where renewables can finally become a dependable source of power on electricity grids.
China far outstrips all other countries in the Index in terms of total energy consumption and emissions. Yet its government is highly focused on reducing pollution and energy emissions. The International Energy Agency forecasts that nearly 40% of total renewable power capacity growth will come from China by 2020.4
India’s government is also actively expanding renewables use. In 2016, the country unveiled the world’s largest solar power plant. India is now on track to become the world’s third biggest solar market in 2017,5 behind the U.S. and China.
Areas to watch:
- Livestock methane reduction innovations;
- Efficient seeds and crop varieties in Sub-Saharan Africa and South Asia;
- Mechanization of agriculture processes to reduce livestock emissions for small-holder farms.
After years of neglect, agriculture is beginning to capture the imagination of tech entrepreneurs and offer new investment opportunities. AgTech investments reached $4.6 billion in 2015, 95% higher than in 2014.6 Although agriculture accounts for 13% of global greenhouse emissions,7 the impact is substantial in countries that rely heavily on the sector for exports. In Argentina, Australia and India, for instance, agriculture accounts for more than a third of total greenhouse gas emissions.8 In Bangladesh and Rwanda, where agriculture plays a dominant economic role, the sector accounts for more than half of total emissions.
While AgTech used to focus mostly on biofuels, seed genetics and water desalination, it now includes development of new technologies to reduce methane emissions from livestock—notably cattle. In Argentina, for instance, scientists are developing methane-capturing backpacks for cows. Initial results show that the backpacks can capture enough methane from one cow in a day to power a refrigerator for 24 hours.9
AgTech also includes new technology to sustain crop growth in regions suffering extreme weather conditions, such as Nigeria and Bangladesh.
Governments in agriculture-heavy countries are also improving the investment landscape for AgTech startups. In Australia, the government has partnered with the National Farmer Federation to create SproutX,10 an AgTech startup accelerator. In Turkey, mitigation technology development is growing, as the government sets ambitious goals to be among the top five agricultural producers in the world by 2023.11 In China, India and Brazil—the three largest global agricultural emitters—the focus is on technology investments that modernize the agriculture sector and increase crop production.
Areas to watch:
- Green building retrofits in major cities;
- Vertical farming;
- Remote sensing systems to monitor deforestation.
The built environment refers to greenhouse gas emissions that stem from the conversion of land for new agricultural, industrial and urban development—including buildings, as well as what’s referred to as “land use, land use change and forestry” (LULUCF). About 40% of the world’s greenhouse gas (GHG) emissions come from buildings,12 and another 10%-12% from LULUCF, which includes deforestation.13
Deforestation for agriculture can be a major contributor to greenhouse gas emissions in some emerging countries—70% in Indonesia’s case14 and 51% for Brazil.15 The latter has focused on technology to monitor and reduce the destruction of the Amazon rain forest by using remote-sensing systems that detect deforestation, and other systems to alert authorities to illegal logging. Advances in more efficient agricultural techniques, like vertical farming, can also offset deforestation emissions.
The energy-efficiency movement in buildings, meanwhile, is becoming a global business in its own right. Growth in green-building certifications—such as Leadership in Energy and Environmental Design (LEED)—is burgeoning in developed countries, as commercial real-estate owners realize they can unlock greater returns with green buildings than with portfolios of less efficient real estate. The number of LEED-certifications in the U.S. has jumped, from 296 in 2006 to 36,300 in 2016.16 And it's not just the U.S.; Poland, for example, saw a 60% increase in green buildings from 2014 to 2015.17
New technologies move well beyond solar panels and green roofs. Energy efficiency now happens behind the scenes, with automated building management systems detecting usage patterns of lighting, heating and air conditioning. Lighting technology is also an area of opportunity, as are innovations in window insulation, which trap heat in winter and keep out the sun in summer.
The nonprofit Business and Sustainable Development Commission estimates that energy-efficient buildings, clean vehicles, urban public transport and green building in cities could represent an opportunity of more than $1.1 trillion globally by 2030, with more than half coming from energy-efficient buildings.18
Areas to watch:
- Growing electric vehicle demand in developed markets;
- Public transit and biodiesel innovation in Brazil and Argentina;
- Low-emission transport in low-income economies.
It’s been a while coming, but the transportation industry’s long-promised electric future is now within grasp. The electric vehicle market is expected to account for 75% of global car sales by 2050,19 according to the International Energy Association. There are even efforts underway to create solar-panel equipped vehicles.
Tighter regulations for clean air are leading policymakers to think about transportation in new ways. Increasingly public transport is being upgraded to be more energy efficient. Initiatives to expand green public transportation will underpin strong demand for clean transport technologies in the UK as well as the U.S., according to the report.
Clean transport technology is needed most particularly in fast-growing emerging markets. In India, vehicle demand is expected to almost double by 2020.20 Underpinning the demand for clean transportation in Brazil is the country’s culture of individual car ownership and a large and well-established biofuel market. Authorities are also exploring the construction of cleaner public transport in cities like Sao Paulo.21
Areas to watch:
- Carbon capture and storage technologies;
- High-efficiency industrial power generation in Bangladesh;
- Innovations that decouple industrial production from emissions growth in advanced economies.
Corporations are increasingly taking up the battle against industrial pollution as part of their own sustainability efforts. Late last year, for instance, a conglomeration of oil companies – including Saudi Aramco, Royal Dutch Shell and BP - announced a $1 billion investment in carbon capture and storage (CCS) technology development over the next 10 years.22
Public outcry against industrial pollution is also driving governments in advanced and emerging economies to take action. In South Korea, the government has launched a carbon emissions trading scheme, and called for a legal framework for CCS, in spite of resistance from some industrial groups who believe the crackdown could hurt the country’s international competitiveness.23
The biggest opportunities for tech investment in this sector lie in emerging economies, namely China and India, where the industrial sectors are expected to grow by 25% and 40%, respectively, through 2020.24 This raises the urgency for innovations that reduce what are already dangerous pollution levels in both countries.
China, where air pollution is a highly political issue, has sought to position itself as a climate leader, pushing a progressive agenda, including plans to implement a cap-and-trade program in 2017.25 In its most recent five-year plan, China announced that it would seek to reduce factory emissions by 25%.26
Meanwhile, India’s government has targeted a 20% reduction in the country’s emissions by 2020,27 after its air pollution levels surpassed even China’s in 2016.28 Indian corporations have also embraced clean-air tech innovations. In early 2017, for example, a plant in Tuticorin, southern India, installed technology that captures and converts carbon dioxide from its coal-powered boiler into baking soda. This is the first industrial-scale carbon capture venture that has turned carbon emissions into a commercial opportunity.29