Investing in energy efficiency and renewable energy sources to ensure Europe’s energy sovereignty and climate ambitions

€ 300 billion in investment to overcome dependence on Russian gas. With the RePowerEU plan presented by the European Commission on Wednesday, May 18, the European Union seeks to gain sovereignty by freeing itself from Russian fossil fuels, thereby giving more credibility to its goal of carbon neutrality by 2050. The boom in renewable energy production, energy efficiency and carbon taxation… and all these are opportunities for investors. Analysis by Laurent Trules and Tristan Fawa, responsible investment coordinators of Dorval Asset Management, co-managers of the Dorval European Climate Initiative.

The European Union’s carbon neutrality: the same response to many challenges

In terms of energy and health, the European Union is beginning to realize the need to provide itself with the means to strengthen its sovereignty. Already in 2020, the health crisis associated with Covid-19, highlighted Europe’s dependence on its foreign suppliers (China, South Korea) in the supply of medicines and the need to purchase a productive tool for the production of these health resources in its territory . Last February, Russia’s invasion of Ukraine highlighted another no less strategic external dependence: energy supplies. Faced with the threat of gas shortages, inflation and tensions over energy prices, European leaders were able to choose a short-term response, turning away from their goal of achieving carbon neutrality by 2050. But they have made political and strategic choices to reaffirm Europe’s commitment to the development of clean energy in order to be the first continent to make this important ecological transition to preserve the climate. This transition allows us to respond to several issues: sovereignty, security, climate, trade balance, and so on.

Political leaders, companies, citizens… European energy sovereignty based on clean energy requires collective action

Today, our economies remain extremely dependent on fossil fuels (gas, oil). To change this situation, the European Commission presented its action plan “RePowerEU” (European Union Energy Recovery) on 18 May. This package of legislation and recommendations for the attention of the 27 Member States is endowed with € 300 billion in investment, mostly from available funds. The aim of this European strategic plan is to completely free itself from Russian gas imports by 2030. To achieve this, the European Union wants to receive 45% of its energy consumption from renewable sources (wind, sun, sea, biomass) by 2030. , geothermal… and hydrogen, in which Europe intends to become a world leader), while increasing the energy efficiency of buildings and appliances by 13% compared to 2020. In this regard, action plans are already being implemented: for example, 10 million heat. pumps will be installed in Europe over the next five years.

Indeed, energy sovereignty is also based on the sobriety of our energy consumption. Although scientists and non-governmental organizations (NGOs) have been warning about this need for 30 years, it is the first time that it has been collectively and successfully supported by the government. Recall that on April 4, 2022, RTE called for a reduction in energy consumption to avoid a “blackout”: the media passed on this call, and citizens heard it. Giant failure could have been avoided. RTE explains that “if all the French turn off the light bulbs, it will save 600 MW of electricity consumption, or about the consumption of a city like Toulouse.” But above all, this unprecedented situation has shown the importance of collective action planned and supported by European infrastructure. France has been able to import electricity from its neighbors to avoid this outage. This change in mentality is a crucial factor in achieving energy sovereignty and achieving carbon neutrality by 2030.

Produce more clean energy and share it better in Europe

In order to no longer depend on Russian gas or oil imports, Europe needs to strengthen its clean energy capacity. In 2020, the share of renewable energy in European consumption reached 22.1% (source: Eurostat), exceeding the target of 20% in 2020, which was set in 2009. RePowerEU’s ambition is to double this share over the next 8 years. This goal is ambitious but realistic: in fact, regardless of renewable energy, an average of 2 years is enough to build new production capacity (compared to 5 years for a liquefied natural gas plant and 15 years for a nuclear power plant). In addition, RepowerEU plans to reduce administrative delays and aims to issue permits in less than a year in “favorable” areas identified by the States. Therefore, the choice of renewable energy sources is also the fastest way to purchase new power units on European soil.

In addition to this issue of production, Europe seeks to better allocate its energy resources through the development of interconnections between the Member States of the European Union. As a result, France already has 50 connections to its neighbors’ electricity grids, and RTE continues to establish new connections to double capacity for cross-border electricity exchanges by 2035. Strengthening this infrastructure means being able to provide electricity throughout Europe, which already has 400 interconnections.

Carbon taxes at Europe’s borders: a challenge for the climate and the competitiveness of Made in Europe products

Choosing carbon-free energy on its territory should be an advantage in tackling many of Europe’s challenges. Concerned about the competitiveness of its territory, the European Union has the opportunity to impose a tax – or even deny entry – on foreign products that do not meet European environmental standards and norms. The first of these taxes will come into force from 2023 to 2026, in particular for heavy industry and metallurgy. In fact, these measures will increase the competitiveness of European producers over cheaper foreign competitors with lower prices in terms of sustainable development.

More competitive European producers who contribute to carbon neutrality will become more attractive by participating in the desired reindustrialisation of Europe and job creation in Europe. Foreign producers who want to continue selling in the European market will have to adapt to these new standards. Thus, the positive effects of this tax on climate and energy transition may extend beyond Europe.

For investors, the European Union’s Energy Sovereignty Plan opens up opportunities: there is now potential for growth for companies involved in developing these renewable energy sources, improving storage solutions and optimizing energy efficiency. Thus, in order to participate in the growth of these companies and finance their projects, investors have the opportunity to value their savings by investing in the climate fund, combining efficiency and asset allocation in favor of European energy sovereignty and the environment. .

These examples are based on analyzes specific to Dorval AM, as of 19.05.2022. They are not an obligation or guarantee. The latter reserves the right to change its analysis.

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