The Green Transition: Opportunities and Challenges – 17 April 2023
17 Apr 2023
Copper in Focus as G7 Aims to Accelerate Energy Transition According to Communique.
The green transition is emerging as a significant investment theme this decade, involving massive spending, government subsidies, and hopefully, progress toward renewable energy development.
In a meeting held in Sapporo, Japan, ministers have agreed to expedite the development of renewable energy and phase out fossil fuels and plastics more quickly. However, the goal of phasing out coal by 2030 did not appear in the communique, nor did the hope of reducing natural gas usage. This is unsurprising given the current energy crisis in Europe and practical considerations contradicting the aspirations of a green transition.
Despite this, there has been a concrete push towards offshore wind energy, with a commitment to 150 gigawatts of capacity by 2030. However, the economics of offshore wind has been called into question by NextEra Energy, which is the largest producer of renewable power and has extensive experience in offshore wind. On the fossil fuel side, there is a commitment to phase out unabated fossil fuels by 2050 at the latest.
- Although none of the targets are binding, they indicate the direction that governments are moving towards, including subsidies. One of the best investment opportunities in this transition will be front-run critical materials spending and addressing the impending supply gap. However, the global regulatory structures around opening new mines are long and demanding, and it takes at least 7 years, and sometimes double that, to build a greenfield copper mine in a few places worldwide.
- The communique emphasized the vital importance of strengthening the critical minerals and materials supply, as this is one of the more compelling charts in the global investment landscape right now, given the time lags. While copper prices have remained resilient this year, there are short-term signs of weakening as the premium in China’s refined market falls.