Carbonomics: Affordability, Security and Innovation
The higher cost of capital for high carbon vs. low carbon investments is driving under-investment in energy, transport and heavy industries. More regulatory clarity could close this $0.5 trn pa missed investment opportunity and spur a $1 trn increase in annual energy spend by 2026E to provide reliable, affordable and cleaner energy supply, in line with the UN Sustainable Development Goals. Goldman Sachs Research analysts update their Carbonomics cost curve and arrive at three key conclusions: 1) clean technologies associated with energy efficiency and substitution of natural gas (renewables, clean hydrogen, biogas) keep moving lower on the cost curve; 2) technologies substituting oil (EVs, biofuels) have become less competitive; and 3) the biggest policy breakthrough this year – the US Inflation Reduction Act – is transformational for the economics of hydrogen and carbon capture. Overall, ‘the revenge of the old carbon economy’ keeps driving a disjointed de-carbonization process that is both inflationary and inefficient. However, GS Research analysts see some clean tech green shoots, with clean hydrogen at the cusp of a regulatory and economic breakthrough.
