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Smoke from the Alisal Fire shrouding the sky near Goleta, Calif.

David McNew/Getty Images

The challenge of reining in climate change is mind-numbingly huge, and the business opportunities are too.

That’s one takeaway from a new report from the International Energy Agency, and commentary from analysts ahead of a conference that could speed up the transition, or place new roadblocks in its way. The IEA expects that manufacturing wind turbines, solar panels, lithium-ion batteries, electrolysers, and fuel cells are trillion-dollar opportunities by 2050.

The 2021 United Nations Climate Change Conference, known as COP26, starts in Glasgow on Oct. 31. It’s expected to be a landmark event for the future of climate policy, a way to further solidify and advance the 2015 Paris agreement.

Bank of America analyst Eric Lopez wrote in a report this week that the conference will be “the tipping point of the race to reach net zero emissions.”

“This is the last decade to act,” he added.

But it will open during a time of enormous stress for energy markets that is reversing some of the progress made in recent years.

A power crunch in Europe and Asia has led to increasing demand for coal and natural gas that is likely to contribute to a large boost in emissions this year.

“For all the advances being made by renewables and electric mobility, 2021 is seeing a large rebound in coal and oil use,” the IEA report says. “Largely for this reason, it is also seeing the second-largest annual increase in CO2 emissions in history.”

Even in 2020, when Covid-related lockdowns forced people and businesses around the world to use less fuel, the emissions decline was not enough to reach the goals set out in the Paris agreement to hold temperature increases to 1.5 degrees celsius, according to asset management firm Columbia Threadneedle.

“This shows how achieving these reductions in  emissions without creating economic slowdowns and avoiding disruptions is going to be a really huge challenge, but it’s also very necessary,” said Threadneedle analyst Jess Williams in a presentation on Wednesday.

Williams thinks that one of the most important things that could come out of the COP26 conference is an agreement on Article 6, a section of the Paris agreement that deals with how carbon credits work and can be traded across borders.

Companies already use carbon credits to offset their emissions, but a smooth-operating global market would make it easier to set prices. Right now, most corporations are falling short on climate policies, according to data from MSCI. The global carbon “budget” — or the threshold for carbon emissions that will still allow the world to hit a 1.5-degree target — will be totally spent by November 2026, according to MSCI.

Lopez’s report acknowledges the seemingly “mind-boggling” and “farfetched” goal of slowing down climate change. The report estimates that the world will have to spend $5 trillion per year for the next 30 years to achieve these goals. “However, the cost of inaction could be more significant: over 3% of GDP could be lost every year by 2030, growing to $69 trillion by 2100,” the report says.

Bank of America analysts highlighted 26 Buy-rated stocks around the world that it thinks can benefit from the energy transition. They are broken into six segments.

The renewables-related stocks include


Nextera Energy

(ticker: NEE);


Enphase Energy

(ENPH);


Vestas Wind Systems

(VWDRY);


E.ON

(EONGY);


EDP Renovaveis

(EDPR.Portugal);


Acciona

(ACXIF);


Xinyi Solar

(XISHY).

The “industrals” include


Kingspan Group

(KGSPY);


Sika

(SXYAY);


Norsk Hydro

(NHYKF);


Generac Holdings

(GNRC); WEG (WEGZY); and


Waste Connections

(WCN).

The hydrogen names are


Air Liquide

(AIQUY);


Nippon Sanso Holdings

(TYNPF) ; and


Siemens Energy

(SMNEY).

Biofuels stocks include Raizen (RAIZ4.SA) and Neste (NTOIY).

Electric vehicle stocks include


CATL

(300750.China);


Samsung SDI

(006400.South Korea);


SK Innovation

(096770.South Korea);


NIO

(NIO);


XPeng

(XPEV);


BYD

(BYDDY); and


Lucid Group

(LCID).

And


Aker Carbon Capture

(AKCCF), is included as a pure-play on carbon capture and storage.

Write to Avi Salzman at avi.salzman@barrons.com

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