Taking the Journey To Net Zero

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The time to act is now. How can we reach net zero emissions by 2050? Keeping the world habitable for future generations requires a transition to more sustainable energy sources. There are many possible pathways to reduce emissions and help limit global warming to 1.5°C. None of them will be easy. The decisions we make now could have far-reaching consequences. How can we reach net zero? Explore three different paths to net zero by 2050 based on modelling of public figures and proprietary data and insights from Bloomberg New Energy Finance (BNEF) and UBS insights and research.

Choose Your Path

Green

Renewables at Scale

Gray

Fossil Fuels Remain in Mix

Red

The Nuclear Option

Green

Renewables at Scale

BNEF’s green scenario prioritizes clean energy, where renewable energy makes up 85% of primary energy production in 2050, complemented by green hydrogen produced from water, using electrolyzers powered by wind and solar.

Green
scenario

Fossil Fuels 10%

Nuclear 5%

Renewables 85%

More than three-quarters of the effort to cut emissions in the next nine years falls to the power sector and to faster deployment of wind and solar PV.

The transition to green

% of
renewables
as primary
energy

72%

43% point
increase on 2021

Fuel mix: the power of
wind and solar

Today, fossil fuels provide 83% of our primary energy, but in this scenario, wind and solar power will lead the way. With falling production costs, improving efficiencies and policies that encourage the development of wind and solar farms, these clean energy sources are predicted to grow from providing 15% of global energy demand in 2030 to 70% by 2050.

This means adding as much as 505 GW of wind and 455 GW of solar capacity, along with 25 GWh of battery storage every year to 2030. That equates to more than five times the amount of wind power capacity added in 2020, three times the amount of solar and 26 times the amount of battery storage.

At the same time, more than 100 GW of coal-fired capacity needs to retire on average each year, so that by 2030 coal-fired power is about 70% below 2019 levels.

The good news is that it is now cheaper to build new renewables from scratch than operate existing coal and gas plants in a growing number of countries, including China, India and much of Europe, while wind or solar power are the cheapest form of new-build electricity generation in almost all major markets, covering two-thirds of world population, some 77% of global GDP, and 91% of all electricity generation.

2025

The year when fossil-fuel power generation is overtaken by zero-carbon sources.

Source: BNEF New Energy Outlook, 2021

1,400
GW

amount of renewable energy needed every year for the next three decades.

Source: BNEF New Energy
Outlook, 2021

Emerging technologies

Alongside wind and solar, developing technologies including new hydrogen-fired, combined-cycle and open-cycle turbines will emerge toward the end of the decade, eventually accounting for 5.5 TW of capacity in 2050. This is roughly the same size as all the coal, gas, nuclear and hydro power stations running in the world today put together.

Hydrogen must scale rapidly, although its role in abatement is limited in this decade. New demand for hydrogen in 2050 is 1,318 million tons in the Green Scenario, where it increases to around 22% of total final energy consumption, compared with less than 0.002% today. 1.9 TW of electrolyzers will need to be deployed by 2030 to kickstart the hydrogen sector.

Sector Focus

Transportation

Electrification of vehicles accounts for 42% of total emissions reductions. Hydrogen accounts for 19%.
Hydrogen-powered flight begins to emerge from 2030, reaching 55% penetration in 2050, while the share of sustainable aviation fuel (SAF) grows to 39%.

Buildings and infrastructure

186 million households install heat pump systems by 2030, increasing to 1.4 billion by 2050.
Hydrogen grows and makes up 12% of final energy use in buildings in 2050.

Industry and manufacturing

Hydrogen-based heat replaces around 43% of fossil fuel use in industry by 2050.
The shift to hydrogen for primary steel production accounts for up to 92% of emissions reductions and 77% of final energy demand in 2050.

Investment opportunities

To realize the ambition of a net-zero future will require huge capital inflows. Annual investment in energy infrastructure will need to more than double, from around $1.7 trillion per year today, to somewhere between $3.1 trillion and $5.8 trillion per year on average over the next three decades.

New investment in wind and solar capacity has been flat at around $300 billion per year for several years. According to BNEF, this needs to rise to between $763 billion to $1.8 trillion per year between 2021 and 2030 to get on track for net zero.

Green scenario investment breakdown

53%

Production, storage and transport of hydrogen

37%

Power generation, storage and grid

10%

Fossil fuels

UBS Insights

Green Scenario

UBS Insights

Based on IRENA calculations¹, we expect about $40–50 trillion of global energy transition investments in the years 2021–30 alone, representing 40% of the total over the next three decades, funded by lending, debt, and equity (public and private). We believe this offers attractive investment opportunities for investors.

Companies that provide technological solutions to climate change challenges can expect to benefit, whereas those that are too slow to adapt could see rising costs and a loss of competitiveness.

¹IRENA (2021), World Energy Transitions Outlook: 1.5°C Pathway, International Renewable Energy Agency, Abu Dhabi. Note: Assumptions include a Planned Energy Scenario (governments’ current energy plans and other planned targets and policies) and a 1.5°C scenario.

Source: UBS Chief Investment Office GWM, Leading the way to net-zero — Global Greentech investment opportunities, 20 Oct. 2021

Investment in the
Global Energy Transition

Source: UBS Chief Investment Office GWM, Leading the way to net-zero — Global Greentech investment opportunities, 20 Oct. 2021

Using China as a test case, we estimate the cost of producing green hydrogen is set to drop 75% by the end of this decade and another 50% by 2050. The versatility and range of applications of hydrogen means it could be an important part of the world’s decarbonization efforts.

Source: UBS, Q-Series, Green hydrogen: production to pump - how to navigate an emerging multi-US$trn value chain? 5 Aug. 2021

Reducing carbon emissions at a time when global energy demand is rising means that increased energy efficiency will be essential. Clean electricity will play a key role across all sectors—from transport and buildings to industry—and is essential to producing low-emission fuels such as green hydrogen. To achieve this, total electricity generation is expected to increase over 2.5 times between today and 2050².

Decarbonizing the production of electricity is therefore the largest opportunity for reducing CO2 emissions. While wind and solar energy have already become cost competitive with fuel-based or nuclear power electricity generation in many countries, expected further cost declines should soon make them the cheapest way to produce electricity.

²IEA (2021) Net Zero by 2050 — A roadmap for the global energy sector. All rights reserved.

Source: UBS Chief Investment Office GWM, Leading the way to net-zero — Global Greentech investment opportunities, 20 Oct. 2021

The investment opportunities in greentech

We see the biggest short-to-medium-term investment opportunities in five areas:

Clean energy
Energy efficiency, digitalization
Electrification, batteries
Bioenergy
Green financing

Over the longer term, we expect new investment opportunities in technologies like:

Hydrogen
Carbon capture, utilization, and storage

Time to mass adoption

Short term Long term

Enabling technologies

Clean energy
Energy efficiency, digitalization
Electrification, batteries
Bioenergy
Hydrogen
Carbon capture, utilization, and storage (CCUS)
Other (e.g. green financing)

Source: Leading the way to net-zero — Global Greentech investment opportunities, 20 Oct. 2021, Chief Investment Office GWM, UBS

Most (and least) favored markets for the energy transition

	Most Favored	Least Favored
Clean Energy Generation	Renewable equipment manufacturers (wind, turbines, solar panels, hydro)	O&G equipment, fossil-fuel generation
Infrastructure (Grid, Storage, Hydrogen)	HV / MV equipment makers, battery storage, electrolyzers, other hydrogen equipment
Transport	Rolling stock + rail equipment makers, marine decarbonization solutions, battery makers	Airlines, traditional truck OEMs, ICE suppliers
Buildings	Energy efficiency solutions in HVAC, LV products	Traditional construction equipment manufacturers
Industry	Automation solutions, electric mining equipment, electric power tools, efficiency equipment	Combustion engine-based equipment makers / suppliers

Clean Energy
Generation

Most Favored

Renewable equipment manufacturers (wind, turbines, solar panels, hydro)

Least Favored

O&G equipment, fossil-fuel generation

Infrastructure
(Grid, Storage, Hydrogen)

Most Favored

HV / MV equipment makers, battery storage, electrolyzers, other hydrogen equipment

Least Favored

Transport

Most Favored

Rolling stock + rail equipment makers, marine decarbonization solutions, battery makers

Least Favored

Airlines, traditional truck OEMs, ICE suppliers

Buildings

Most Favored

Energy efficiency solutions in HVAC, LV products

Least Favored

Traditional construction equipment manufacturers

Industry

Most Favored

Automation solutions, electric mining equipment, electric power tools, efficiency equipment

Least Favored

Combustion engine-based equipment makers / suppliers

Source: UBS, Q-Series, Energy transition and the capital goods sector: A US$75-90tn tailwind for the sector? 30 Sept. 2021

Explore a different path

Based on The New Energy Outlook (NEO), BloombergNEF’s annual long-term scenario analysis on the future of the energy economy. In practice, we will probably see a mix of these solutions as each country pursues climate strategies that best suit them, considering their existing domestic economy, international trade and geopolitics. Country-specific climate pathways will be one focus of subsequent iterations of the New Energy Outlook.

Important Information About Sustainable Investing Strategies: Sustainable Investing strategies aim to consider and incorporate environmental, social and governance (ESG) factors into investment process and portfolio construction. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit UBS’s ability to participate in or to advise on certain investment opportunities that otherwise would be consistent with the Client’s investment objectives. The returns on a portfolio consisting primarily of sustainable investments may be lower or higher than portfolios where ESG factors, exclusions, or other sustainability issues are not considered by UBS, and the investment instruments available to such portfolios may differ. Companies, product issuers and/or manufacturers may not necessarily meet high performance standards on all aspects of ESG or Sustainable Investing issues.

These materials have not been prepared with regard to the specific investment objectives, financial situation or particular needs of any specific recipient. They are published solely for informational purposes and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments or to participate in any particular trading strategy. The recipient should not construe the contents of these materials as legal, tax, accounting, regulatory, or other specialist or technical advice or services or investment advice or a personal recommendation. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein except with respect to information concerning UBS, nor is it intended to be a complete statement or summary of the securities markets or developments referred to in these materials or a guarantee that the services described herein comply with all applicable laws, rules and regulations. They should not be regarded by recipients as a substitute for the exercise of their own judgment. Any opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of UBS as a result of using different assumptions and criteria. UBS is under no obligation to update or keep current the information contained herein, and past performance is not necessarily indicative of future results. Neither UBS nor any of its directors, officers, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of these materials or reliance upon the information contained herein. Additional information may be made available upon request. Not all products or services described herein are available in all jurisdictions and clients wishing to effect transactions should contact their local sales representative for further information and availability.

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Gray

Fossil Fuels Remain in Mix

Coal and gas maintain a 10% and 9% share of final energy consumption in 2050, thanks to carbon capture and storage technology. Oil drops to 10% in this scenario from 42% today.

Gray
scenario

Renewables 43%

Nuclear 5%

Fossil Fuels 52%

In BNEF’s gray scenario, coal and gas remain part of the fuel mix thanks to the widespread use of carbon capture and storage (CCS). As a result, fossil fuels decline just 2% a year to 52% of primary energy supply in 2050, with wind and solar increasing to 26%. Small amounts of “blue” hydrogen, produced using natural gas with CCS, is used for non-stationary energy applications, with bioenergy for aviation and shipping.

The transition to gray

% of
fossil fuels
as primary
energy

72%

43% point
decrease on 2021

Fuel mix: carbon capture
offers outlet for coal

The energy supply crisis at the end of 2021 coupled with the determination of major economies, including China and India, to continue with large-scale infrastructure development, showed how difficult ending the dependence on fossil fuels will be. In the gray scenario, CCS means a revival for coal. By 2050, there is 1.7 TW of coal-fired power using CCS, which is almost as much as today’s global coal capacity combined. Oil, however, is in significant, long-term decline.

But unabated coal generation, which isn’t mitigated with CO2 reduction technology, will suffer. Thanks to the rapid decarbonization required to meet carbon emission targets, it will fall as much as 72%. But renewables will help fill the gap, led by solar PV with 7.3 TW and onshore wind with 5.6 TW deployed by 2050.

70%

of today’s coal installed capacity will be offline by 2050.

Source: BNEF New Energy Outlook, 2021

493
GW

average addition of renewable energy needed every year to reach net zero.

Source: BNEF New Energy
Outlook, 2021

Emerging technologies

The IPCC’s Sixth Assessment report was ‘code red’ for humanity. The UN panel of experts made it clear that to keep the 1.5°C climate pledge, reducing emissions is not enough; we must also remove billions of tons of CO2 that is already in the atmosphere. Carbon capture with permanent storage (CCS) or utilization of the captured CO2 (CCU) are both useful tools for reducing emissions.

In the gray scenario, CCS would be applied across a variety of processes that emit CO2, including power generation, as well as aluminum, steel and cement production. Widespread use of CCS captures over 174 gigatons of CO2 to 2050 and accounts for 18% of total emissions reductions. Although CCS does not play a meaningful abatement role in the 2020s, 936 million tons of carbon capture and storage is in place by 2030, getting it to scale is a critical task for this decade.

Bioenergy (energy made from biomass or biofuel) plays a larger role, particularly in aviation and shipping, accounting for 6% of emissions reduction in the end-use economy. Blue hydrogen helps reduce emissions in industry and transport by 4%.

Journey to Net Zero