ZEUS: Eight insights for 2021 as climate change threat overtakes Covid

From battery storage breakthroughs to renewable stocks, the New Year promises to be what 2020 should have been for climate solutions

(David Callaway is founder and Editor-in-Chief of Callaway Climate Insights. He is the former president of the World Editors Forum, Editor-in-Chief of USA Today and MarketWatch, and CEO of TheStreet Inc.)

SAN FRANCISCO (Callaway Climate Insights) — I’ve caught myself three times in the past week referring to a trip or event in 2019 as happening “this past summer or fall,” forgetting that we’ve just sheltered through an entire year since. 2020 will be remembered as the year of the great dying and little else.

It will mask extraordinary strides in science and medicine, changes in human culture and workflow, and indeed, climate solutions. Next year, 2021, however, will reap the benefits of those strides. From a vaccinated population to trillions of dollars put to work fighting climate change, history will regard 2021 as the year we regained our mojo. Here are eight themes in the climate story I expect to see:

  1. Starting in January, all major banks will reject the idea of financing President Trump’s drilling leases for the Arctic National Wildlife Refuge. No sane financial company wants the legal hassle and negative publicity tied to those leases, especially when the prize of oil could be as long as a decade away. It’s possible a company like Exxon (XOM) could finance itself, or draw on private equity money, but the final failure of this controversial project will precede a decade of rapid reductions in drilling for fossil fuels around the world.

  2. Climate leaders will emerge in elected office in countries around the world, representing the priority that fighting global warming has become for voters and regular citizens. With environmental justice as a backdrop, the transition to renewable energy, electric transportation, and developing carbon storage techniques will become a hallmark of first world governments. The recent U.S. election saw almost a complete victory for climate candidates, following similar gains in Europe. President-elect Joe Biden’s climate team, taking final shape this week, will find a willing audience to work with.

  3. The mobilization of Wall Street, and investor funds into ESG strategies, will combine to speed the transition from fossil fuels, creating great opportunities in assets such as renewable energy and electric vehicles. However, the speed will also cause major dislocations, lead to more stranded assets, and create systemic risk as the financing of everything from home insurance to real estate and corporate bonds shifts away from climate dangers. Regulators and central bankers are already pointing to these risks, which become more apparent with each hurricane or wildfire.

  4. Oil prices will rebound as economies recover from the pandemic, throwing a major wrench into the transition from fossils to renewables. Low oil prices already impede the transition to renewable energy for many industries, prolonging the move into energy sources such as wind, solar and hydro. But as oil jumps, it will rekindle the debate on the length of a transition, make some banks think twice about the pace of their divestment from fossil fuels, and cause disorder in global energy trading. A sharp rise in oil prices early next year could presage an early crisis in financial markets.

  5. Individual leaders will emerge in ESG stocks, particularly in the battery storage and electric vehicle space (besides Tesla), as well as some renewables. Driven by the flood of money into special purpose acquisition companies (SPACs), climate solution plays will start to separate from the ESG pack in ways that will help better define green recovery in different countries. Think QuantumScape (QS), Vestas Wind Systems (VWS) in Denmark, or Nio (NIO) in China. Success of climate solutions companies will help differentiate them from the traditional tech stocks that have helped push ESG funds higher this year.

  6. Renewable costs will drive huge investments in major projects, such as offshore wind, solar, and energy efficiency in major cities. Many of these will be public projects that will drive thousands of jobs badly needed after the pandemic and during the transition from fossil jobs. Expect many big announcements in the U.S. in the first year of the Biden Administration, and in Europe as its post-Covid green rebuild takes shape.

  7. China and India make history by turning the corner on coal. The two major coal users are both committed to cleaning up their acts and in doing so will drive more investment into renewable energy sources. The speed with which they withdraw from coal will largely determine where the world is in 2030 in terms of increased temperatures and rising seas. China’s plans will become known in the spring with the publication of its 14th five-year plan. Its recent prohibition on imports of coal from Australia, while more for political reasons, effectively throws the world’s largest coal producer into disarray as well, and will force it to reconsider its role on the global climate stage and its own mining-heavy economy.

  8. Climate migration becomes the dominant theme for countries in terms of borders, immigration policies, human rights, and transportation innovation. Rising heat and changing, drier, weather patterns are already forcing millions to move north in places such as Africa and South America. The movement will dwarf the Syrian migration of a few years ago and force world leaders to make historic decisions about their nations’ futures. Innovations in transportation and urban living (think energy efficient cities) will drive the investment and solutions in this space, as will the future of how we raise and distribute food.

These insights are based on themes we’ve already seen developing in 2020, in many cases under the Covid radar. Of course, nobody outside of the most far-seeing scientists at this time last year would have forecast the pandemic engulfing the world. But as we hit the historic point where science and medicine defeat Covid next year, the threat of climate change and the opportunity for those who create and finance solutions will become twin stars, guiding us toward a much different world.