HSBC 2019 C-7 (Climate Seven Group of Countries) + top 3 EM countries
1st Germany
- 36% emissions decline since 1979 peak
- 1st place for policy outlook and
- 2nd for potential to respond
- 2nd place for green opportunities
2nd Sweden
- Over 60% of primary energy mix ‘clean’
- Targeting zero net emissions by 2045
- Lowest emissions per capita of C7 Group
3rd Austria
- Hydro power 25% of primary energy mix
- Strong policy outlook and potential to respond
- 5th place for green opportunities
6th United States
- Recent growth in use of renewables
- Non-state actors pushing forward with climate plans
- 3rd place for green opportunities
7th United Kingdom
- Accelerated emissions declines over the past decade
- 75% reduction in coal use in primary energy mix between 2012 and 2017
- Long term aim of at least 80% emissions reduction by 2050 (vs 1990)
4th France
- 2nd lowest emissions per capita of C7 Group
- Nuclear 48% of primary energy mix
- Long term target of carbon neutrality by 2050
5th Denmark
- 47% fall in emissions since 1996 peak
- High use of renewables and natural gas
- EM – 2nd, EM – 3rd
Czech Republic (13th overall)
- Declining emissions following economic reform
- Policies to further improve energy efficiency
- Highest ranking EM state on climate policy support
- EM – 1st
Korea (15th overall)
- Highest ranking EM state for potential to respond
- High share of nuclear in primary energy mix
- Innovative economy aligned with future green opportunities
China (14th overall)
- 1st place for green opportunities
- Pledge to reach peak emissions around 2030
- Targeted 60-65% fall in carbon intensity of GDP by 2030 (vs 2005)
- Significant energy efficiency improvements since 1970s
85%
Fossil fuels still underlie the majority of
energy consumption
Fossils in GDP and exports: We think achieving diversification is key and look here at the
extent to which the 67 countries under consideration are diversified in relation to fossil fuel, their
exports and their economic production. Kuwait, Saudi Arabia and Oman are the three
countries with highest earnings from fossil production, predominantly oil in these cases. 15 of
our sample of 67 countries are net exporters of hydrocarbons, in economic terms. Nigeria,
Kuwait and Qatar have heavy dependence on exports although these shares have declined in
the last ten years.
Oil & gas reserves-to-breakeven ratio of the top 10 countries (2030e). Saudi Arabia is 7, Russia 3.2, Qatar 1.9, and the US 1.8.
Saudi Arabia comes through with the highest R/B-2030 ratio, having both large reserves
and a low weighted average breakeven cost of production across these – i.e. we conclude that
Saudi Arabia is best placed to find economic upside in providing oil and gas in a lower carbon
world.
Overall, European countries dominate in terms of decarbonisation policy outlook, with
Germany on top – with only Canada (9th place), the US (14th) and New Zealand (13th)
permeating the top-20 from outside the region. Of the top 20, Slovenia and the Czech Republic
are considered non-DM.
Potential to respond to climate risks.
Norway tops the list in terms of potential to respond, followed by New Zealand and Australia,
and then the other three larger Nordic economies. Five EM/FM countries feature in the top-20
here – Republic of Korea, Estonia, Czech Republic, the UAE and Saudi Arabia.
Climate Opportunities
In this section, we move from policy to the opportunity set – which countries are better placed to
benefit economically from producing technologies and products where demand will be driven by
a decarbonising world.
Being resilient through the low-carbon transition is not only about being better placed to
transition away from high-carbon domestic activities or having the policy outlook to move away
from fossil fuels. We see the transition as an opportunity for those able to sell the products and
technologies which allow it to happen. Indeed, we believe those countries which can generate
more revenues as the global economy decarbonises are likely to be among the most resilient. In
this section, we seek to identify in which countries there are companies earning more revenues
from climate change aligned themes. Plus, we look forward and ask which countries have
parallel industries to clean-tech production necessary to the transition, suggesting the green
industrial opportunities that are likely to be the easiest to transition into, given what a country
already knows how to do.
We believe those countries which can generate more revenues as the global economy decarbonises are likely to be among the most resilient.
We also consider Green Complexity Potential – a metric from the University of Oxford Institute
for New Economic Thinking. This considers path dependency of industrial development –
enabling us to build in a consideration of which countries are more likely to be able to make the
products the world needs for the low-carbon transition, given what they produce today.
Countries are more likely to diversify into products or
industries that require production capabilities similar to
what they currently possess
Penny Mealy and Alexander Teytelboym, University of Oxford
Overall, we find China, Germany and the US are the countries best-placed to make profits as
the world moves towards a lower-carbon future. At the other end of the spectrum, countries
which are economically more dependent on fossil fuel production, particularly in the MENA
region, as well as poorer countries, populate the lower end of our rankings.
Concluding thoughts and overall rankings
In our main report5, we cover each of these headline areas in turn. European states dominate
the higher rankings, the US coming in 6th, and MENA and other hydrocarbon economies
prevalent at the bottom of the table.
We believe it is important for investors to understand which countries are best-placed for the
low-carbon transition. The economic outlook over the next few years may create challenges in
terms of climate transition. Our economics team expects global growth to continue to be just shy
of 3% per year over the next decade with much of this growth (70%) to come from the emerging
world. These parts of the world are getting steadily wealthier, causing changes in individuals’
consumption patterns: more towards car ownership, air travel and energy consumption more
broadly. Across the emerging world we expect millions of people to move to cities over the next
decade and even more to rise to middle class status.
continued expansion in energy demand, consumption and urban populations means that
the need to transition to a lower-carbon energy mix will only get more pressing. And as the
world addresses climate change risks by decarbonising human activities and reducing use of
fossil fuels, we think some countries will have a competitive advantage. We believe those with
the policies, institutional quality, economic diversity and low-cost energy resources, will have
lower cost burdens in achieving 2ºC-aligned economies and enjoy revenue benefits associated
with driving the world down this pathway.
Germany
National policies for low carbon transition
Emissions pledges Reduce GHGs by at least 40% by 2030 from 1990 level (Paris). NDC also includes GHG targets of
20% reduction by 2020 (Kyoto) and 80-95% by 2050 (long term strategy) compared to 1990 level
National policies
Targets – 40% GHG reduction by 2020, 55% by 2030 and 80-95% by 2050 (vs. 1990 level)
- 20% reduction in primary energy consumption by 2020 and 50% by 2050 (vs. 2008)
- Renewables to make up a minimum 80% of gross power consumption by 2050
- Nuclear power phase out by 2022
- Energy sector targets 62% GHG reduction by 2030 vs. 1990 level
- Transport sector targets GHG reduction of 40-42% by 2030 vs. 1990 level
- Buildings target 67% GHG reduction by 2030 vs. 1990 level
EV incentives and policy
support
BEV subsidy of EUR4,000 per vehicle and PHEV subsidy of EUR3,000 until 2019 or until the subsidy
pool of EUR1.2bn is exhausted
Market Mechanism 2030 Framework for EU ETS: Comprising of Phase 4 (2021-2030) – the scheme through ‘cap and
trade’ aims at reducing emission by 43% compared to 2005 by 2030 across different sectors like
electricity, manufacturing and aviation.
Source: HSBC
Sweden
67% of the primary energy mix is ‘clean’
Ambitious targets and policies and a strong green opportunity set
underpin Sweden’s second position in the C-7 Group
Sweden’s economy remains healthy, focusing on high-tech services
Sweden’s greenhouse gas emissions have fallen over recent decades, and particularly rapidly
over the past five years, as the country nears its national target to achieve a 40% reduction in
emissions by 2020 (from 1990), and moves towards its long-term target of being a zero net
GHG emission economy by 2045, with emissions from activities on Swedish territory 85% lower
vs 1990 by 2045. Sweden has the lowest emissions per capita of the C-7 Group.
Sweden does not use coal and has widespread renewables and hydro.
National
policies have assisted with the steadily declining energy. Sweden has committed to improving
efficiency by 20% by 2020 (vs 2008). Policies include tax relief for power intensive industries
that follow energy reduction and efficiency policies. But, oil use in transport is the only material
fossil fuel exposure and we expect this to be the focus for future Swedish energy transition.
As with all of our C-7 economies, Sweden is largely a service economy. The economy has
continued to transition away from manufacturing and into high-end technology. Whereas we
used to think about the Swedish economy in terms of Volvos and flatpack furniture, nowadays
the economy is more synonymous with the likes of Spotify, King and iZettle. The growth outlook
over the medium-term remains more optimistic than for the majority of the developed world, with
a still-growing working-age population, a highly educated workforce and a healthy fiscal
position. Our 2030 forecasts point to trend growth of 1.8% over the course of the next decade.
Sweden’s domestic company exposure to climate sectors, particularly those relating to building
efficiency, underpin the country’s high overall score. The country also ranks extremely highly in
terms of potential to respond and performs well under the overarching decarbonisation policy
outlook.
Sweden has successfully implemented a number of policies to help towards achieving some of
its more ambitious targets, see targets and policies table below. In the transport sector, Sweden
is targeting a zero fossil fuel vehicle fleet by 2030. In the buildings sector, the country is
targeting energy efficiency improvements in the home.
Non-state actor ambition is also assisting with Sweden’s national progress. The city of Malmo
has become carbon neutral thanks to city wide thermal energy storage systems. The capital,
Stockholm, has invested heavily in city planning and smart transportation grids.
National policies for low carbon transition
Emissions pledges Reduce GHGs by at least 40% by 2030 from 1990 level (Paris). NDC also includes GHG targets of 20%
reduction by 2020 (Kyoto) and 80-95% by 2050 (long term strategy) compared to 1990 level
National policies
Targets – To be a net zero emission economy by 2045, with negative emissions beyond this date
- Emissions from activities on Swedish territory 63% lower by 2030, 85% lower by 2045 (vs 1990 level)
- 50% energy intensity reduction by 2030 compared to 2005 level
- Transport sector targets at least 70% reduction by 2030 compared to 2010 level
EV incentives and policy
support
Passenger vehicles with emissions levels lower than 50 g CO2/km have been granted a 40 000 kronor
(roughly EUR 4 000 or USD 4 400) rebate since 2011
Market Mechanism 2030 Framework for EU ETS: Comprising of Phase 4 (2021-2030) – the scheme through ‘cap and trade’
aims at reducing emission by 43% compared to 2005 by 2030 across different sectors like electricity,
manufacturing and aviation.
Source: HSBC
