Europe Could Lead Way in $10 Trillion Fossil Fuel Capex Ban, UBS Says

(Bloomberg) --

A $10 trillion ban on fossil fuel capital spending could hold the key to net-zero emissions by 2050, according to UBS Group AG.

To achieve such a freeze on emissions, there would need to be enough global restrictions to reduce cumulative fossil capex by two-thirds of the current amount, or about $10 trillion, UBS analysts led by Sam Arie wrote in a note assessing the outlook on energy and climate change. Europe will likely be the starting point for such a move, according to them.

“We expect to see increasing legal and financing restrictions on fossil capex -- taking effect more quickly than any moves towards a global carbon tax, and inevitably accelerating convergence of the energy and utilities sectors,” the analysts wrote.

European countries are at the forefront in the fight against climate change: Achieving climate neutrality by 2050 is a top priority for European Commission President Ursula von der Leyen, while a report this week said Germany’s government will offer utility RWE AG significant compensation to shut its coal plants. Last month, Spanish company Repsol SA became the first oil company to commit to net-zero emissions by 2050.

Although the consensus suggests that carbon taxes are the focus globally, and it may yet be difficult to avoid “dangerous climate change,” a ban on fossil capital spending may be easier to replicate via “policy contagion” rather than global coordination, the UBS analysts said.

Shares of utilities focusing on renewables have outperformed in Europe in the past year. Increasingly supportive government policies are underpinning the growth ambitions of companies including Orsted A/S, RWE, Enel SpA, SSE Plc and EDP Renovaveis SA, Bank of America Corp. analysts wrote in October.

Europe Could Lead Way in $10 Trillion Fossil Fuel Capex Ban, UBS Says

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