Climate Is Next Race for Global Supremacy, Bank of America Says
Wind turbines and solar panels on a hillside in China. (Photographer: Qilai Shen/Bloomberg)

Climate Is Next Race for Global Supremacy, Bank of America Says

Put aside the trade and technology wars. The next race for global political and economic supremacy will focus on climate.

That’s according to Bank of America Corp.’s research group, which said climate change will be this decade’s most important theme, just as technology underpinned economic growth during the past decade. China has spent twice as much as the U.S. on climate action, said Haim Israel, the bank’s head of global thematic investing research, in a report Monday.

“We believe climate strategies offer a route to global supremacy,” he said. “Whether through regulation, limits on exports, tariffs or significant investments, we believe the U.S. and China will do whatever it takes to take the lead on climate action.”

The economic impact of climate change could reach $69 trillion this century, and investments in the energy transition need to increase to $4 trillion a year, Israel said. That will lead to more than $100 billion a year in research and development.

Bank of America estimates that the potential market capitalization for companies tackling climate to be about $6 trillion across things like renewables, electric vehicles, and environmental, social and governance. China dominates EVs and batteries, while Europe excels in renewables, the report says.

“The net result is likely to be more money chasing companies leading the climate transition, while climate laggards could face financing hurdles or lower valuations,” Israel said.

Pressure points in the climate war include supply-chain dominance, domestic-focused manufacturing policies, human rights-related laws and carbon-related trade tariffs, he said. Less foreign energy dependence and a focus on technology exports could be key.

Clean Energy

China’s wind and solar capacity is set to increase three and four times, respectively, by 2030, Israel said. That compares with the U.S., where wind capacity is set to double and solar is set to grow three times. EV batteries are poised to expand four times in China by 2025 versus three times in the U.S.

The superpowers’ race for clean technologies means oil and internal-combustion engine cars will peak this decade, Israel said.

“It‘s not just about offense, but also defense,” he said. “Tensions could escalate via China’s dominance in solar-supply chains and rare-earth metal production, domestic-focused policies like ‘Made in America,’ and Europe’s push for local EV battery supply chains.”

Israel’s report echoes billionaire investor Jeremy Grantham, who said in November that green energy will not only be economically important in the coming decades, but like oil was before, “incredibly geopolitically important.” Grantham suggested the U.S. start a major public works program akin to the Marshall Plan to revive economic growth amid the pandemic and threats caused by global warming.

ESG Funds

China-U.S. relations have been at the forefront in the past decade, while Europe lagged behind. But that could change given its leadership in climate policy, with the region home to 70% of ESG mutual fund assets, and having advanced green regulation and a “significant” headstart on decarbonization, Israel said. Eight of the 10 largest global clean-tech companies are European.

Given peak oil may be reached this decade as EV penetration accelerates, Europe is set to generate 85% of all its energy from renewable sources, compared with about 50% in China, the report said.

The next battleground for geopolitical supremacy after climate will be space, with satellite imaging and exploration key for climate monitoring and research, Israel said.

While space has always been a domain for superpower rivalry sparked by the Cold War, climate focus, telecommunications and sixth-generation technologies “could intensify this and mark the next phase of U.S.-China tensions and beyond,” Israel said.

©2021 Bloomberg L.P.

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