The US and Europe: paving the way towards energy transition

The European Union and the United States are committed to ambitious climate policies aimed at achieving carbon neutrality in their respective territories by 2050.
To this end, each bloc has defined its own regulations, which include specific milestones along their respective decarbonisation trajectories.
While the giants that are China and India will undoubtedly play a key role in the global fight against climate change, it is in the West that legislation in this area is currently the most advanced. Passed in the summer of 2022, the Inflation Reduction Act (IRA)¹ is the most ambitious clean energy support programme ever launched in the United States. In response, the European Union (EU) is proposing legislation complementary to its existing plans, namely: ‘Fit for 55’² and the EU Green Deal³.
Will these regulations suffice for either the US or Europe to achieve carbon neutrality by 2050? To what extent will they act as a catalyst in the fight against global warming? How will they make it easier to finance the deployment of renewable energy? What investment opportunities may result from their implementation, particularly along value chains in the fields of solar wind and hydrogen? What impact will these policies have on the stability of supply chains and the competitiveness of European companies?
In this dedicated article, Jean-Pierre Dmirdjian, Senior ESG and Impact Analyst for Energy & Environment, and Christine Tricaud, Portfolio Manager, explore these topics, about which investors are most curious.

At a glance

• The public policies articulated on both sides of the Atlantic are especially focused on increasing local production capabilities in the area of low-carbon energy and related technologies, thus promoting investment in these sectors and energy sovereignty.
• Mirova’s analysis shows that the greenhouse gas (GHG) emissions reduction target set by the United States for 2030 is more ambitious than Europe’s. However, the Inflation Reduction Act (IRA) alone will probably not suffice to meet US commitments.
• In Europe, the announced targets for installed wind power capacity appear unlikely to be met, however, technological advances could rebalance the equation, enabling the EU to meet its interim milestone for greenhouse gas reductions.
• Designed to support the growth of companies involved in the development of low-carbon energy production sources, the Mirova Europe Environmental Equity* and Mirova Climate Solutions Equity** strategies should benefit from the investment opportunities these new packages yield.

1. IRA: The Inflation Reduction Act of 2022 is a US law that aims to curb inflation by reducing the deficit, lowering prescription drug prices and investing in domestic energy production while promoting clean energy. It was passed by the 117th U.S. Congress and signed into law by President Biden on 16 August 2022.
2. Fit for 55 is the most ambitious European legislative package on environmental transition to date, both in terms of its time horizon and sectoral implications. The Fit for 55 plan’s measures aim to reduce territorial greenhouse gas emissions by 55% by 2030 versus 1990 levels. Source: European Commission.
3. Set of European laws to combat climate change. Source: European Commission

*Mirova Europe Environmental Equity Fund is a sub-fund of the Luxembourg SICAV Mirova Funds, approved by the Luxembourg Commission for the Supervision of the Financial Sector (the «CSSF»). Natixis Investment Managers International is the management company and has delegated financial management to Mirova.
**Mirova Climate Solutions Equity fund is a sub-fund of the Luxembourg SICAV Mirova Funds, approved by the Luxembourg Commission for the Supervision of the Financial Sector (the «CSSF»). Natixis Investment Managers International is the management company and has delegated financial management to Mirova.

The information provided reflects Mirova’s opinion / the situation at the date of this document and is subject to change without notice.