The key question is, what are the reasons behind such a counter-intuitive trend? Three reasons are listed below.
Reason 1: Strong regulatory push
Recognizing the perils of emissions, many prominent countries and cities, in particular, announced plans to ban the sales of internal combustion (IC) engine vehicles from as early as 2040. This is a huge step forward. Such decisive announcements backed up by a strong implementation record have signaled that this trend toward sustainable energy is irreversible.
Reason 2: Business model for increased investment discovered
Buried deep within the above announcement is the answer to the million-dollar question—who pays for the additional investment? The answer is carbon credits. The companies that invest in sustainable energy and reduce their organization’s carbon footprint would gain carbon credits, which could be traded for value. This is an auto-correcting mechanism. If the penetration of renewable energy is low, the price of energy per KWH will be high. But that also means the dollar value of carbon credits will be high. This will attract more companies to invest in renewable energy sources, which will help them achieve economies of scale faster and bring the price down.
The initiative seized by regulators will have a domino effect on the entire industry.
Reason 3: Organizations are firmly entrenched on the sustainability path
In the automotive industry, product development cycles are long, and the investments made in vehicle platforms are the highest. Looking at the stringent regulatory scenario, most of the automakers have redesigned their product roadmaps to eliminate IC engine-only platforms. Sensing the increased threat from independent EV manufacturers, most OEMs have decided to focus on zero tailpipe emission products like electric vehicles or fuel cell electric vehicles.
In addition, they have also started looking at their overall carbon footprint in manufacturing, assembly and other parts of the value chain. Most of these companies have set ambitious targets for themselves for decarbonization and circular economy. This has created awareness and the required push in their vast global supply chains to reduce their carbon footprint.
We strongly believe that the trends in favor of sustainability are irreversible. Despite low oil prices, we would continue to see increased momentum in sustainable energy.