It has been a big week for governments making climate commitments. First, Britain promised to cut emissions by 78 per cent by 2035 from 1990 levels and, for the first time, the target was extended to cover international aviation and shipping. Then several countries said that they would cut emissions faster than expected at President Biden’s climate summit, which was held online.
For its part, the United States said that it would cut emissions by 50 per cent by 2030 compared with 2005 levels, which is significantly more than President Obama’s promise to cut emissions by 26 per cent by 2025 as part of the Paris Agreement.
However, as Fatih Birol, head of the International Energy Agency, said: “Commitments alone are not enough.” He noted that this year was on track to have the second largest increase in global emissions in history.
Given the huge contribution of transport to global CO2 emissions — 16 per cent at the last count — there are hopes that these ambitions will trigger a flood of new investment into more environmental options for getting around.
Britain is due to release a blueprint for how it plans to cut emissions from transport this spring. That is likely to lean heavily on the Climate Change Committee’s detailed report on how to achieve the required cuts, which includes a recommendation to invest in public transport to get people out of their cars and on to buses and trains, as well as support for electric vehicle charging infrastructure.
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As part of its transport transformation, the European Commission has promised to double high-speed rail traffic across Europe by 2030. According to Dirk Hoozemans, fund manager at Triodos Bank: “Trains can be the alternative to planes, especially under 1,000km, both for passengers and freight as they create less CO2 and can be just as fast.”
In the US, if President Biden manages to push through his American Jobs Plan, a total of $620 billion will be destined for public transport networks, electric vehicles and other transport infrastructure.
Alstom
Whether they know the company or not, travellers in Britain are likely to have spent time on a train made or serviced by Alstom. After its acquisition of Bombardier Transportation this year, Alstom’s customers include most of the UK’s key rail groups, from Transport for London to ScotRail, the Great Western Railway to Network Rail.
These companies took a hit from the pandemic. As a result, they delayed or cancelled orders with Alstom, which suffered a 15 per cent drop in sales and a 43 per cent fall in orders received in the six months to September 2020.
Yet the pandemic has sped up some of the trends that will lift Alstom in the long run. The shift away from air travel is boosting demand for high-speed rail, while an increased focus on air pollution in cities will drive investment into metros and trams. As the second biggest train manufacturer in the world, after CRRC, of China, Alstom is a good place to put your money if you are betting on the future of rail.
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The January deal to buy Bombardier for €5.5 billion almost doubled Alstom’s revenues and made some analysts nervous as Bombardier has a backlog of lossmaking orders with cost overruns. Akash Gupta, at JP Morgan Cazenove, said that ultimately it should boost shareholder value when the company achieves the €400 million of savings it is targeting and improves margins at Bombardier.
The deal makes the shares look expensive on a price-to-earnings basis because of low profit margins at Bombardier. At about €47, the shares are trading at 26 times forecast earnings for the coming year, but Gupta said that should drop to 17 times the following year when earnings at the combined group improve.
ADVICE Buy
WHY Betting on future of rail
IMPACT Rail is key to cutting emissions from transport
Good Energy
One UK-listed company positioned to benefit from the decarbonisation of transport is Good Energy. Founded as a renewable electricity supplier in 1999, it has been transforming itself into a digital services company that links energy generation and use with electric vehicle charging.
Last year, Good Energy bought a controlling stake in Zap-Map, the most widely used app to locate electric vehicle charge points and a provider of a simplified way to pay for charging, without joining different membership schemes for the various charging companies.
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Good Energy’s view of the future of transport is not that we will all own electric cars, but that we will use business electric vehicles, car clubs or vehicle subscriptions and it has struck deals with companies working towards this model. It has introduced an electricity tariff for electric vehicle users with a lower and longer off-peak charging period and a four-hour window of free electricity each week when there is excess renewable power on the grid.
The company is expected to bring in more such tariffs that charge different rates throughout the day, which will encourage customers to use electricity when it is cheap and abundant, easing pressure on the grid. The government expects electricity demand to double over the next 30 years, as increasingly it is used in place of fossil fuels for heating and transport. This will be dominated by renewable sources of power and will be generated by tens of thousands of small suppliers. Electricity suppliers will have to change accordingly and Good Energy has made some smart choices along that road.
This week, Juliet Davenport, Good Energy’s founder, will hand over as chief executive to Nigel Pocklington, who brings digital experience, having worked at MoneySuperMarket and Expedia, among others.
The shares are changing hands for 230p, about 14 times forecast earnings, which looks like good value for a company that is better prepared than most for the overhaul of Britain’s energy system.
ADVICE Buy
WHY A new energy system requires new type of supplier
IMPACT Supporting the rise of EVs powered by renewables
