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Infrastructure Megatrends: The Clean Energy Transition

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Clean Energy Transition

Infrastructure Megatrends: The Clean Energy Transition

Demand for clean energy is ramping up as a majority of countries target 2050 as the year to achieve net-zero emissions. But how much will this all cost?

According to the International Renewable Energy Agency (IRENA), upwards of $100 trillion is needed to build a system capable of keeping global temperatures from rising above 2C° (3.6F°).

In this Markets in a Minute chart from New York Life Investments, we take a closer look at the outcomes of such a massive endeavor.

Investment Required to Reshape Global Energy Markets

The IRENA believes there are two scenarios for how the clean energy transition plays out by 2050.

Their first scenario involves a total investment of $95 trillion (112% of global GDP in 2020) and is based on current policies and targets. Despite the lofty amount, this scenario is expected to fall short in achieving the goals set by the Paris Agreement.

Their second scenario involves a more ambitious set of targets, as well as a 16% larger investment of $110 trillion. Thanks to economies of scale, this scenario will reduce carbon emissions much further and keep the global temperature rise below 2C° (3.6F°).

The estimates behind these two scenarios are outlined in the table below.

 Current SituationScenario 1 ($95T in investment)Scenario 2 ($110T in investment)
Renewable Share in Electricity Generation26%55%86%
Electrification Share of Final Energy20%30%49%
Energy-Related CO2 Emissions (gigatonnes)34gt 33gt
9.5gt

How Do We Get There?

For scenario 2 to become reality, significant changes would need to be made across the entire economy.

For starters, the IRENA estimates that 1.1 billion electric vehicles will be on the road by 2050, up from 8 million in 2019. The resulting need for charging infrastructure is reflected by Scenario 2’s higher share of electrification (49% vs 30%).

Government subsidies around the world would also need to be adjusted, with much less money flowing to fossil fuels. The chart below provides a roadmap for these adjustments—on the left is the dollar value of subsidies, and on the right is each segment’s share of the total.

Government energy subsidies

Fossil fuel subsidies in the U.S. are facilitated through tax cuts, and are estimated to be worth around $20 billion per year. This may change very soon, as the Biden administration has signaled its intention to eliminate these subsidies as part of its 2021 tax plan.

With Great Change Comes Great Opportunity

The demand for clean energy is expected to kick-off a monumental transformation of the world’s infrastructure.

For investors, gaining exposure to this megatrend may combine attractive return potential with positive environmental impact. In fact, many listed companies in the utilities sector are establishing themselves as leaders in this regard.

Consider Enel, an Italian multinational with activities in Europe and the U.S. The firm has directed capital towards renewable energy since 2015 and is now the world’s largest player in renewables with 46GW of installed capacity across solar, wind, and hydro.

Further developments are planned, and Enel expects to grow its earnings (represented by EBITDA) at a compound annual growth rate (CAGR) of 5%-6% over the next decade.

To learn more about the opportunities surrounding clean energy, consider this infographic on the global sustainable recovery.

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Markets in a Minute

Visualizing the Three Different Types of Inflation

What are the different types of inflation? Which economic forces impact each type? Below, we chart each over modern history.

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Types of Inlfation

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Visualizing Three Types of Inflation

Inflation is dominating the news as prices hit 40-year highs.

While the price of everyday goods, including food and energy, is the most widely cited type of inflation, other forms exist across the broader economic system.

In this Markets in a Minute from New York Life Investments, we chart three types of inflation and the macroeconomic factors that influence each type.

1. Monetary Inflation

Monetary inflation occurs when the U.S. money supply increases over time. This represents both physical and digital money circulating in the economy including cash, checking accounts, and money market mutual funds.

The U.S. central bank typically influences the money supply by printing money, buying bonds, or changing bank reserve requirements. The central bank controls the money supply in order to boost the economy or tame inflation and keep prices stable.

Between 2020-2021, the money supply increased roughly 25%—a historic record—in response to the COVID-19 crisis. Since then, the Federal Reserve began tapering its bond purchases as the economy showed signs of strength.

YearMoney SupplyAnnual Percent Change
2022*$21.7T0.9%
2021$21.5T12.6%
2020$19.1T24.8%
2019$15.3T6.3%
2018$14.4T3.6%
2017$13.9T5.3%
2016$13.2T7.3%
2015$12.3T5.1%
2014$11.7T6.4%
2013$11.0T4.8%
2012$10.5T8.2%
2011$9.7T10.2%
2010$8.8T6.0%
2009$8.3T1.2%
2008$8.2T9.3%
2007$7.5T5.6%
2006$7.1T6.0%
2005$6.7T4.7%
2004$6.4T4.9%
2003$6.1T5.2%
2002$5.8T7.4%
2001$5.4T10.2%
2000$4.9T6.5%
1999$4.6T4.5%
1998$4.4T10.0%
1997$4.0T5.3%
1996$3.8T5.6%
1995$3.6T2.9%
1994$3.5T0.0%
1993$3.5T2.9%
1992$3.4T0.0%
1991$3.4T3.0%
1990$3.3T3.1%
1989$3.2T6.7%
1988$3.0T7.1%
1987$2.8T3.7%
1986$2.7T8.0%
1985$2.5T8.7%
1984$2.3T9.5%
1983$2.1T10.5%
1982$1.9T5.6%
1981$1.8T12.5%
1980$1.6T14.3%
1979$1.4T0.0%
1978$1.4T7.7%
1977$1.3T8.3%
1976$1.2T20.0%
1975$1.0T-99.9%
1974$902B5.4%
1973$856B6.7%
1972$802B13.0%
1971$710B13.2%
1970$627B6.6%

Indicated by the M2 Money Stock.
*Data as of April 2022.

It’s worth noting that, in theory, increasing the money supply faster than the growth in real output may cause consumer price inflation, especially if the velocity of money (speed at which money exchanges hands) is high. The reason is that there is more money chasing the same number of goods, and this eventually leads to increases in prices.

2. Consumer Price Inflation

Consumer price inflation occurs when the prices of goods and services increase. It is typically measured by the Consumer Price Index (CPI), which shows the average price increase of a basket of goods, such as food, clothing, and housing.

Supply chain issues, geopolitical events, monetary supply, and consumer demand may all affect consumer price inflation.

Rising 8.6% in May year-over-year, the CPI hit its highest level in four decades. Russia’s invasion of Ukraine and COVID-19 have caused extensive disruption in supply chains, from oil to wheat, leading to increased price pressures worldwide.

YearCPI Annual Percent Change
2022*8.6%
20214.7%
20201.2%
20191.8%
20182.4%
20172.1%
20161.3%
20150.1%
20141.6%
20131.5%
20122.1%
20113.2%
20101.6%
2009-0.4%
20083.8%
20072.9%
20063.2%
20053.4%
20042.7%
20032.3%
20021.6%
20012.8%
20003.4%
19992.2%
19981.6%
19972.3%
19962.9%
19952.8%
19942.6%
19933.0%
19923.0%
19914.2%
19905.4%
19894.8%
19884.1%
19873.7%
19861.9%
19853.5%
19844.3%
19833.2%
19826.1%
198110.3%
198013.5%
197911.3%
19787.6%
19776.5%
19765.7%
19759.1%
197411.1%
19736.2%
19723.3%
19714.3%
19705.8%
19695.5%
19684.3%
19672.8%
19663.0%
19651.6%
19641.3%
19631.2%
19621.2%
19611.1%
19601.5%
19591.0%
19582.7%
19573.3%
19561.5%
1955-0.3%
19540.3%
19530.8%
19522.3%
19517.9%
19501.1%
1949-1.0%
19487.7%
194714.4%
19468.5%
19452.3%
19441.6%
19436.0%
194210.9%
19415.1%
19400.7%
1939-1.3%
1938-2.0%
19373.7%
19361.0%
19352.6%
19343.5%
1933-5.2%
1932-10.3%
1931-8.9%
1930-2.7%

*Data for 2022 shows the year-over-year change from May 2021 to May 2022.

When consumer price inflation gets too heated, the central bank may increase interest rates to curtail spending and allow prices to cool down.

3. Asset-Price Inflation

Finally, asset-price inflation represents the price increase of stocks, bonds, real estate, and other financial assets over time. While there are a number of ways to show asset-price inflation, we will use household net worth as a percentage of GDP.

Often, a low interest rate climate creates a favorable environment for asset prices. This can be seen over the last decade as low borrowing costs were met with rising asset prices and strong investor confidence. In 2021, household net worth as a percentage of GDP stood at 620%.

YearU.S. Interest Rate Household Net Worth
as a % of GDP
20210.1%620%
20200.1%510%
20191.6%520%
20182.4%520%
20171.3%510%
20160.6%490%
20150.2%490%
20140.1%480%
20130.1%450%
20120.1%430%
20110.0%440%
20100.1%430%
20090.1%410%
20080.1%460%
20073.1%490%
20065.2%480%
20054.1%460%
20042.0%450%
20030.9%410%
20021.2%430%
20011.5%420%
20005.4%440%
19994.0%420%
19984.1%420%
19975.8%390%
19966.3%390%
19954.7%370%
19944.9%380%
19932.9%380%
19922.7%380%
19914.1%380%
19905.5%380%
19898.0%370%
19889.0%370%
19876.9%380%
198614.4%360%
198513.5%340%
19848.7%340%
19839.9%360%
198211.2%350%
198113.1%340%
198022.0%330%
197914.8%330%
197810.8%330%
19776.5%330%
19764.2%330%
19755.4%340%
19743.9%340%
19739.8%360%
19725.5%360%
19713.0%360%
19703.0%350%
19695.0%360%
19684.0%350%
19674.5%360%
19665.0%350%
19654.6%370%
19644.0%370%
19633.3%380%
19623.0%380%
19612.5%390%
19603.0%370%
19594.0%380%
19582.4%390%
19573.0%370%
19563.0%370%
19552.5%360%

Interest rates indicated by the Effective Federal Funds Rate

Sometimes rising asset prices can be a misleading sign of a strengthening economy since no real output is produced. Instead, this may indicate an asset bubble.

How the Types of Inflation Impact You

With monetary inflation, businesses and consumers have more money at their disposal, which could then boost demand and further increase inflation in the overall economy.

However, the degree that this impacts consumer price inflation can be unclear. Over the last decade, the money supply ballooned but consumer price inflation stayed relatively stable. Instead, supply shocks seen with COVID-19 and the invasion of Ukraine have had a more immediate effect. The effect of this scarcity in goods has made prices more sensitive to demand. This can be seen with gasoline prices at record highs.

When it comes to asset price inflation, a significant increase to the monetary supply and low interest rates are likely factors behind rising asset prices, among other variables. Yet as the Federal Reserve takes a more hawkish stance on monetary policy, the future of asset price inflation remains to be seen.

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Markets in a Minute

Mapped: Economic Predictions for 2022 and Beyond

Global GDP growth is forecast to drop from 6.1% in 2021 to 3.6% in 2022. This map shows economic predictions for 2022 and beyond by country.

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World map with countries coloured according to economic predictions for 2022

This infographic is available as a poster.

Economic Predictions for 2022 and Beyond

How resilient will countries be in 2022? Economies have to contend with commodity shortages related to the Russia-Ukraine war, supply chain issues due to lockdowns in China, and tightening monetary policy as inflation rises.

In light of these challenges, the International Monetary Fund (IMF) has lowered its economic predictions for 2022 and beyond. The IMF predicts that global GDP growth will slow from 6.1% in 2021 to 3.6% in 2022 and 2023.

In this Markets in a Minute from New York Life Investments, we explore GDP projections by country. It’s the second in a two-part series that explores GDP growth around the world.

GDP Forecasts by Country

Due to the war in Ukraine, the IMF notes that the economic predictions for 2022 and beyond have considerable uncertainty. The projections also assume that the conflict remains confined to Ukraine and that the pandemic’s health and economic consequences lessen during 2022.

Here are the IMF’s predictions for real GDP growth by country. Unsurprisingly, Ukraine will have the most severe contraction of -35% this year. Russia’s invasion has damaged or destroyed 30% of the nation’s infrastructure, and more than 14 million people have fled their homes.

Jurisdiction2022P2023P
Afghanistann/an/a
Albania2.0%2.8%
Algeria2.4%2.4%
Andorra4.5%2.7%
Angola3.0%3.3%
Antigua and Barbuda6.5%5.4%
Argentina4.0%3.0%
Armenia1.5%4.0%
Aruba2.7%3.7%
Australia4.2%2.5%
Austria2.6%3.0%
Azerbaijan2.8%2.6%
Bahrain3.3%3.0%
Bangladesh6.4%6.7%
Barbados11.2%4.9%
Belarus-6.4%0.4%
Belgium2.1%1.4%
Belize5.7%3.4%
Benin5.9%6.2%
Bhutan4.4%4.5%
Bolivia3.8%3.7%
Bosnia and Herzegovina2.5%2.3%
Botswana4.3%4.2%
Brazil0.8%1.4%
Brunei Darussalam5.8%2.6%
Bulgaria3.2%4.5%
Burkina Faso4.7%5.0%
Burundi3.6%4.6%
Cabo Verde5.2%5.8%
Cambodia5.1%5.9%
Cameroon4.3%4.9%
Canada3.9%2.8%
Central African Republic3.5%3.7%
Chad3.3%3.5%
Chile1.5%0.5%
China4.4%5.1%
Colombia5.8%3.6%
Comoros3.5%3.7%
Costa Rica3.3%3.1%
Croatia2.7%4.0%
Côte d'Ivoire6.0%6.7%
Cyprus2.1%3.5%
Czech Republic2.3%4.2%
Democratic Republic of the Congo6.4%6.9%
Denmark2.3%1.7%
Djibouti3.0%5.0%
Dominica6.8%5.0%
Dominican Republic5.5%5.0%
Ecuador2.9%2.7%
Egypt5.9%5.0%
El Salvador3.0%2.3%
Equatorial Guinea6.1%-2.9%
Eritrea4.7%3.6%
Estonia0.2%2.2%
Eswatini2.1%1.8%
Ethiopia3.8%5.7%
Fiji6.8%7.7%
Finland1.6%1.7%
France2.9%1.4%
Gabon2.7%3.4%
Georgia3.2%5.8%
Germany2.1%2.7%
Ghana5.2%5.1%
Greece3.5%2.6%
Grenada3.6%3.6%
Guatemala4.0%3.6%
Guinea4.8%5.8%
Guinea-Bissau3.8%4.5%
Guyana47.2%34.5%
Haiti0.3%1.4%
Honduras3.8%3.5%
Hong Kong SAR0.5%4.9%
Hungary3.7%3.6%
Iceland3.3%2.3%
India8.2%6.9%
Indonesia5.4%6.0%
Iraq9.5%5.7%
Ireland5.2%5.0%
Islamic Republic of Iran3.0%2.0%
Israel5.0%3.5%
Italy2.3%1.7%
Jamaica2.5%3.3%
Japan2.4%2.3%
Jordan2.4%3.1%
Kazakhstan2.3%4.4%
Kenya5.7%5.3%
Kiribati1.1%2.8%
Korea2.5%2.9%
Kosovo2.8%3.9%
Kuwait8.2%2.6%
Kyrgyz Republic0.9%5.0%
Lao P.D.R.3.2%3.5%
Latvia1.0%2.4%
Lebanonn/an/a
Lesotho3.1%1.6%
Liberia4.5%5.5%
Libya3.5%4.4%
Lithuania1.8%2.6%
Luxembourg1.8%2.1%
Macao SAR15.5%23.3%
Madagascar5.1%5.2%
Malawi2.7%4.3%
Malaysia5.6%5.5%
Maldives6.1%8.9%
Mali2.0%5.3%
Malta4.8%4.5%
Marshall Islands2.0%3.2%
Mauritania5.0%4.4%
Mauritius6.1%5.6%
Mexico2.0%2.5%
Micronesia-0.5%2.8%
Moldova0.3%2.0%
Mongolia2.0%7.0%
Montenegro3.8%4.2%
Morocco1.1%4.6%
Mozambique3.8%5.0%
Myanmar1.6%3.0%
Namibia2.8%3.7%
Nauru0.9%2.0%
Nepal4.1%6.1%
Netherlands3.0%2.0%
New Zealand2.7%2.6%
Nicaragua3.8%2.2%
Niger6.9%7.2%
Nigeria3.4%3.1%
North Macedonia3.2%2.7%
Norway4.0%2.6%
Oman5.6%2.7%
Pakistan4.0%4.2%
Palau8.1%18.8%
Panama7.5%5.0%
Papua New Guinea4.8%4.3%
Paraguay0.3%4.5%
Peru3.0%3.0%
Philippines6.5%6.3%
Poland3.7%2.9%
Portugal4.0%2.1%
Puerto Rico4.8%0.4%
Qatar3.4%2.5%
Republic of Congo2.4%2.7%
Romania2.2%3.4%
Russia-8.5%-2.3%
Rwanda6.4%7.4%
São Tomé and Prìncipe1.6%2.8%
Samoa0.0%4.0%
San Marino1.3%1.1%
Saudi Arabia7.6%3.6%
Senegal5.0%9.2%
Serbia3.5%4.0%
Seychelles4.6%5.6%
Sierra Leone3.4%4.3%
Singapore4.0%2.9%
Slovak Republic2.6%5.0%
Slovenia3.7%3.0%
Solomon Islands-4.0%3.2%
Somalia3.0%3.6%
South Africa1.9%1.4%
South Sudan6.5%5.6%
Spain4.8%3.3%
Sri Lanka2.6%2.7%
St. Kitts and Nevis10.0%4.7%
St. Lucia9.7%6.0%
St. Vincent and the Grenadines5.0%6.4%
Sudan0.3%3.9%
Suriname1.8%2.1%
Sweden2.9%2.7%
Switzerland2.2%1.4%
Syrian/an/a
Taiwan Province of China3.2%2.9%
Tajikistan2.5%3.5%
Tanzania4.8%5.2%
Thailand3.3%4.3%
The Bahamas6.0%4.1%
The Gambia5.6%6.2%
Timor-Leste2.0%3.6%
Togo5.6%6.2%
Tonga-1.7%3.0%
Trinidad and Tobago5.5%3.0%
Tunisia2.2%n/a
Turkey2.7%3.0%
Turkmenistan1.6%2.5%
Tuvalu3.0%3.5%
Uganda4.9%6.5%
Ukraine-35.0%n/a
United Arab Emirates4.2%3.8%
United Kingdom3.7%1.2%
United States3.7%2.3%
Uruguay3.9%3.0%
Uzbekistan3.4%5.0%
Vanuatu2.2%3.4%
Venezuela1.5%1.5%
Vietnam6.0%7.2%
West Bank and Gaza4.0%3.5%
Yemen1.0%2.5%
Zambia3.1%3.6%
Zimbabwe3.5%3.0%

Guyana, a country of less than 800,000 people in South America, is forecast to have the highest GDP growth of 47.2% in 2022 and 34.5% in 2023. The country has begun to rapidly develop its offshore oil industry, with oil earnings estimated to make up nearly 40% of its GDP.

In Asia, India is projected to see strong growth of 8.2% in 2022 and 6.9% in 2023. The growth is supported by government spending and economic reforms, such as lowering the corporate tax rate and allowing more foreign direct investment. In fact, foreign direct investment reached a record $84 billion in 2021-22.

Meanwhile, the IMF predicts that GDP growth in the U.S. will hit 3.7% in 2022 and 2.3% in 2023. The Russia-Ukraine war is expected to slow growth in America’s trading partners, reducing their demand for American goods. The central bank has also withdrawn U.S. monetary support faster than expected as rates rise to combat inflation. Even still, the IMF expects that the U.S. will reach its pre-pandemic trend output path by 2022.

Supporting Growth

Certainly, there are a number of risks facing the global economy. Countries with strong fiscal and monetary support, as well as countries with in-demand exports, have some of the best economic predictions for 2022 and beyond.

The IMF also offers countries various recommendations in order to support growth. For instance, central banks can offer clear interest rate guidance to minimize surprises that disrupt the markets. Governments can continue offering targeted fiscal support to vulnerable populations, such as refugees and households most impacted by the pandemic.

Over the longer-term, countries can focus on reskilling their workforce for the digital transformation, investing in renewables for the green transition, and improving the resiliency of global supply chains.

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