The impact of European climate policy

EU and UK climate policy is extremely broad. Fathom’s challenge was to identify the most salient parts and relate these to the client’s interests.

First, we took the wide perspective, comparing the UK and EU’s stance with what was happening elsewhere and finding that in a global context Europe was taking the lead on many issues, such as a potential carbon border tax. We looked closely at the EU’s Green Deal and its related impact assessments, and the climate-related elements of COVID-19 stimulus programmes.

We analysed numerous data for the UK and all EU member states and created an original dataset measuring the extent to which individual EU countries would ‘feel’ it if they meet the bloc’s updated emission-reduction pledges. (We did this by comparing the change in greenhouse gas emissions per capita in recent decades to the changes in the same that would be required to meet the bloc’s goals.)

This chart shows the trajectory of emissions and GDP per capita over the last 30 years (blue triangle) and required trajectory to achieve net zero by 2050 (green triangle)

This chart  overlays the two triangles from the previous chart – it highlights the difference between what has happened and what is needed

We used the data to assess the risks to the bloc’s policies becoming reality and identified some countries that may offer resistance. We assessed the broader implications if those risks materialised, as well as the risks and opportunities if the EU’s new objectives are realised.

At Fathom we do not operate in silos and as part of this project and to reach the conclusions, our climate team worked with economists and our financial market strategists to deliberate the issues and make investment recommendations.

Delivery

We delivered our findings to the client as a presentation, complete with charts and analysis. The data generated during this project were also provided to the client.

Our key findings

• A carbon border tax seems likely to become EU policy in future, with big implications for importers and exporters
• Political hurdles to full EU implementation are likely to come from Poland and Hungary, partly because they would ‘feel’ it more than most others, a point supported by the data we generated
• The UK and EU’s leadership role in climate policy creates both opportunities and risks
• Hydrogen is a key part of post-COVID recovery plans, especially in Germany
• Long-run buys: renewable energy, electric cars, components used in their manufacture, relatively clean oil majors and those embracing change, climate solutions in emerging markets such as South Africa and India; investment opportunities in Morocco
• Long-run sells: oil, coal and the equities and bonds of ‘dirty’ exporters to the EU (in particular those from Algeria, Russia, Ukraine and Kazakhstan)

This chart shows the emissions intensity of economic activity and export dependence on the EU for the biggest exporters to the EU

“We were very impressed with this work and it was delivered to the usual high standard we have come to expect from Fathom. The topic was clearly well researched, the analysis interesting and the findings useful for our workflow. Fathom kindly agreed to present the material to our Energy Transition taskforce and that was very well received too.”