Emission Control: The Expanding Low Carbon Economy
The Goldman Sachs Research's GS SUSTAIN team posits that low carbon technologies such as onshore wind, solar PV, LEDs, and hybrid/electric vehicles are on the verge of significant expansion, marking a shift likely to peak global carbon emissions by 2020. The desk interprets this commentary to imply a growing influence of these technologies on not only the energy sector but the overall economic landscape, reflecting a broader trend toward sustainability. As policymakers increasingly prioritize emissions reduction, the trajectory of traditional energy sectors could face acute shifts. Per the full note from Goldman Sachs, understanding these dynamics will be crucial for traders positioning in related currencies, particularly as the market likely reassesses energy-related exposures.
What the desk is arguing
The desk argues that the rise of low carbon technologies heralds a pivotal transformation in the global energy landscape, with potential to reshape competitive dynamics across various sectors. Per the full note from Goldman Sachs, these advancements could challenge the forecasts that have long dominated climate discussions, suggesting a sooner-than-expected peak in global carbon emissions.
Supporting evidence includes assertions from GS SUSTAIN that these technologies could transition from being niche to mainstream, with forecasts indicating a carbon emissions peak as early as 2020—years ahead of prior expectations. This introduces nuanced risks for traditional energy currencies that might face declines in relevance as the low carbon economy takes root.
Where it sits in our coverage
The consensus target for the currency pair we track aligns at 1.075, within a range of 1.04 to 1.12. Current forecasts from leading firms place expectations as follows: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This desk's interpretation leans toward the upper bound of this range, suggesting an optimistic outlook in light of Goldman Sachs' predictions on low carbon technologies.
How other firms see it
Firms like jpmorgan are aligned with the desk's perspective, emphasizing the potential for disruptive changes in the energy sector. Conversely, bofa appears more cautious, advocating for a wait-and-see approach regarding the implications of these technologies on broader economic metrics.
Traders should observe the relationship between the EUR/USD trajectory and central bank policies, particularly in the context of shifts in energy strategies. The energy transition could have spillover effects that impact currency strength beyond traditional economic indicators.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Low carbon technologies could peak global carbon emissions as early as 2020, defying traditional forecasts.
- 02The rise of sustainable energy options may disrupt established energy markets and currency valuations.
- 03Fluctuations in energy-related currency pairs are likely as investor sentiment shifts towards sustainability.
- 04Understanding the competitive dynamics introduced by low carbon technologies is vital for forward currency positioning.
Market implications
Traders should monitor the 1.075 level closely, with any significant moves above this mark potentially indicating stronger positioning toward renewables. Additionally, remain vigilant for indications from major energy firms on how these transitions are affecting their projections.
Risks to this view
A reversal could occur if traditional energy markets unexpectedly stabilize, fueled by a surprise policy shift from major central banks or an economic rebound that contradicts the low carbon narrative. Any failure in technological progression or faltering investment in renewables could also undermine these bullish projections.
Until recently, low carbon technologies like wind and solar were a niche part of the global energy landscape. But Goldman Sachs Research's GS SUSTAIN team, which focuses on identifying long-term industry leaders, says that low carbon technologies like onshore wind, solar PV, LEDs and hybrid/electric vehicles are now "taking off the training wheels" and rapidly gaining share. According to GS SUSTAIN's Jaakko Kooroshy, these four technologies not only could help global carbon emissions peak as early as 2020, versus mainstream expectations of a peak closer to 2030-they're also poised to reshape competitive dynamics across the global economy.
This podcast was recorded on July 11, 2016. All price references and market forecasts correspond to the date of this recording. This podcast should not be copied, distributed, published or reproduced, in whole or in part.
The information contained in this podcast does not constitute research or a recommendation from any Goldman Sachs entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefor (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed. The views expressed in this podcast are not necessarily those of Goldman Sachs, and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast.
In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs to that listener, nor to constitute such person a client of any Goldman Sachs entity. Copyright 2016 Goldman Sachs. All rights reserved.
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