Supply Chain: Can You Unring a Bell?

Assuming for our purposes that China is genuine in both its desire to decarbonize and its timeline to do so, how significant will the impact be for global supply chains? Please list 3 top impacts that companies and investors should be focused on.

The three main areas that global supply chain investors and companies should focus on are the following. 1. Energy: Nuclear and renewable technology, projects and execution are expected to see an uptick as a direct way of dealing with decarbonization. Carbon Capture will also be a vital lever. 2. Industrial Decarbonization: While incorporating renewable sources for industry, there should also be a focus on energy efficiency improvement through manufacturing process innovation. 3. Transport: There’s major scope for fleet upgrades from liquid or gaseous hydrocarbon fuels to renewable fuels and hydrogen. This means that automobile OEMs should focus on solutions for China. Similarly, sustainable fuels for the airline industry will be needed, as this is a difficult sector to decarbonize. Other areas to focus on would be agriculture and construction.

As China is strongly committed to decarbonization in the long run, it is moving supply chain to “smart” transportation and storage technologies, which means they are more energy efficient. Also certain cleantech companies that provide “green” equipment will have greater market traction driven by this initiative, in areas like smart refrigeration technology and autonomous driving tech for long-haul trucking. In terms of its impact on raw material consumption, China has been moving into more “intelligent” manufacturing that uses AI and machine learning to fine-tune operations, smart plant, for example, reducing materials and energy consumption. From a pure decarbonization perspective, carbon capturing technologies that can be incorporated onsite for use cases could be an interesting area to invest.

Plausible shocks to the supply chain, export controls, and non-tariff barriers will be the main hurdles as China pushes on with decarbonization. 1. At any point in time, China may exercise policies in the name of decarbonization, and industries must be resilient to: a) possible export/import controls of elements or products required for renewable energy production; b) carbon label requirements. 2. Companies should also be prepared for the standards that the Chinese government may require (environment-friendly, high efficiency) in firm operations in the mid-long term. 3. Firms should also guard themselves against intellectual property theft (of technology related to decarbonization) and equip themselves with safety measures.