The universal techno-fix we all need

It seems like half of Australia was in Europe in July. Instagram and Facebook feeds were full of Aussies enjoying the European summer. I say “enjoying”, but “enduring” might be more appropriate given how hot the weather was in Greece, Italy, and Spain. According to the World Meterological Organization, July was the hottest month on record. The first three weeks of July were the warmest three-week period on record. July 5-7 were the hottest 3 days on record. July 6 was the hottest day on record. 

Rising temperatures have also resulted in changing listening habits. Heat Waves by Glass Animals, who took top spot in the Triple J Hottest 100 in 2021, has seen another spike in popularity in the charts. The song rose from position 97 on the UK singles chart in March to 27 in July. The song has now fallen back to 95.

For a vast number of people, the answer to the hot weather is to stay inside and enjoy air conditioning. Worldwide, the number of AC units increased by 267% between 1990 and 2022, according to data from the International Energy Agency, which anticipates another billion air conditioners by the end of this decade. The market is projected to nearly double by 2040.

Unfortunately, as air conditioning cools our homes, it helps to warm the world. Air conditioners are responsible for around 4% of global greenhouse gas emissions, and extreme heat will send that share higher.

This doesn’t mean we should forgo using air conditioning. But we do need to be smarter about how and when we use it.

The good news is, electric heat pumps (devices that can both heat and cool), are a superior solution to heat buildings. They are close to the universal techno-fix for the world’s home and commercial heating needs. The International Energy Agency estimates that they “could satisfy 90% of global heating needs with a lower carbon footprint than gas-fired condensing boilers.” Heat pumps are a small piece of the decarbonisation puzzle and the technology exists here and now.

Annabel Riggs, Firetrail global equity analyst, shared this chart (source: NIBE) with me recently, showing that a heat pump run on electricity results in less carbon emissions relative to traditional oil and gas heating, and significantly fewer emissions when run on clean electricity.

I recently spoke about the secular trends driving adoption of heat pumps around the world at the Pinnacle Summit Series. In my presentation, I highlighted our investment in a leading heat pump manufacturer, a company we believe could deliver significant alpha to the Firetrail S3 Global Opportunities Fund (ASX: S3GO) over the medium term.

Whilst it may be enticing to invest in unproven or expensive technologies to help combat climate change, some solutions are already here, as is the significant opportunity for investors to generate performance.