Webinar Replay: Thematic Investing – The Energy Transition Accelerates

Jun 29, 2022


Natalie Noel  00:01

Hi everyone and thank you for joining us for today’s webcast, Thematic Investing: The Energy Transition Accelerates, sponsored by Global X ETFs. Today’s webcast will provide one CFP, one CIMA, and one CFA C credit. If you have questions on credit, please give us a call at 704-540-2657. We’d like to keep our webcast interactive, and we’ll be utilizing polling questions throughout the presentation. The questions will show on your screen, and you can select your answer choice and hit send. We welcome and encourage your questions. You can type your questions in the Q&A box to the right of the slides and we’ll do our best to get to as many of your questions as possible. Additional material is available for you to download in the Documents folder at the bottom of your screen. And, as always, we appreciate your feedback. At your convenience, please take a moment to take our survey that is also located at the bottom of your console. We will cover quite a bit of information during today’s webcast. If at any point in time you’re interested in scheduling a one-on-one meeting with Global X ETFs, please click the one-on-one folder at the bottom of your screen and confirm the request. And, in the event you missed any part of today’s webcast, or are someone who would like to watch it again, a replay will be made available and all registrants will receive that information by email. With that, I’d like to go ahead and turn it over to today’s first speaker, Pedro Palandrani, Director of Research for Global X ETFs. So, Pedro, take it away.

Pedro Palandrani  01:23

Thanks, Natalie. And good afternoon, everyone – excited to be here today talking about a very important topic that we’re seeing today and that’s really disrupting the investment landscape as we think about it. It really feels that the energy transition is accelerating faster than ever, of course driven by the move higher in global natural gas and power prices. That’s really been another short-term tailwind – positive tailwind – for the acceleration of the development of renewable energy capacity. And that really includes areas like solar, wind, hydrogen – many of the topics that we will be discussing today. We’ll also be talking a little bit about the mobility landscape in the supply chain within electric vehicles. And finally, as well, we’ll discuss fertilizer prices surging amid the disruption that we’re seeing from Russia and Ukraine. We really feel that AgTech could play an increasingly important role, as it seeks to minimize agricultural inputs and maximize outputs. So again, today, I’m going to be joined by Alec Lucas, who’s a research analyst here at Global X. He covers our climate change suite of ETFs.

Before we get into the meat of the presentation, we just want to do a very brief introduction to Global X for those of you who don’t know us very well. We’re an ETF issuer based out of Manhattan, currently with over $44 billion in assets under management that really ranges across a variety of ETFs. We have a very strong presence – a presence globally, as well, with offices throughout the world. If you think about our AUM by buckets, you can see here that about half of our total AUM really sits within our thematic suite of ETFs. And that’s really going to be the focus of today’s webinar. Again, focusing on many of the ETFs that we have that provide exposure to what we believe to be the beneficiaries of the energy transition.

Really briefly here, the way we think about thematic investing is really about identifying disruptive macro level trends, such as the energy transition that I’m talking about, and then trying to identify the underlying companies that tend to benefit from the materialization of these trends. So, as you can see here, that’s really a top-down, bottom-up approach, trying to capture holistically the opportunity that we’re seeing with these disruptions. By definition, these are long term growth focus is strategy. We also feel that a very well-constructed thematic ETF should be unconstrained by geographic and sector definition, meaning that we’re really not looking at the zip code of a company before including in our ETF. We want to own the leading companies around the world. These portfolios tend to also be concentrated and they also offer a relatable characteristic, meaning that it’s a lot easier to talk to clients about electric vehicles and solar energy and green hydrogen than talking to clients about things like mean reversion or smart beta strategy. So that relatable aspect of thematic investing is also very important.

Now, we often get asked questions about how do we construct our ETFs. And it really comes down to this three-step process. Number one, we want to have a very high conviction in the theme. So, we’ll look at things like: total addressable market, revenue growth expectations, path to profitability for the underlying companies in the theme, and a variety of other metrics to really gain conviction in the theme. Then, we’ll look at investability. That essentially means that we need at least 20 to 25 companies that provide pure play exposure to this theme in regards. This is often the deal breaker as you can imagine, because if we don’t have enough companies in a theme, we’re often not going to bring that that theme to market. And finally, timeframe. We’re looking really at disruptive events that are going to play out over the long term – at least five years. But in reality, many of these themes that we’re going to be discussing today are evergreen by definition. And this is really something that relates to structural trends. The structural trends are one of shifts that are changing an existing paradigm. That’s very different to cyclical themes that tend to be short term by definition, right? Things like inflation, interest rates – all of those things do impact in the short term many of the investments that we cover. However, this is structural, and themes tend to mitigate very well the short-term market dynamics over time. And by looking at the lineup of themes that we cover – you can see them here – position on that S shaped curve of adoption that we often talk about a lot.

Today, we’re going to be talking about many of the themes that are really early on, on the faces of adoption. Themes like hydrogen, which is one of the themes in the innovator phase. Themes like solar, wind, renewable energy, clean technologies – all of these areas that are very early on in the phases of adoption and we believe are very well positioned to continue to grow over the next few years.

The first topic that I wanted to talk about today is the mobility topic. And this is really about identifying the opportunities throughout the supply chain of electric vehicles. We really feel that electric vehicles are reaching an inflection point and we can see some of that in 2021 sales of electric vehicles – sales that reach about 6.6 million car sales, and represented about 9% of the global car market. If you look at 2019 numbers, in 2019, we only had about 2.2 million EV sales, back in the day data represented about 2% of total car sells. So, we can see how over the period of two years we have gone a long way in terms of adoption of electric vehicles. And that’s really going to open up the opportunities not only downstream, with traditional OEMs and pure play electric vehicle companies, but also within the supply chain of electric vehicles. And some of them keep telling that we’ve seen this theme or a mention here in this slide.

Number one, we’re seeing innovation across the board. We’ve seen how battery prices continue to fall over time and they’re very, very close to reaching the price parity point with internal combustion engine cars. In fact, we believe that within the next two years, electric vehicles, on average, are going to be cheaper than internal combustion engine cars. At that point, we really feel that there’s going to be an inflection point in an acceleration in sales, as consumers will definitely prefer electric vehicles over internal combustion engine cars, as they offer a much better driving experience. If you have driven an electric vehicle, you can attest that. They’re also environmentally friendly, of course, and they’re going to be cheaper. At the same time, we’re seeing how traditional OEMs – ranging from Ford, GM, BMW, VW – all of these companies are committing billions of dollars to electrify their car fleet. Their regulatory environment is also very positive. In places like China, we continue to see support from the government to adopt electric vehicles. They tend to have free EV license plates and registrations. That’s not the case for internal combustion engine cars. In Europe, we get to see lots of subsidies between places like Germany, France, and the UK. And in the United States, as well, we have some tax credits for qualifying electric vehicles. And finally, as I mentioned before, consumers are adopting electric vehicles more than ever, and we believe that that trend is likely going to continue.

So again, thinking about that in the context of investing in the opportunities that we might find, we like to look at it holistically. It’s turning upstream with the companies that extract the key raw materials. For us, lithium is one of those key raw materials. Moving down the supply chain – going through chemical processing companies, cathode and anode production companies, lithium-ion cell manufacturing companies. And lastly, downstream with electric vehicle companies and other battery power electric mobility companies.

One of the important things here on this slide is that, as you can see, China is one of the leading countries across the supply chain for electric vehicles. If you look at chemical processing, China accounts for about 60% of market share in terms of chemical processing for lithium. To look at cathode ray nano production, China also accounts for over 60% of market share. Cell manufacturing – over two-thirds of market share also in China. And downstream, China’s also the biggest market in terms of electric vehicles. In fact, in 2022, EV sales in China, as of March 31 2022, have reached about 1.1 million already. So, China as definitely an important player is something that we’re keeping an eye on. Before we continue with the rest of the presentation, we really wanted to have the first poll question here. So, I’ll pass it over to Natalie to go over the first poll question.

Natalie Noel  11:57

Great, thank you. So, the polling question reads: Which, if any, of the following are reasons that you would not consider purchasing an electric vehicle for your next vehicle purchase? Is it concern about range, high initial cost, hassle of charging, vehicle not available in electric, vehicle performance, or none of the above? Again: Which, of any of the following, are reasons that you would not consider purchasing an electric vehicle for your next vehicle purchase? And you can select your answer choice directly on the screen and hit send – between concerns about range, high initial cost, hassle of charging, vehicle not available in electric, vehicle performance, or none? We’ll give you just another moment to submit your answer choice. And then we’ll go ahead and move on to the results here. Alrighty, so let’s see what we have here. So, we about 39%, saying the hassle of charging, we have about 25% concerns about range, 22%, high initial cost, 5% none of the above, 4.6% vehicle not available in electric, and then we have about 3.7% same vehicle performance. So, I will turn it back over to you.

Pedro Palandrani  13:10

Thanks, Natalie. And this is really aligned with what we’ve seen in general surveys. I think charging tends to be the leading factor and is a constraint when thinking about adopting electric vehicles. And, actually, we’re going to talk about that in just a few slides here. But first, also thinking about the innovation that we’re seeing in battery technology and how that’s expected to lower the upfront costs of electric vehicles? Why don’t we talk about what we’re seeing in the battery technology space? For context, there are two general types of a battery technology for electric vehicles. You have iron base batteries – traditionally with lithium-ion phosphate batteries or LFP. And you also have nickel base batteries – traditionally your NMC or NCA batteries nickel, manganese, cobalt, or nickel cobalt aluminum type of batteries. Historically, nickel base batteries have had the greatest market share. They tend to deliver greater range and, therefore, OEMs have preferred to use nickel base batteries for their electric vehicles. Nevertheless, we believe that, over the next nine years or so, LFP batteries – again, lithium-ion phosphate batteries – are going to grow significantly and take significant market share from nickel-based batteries. And the reason why is that LSP batteries tend to be 20 to 30% cheaper than the nickel option. They’re also safer, they can be charged to 100% – versus 90% for nickel-based batteries – and they also have a greater average lifespan of about 20 years, versus 15 years for nickel base batteries. The drawback here is that the ion base batteries tend to have lower energy density. And that really translates into lower EV range.

However, we feel that the growing nature of infrastructure, or charging infrastructure networks, around the world is going to make the range anxiety concern really a thing of the past. In fact, with the capital that is going to be allocated from the Infrastructure Investment in Jobs Act in charging infrastructure networks. If you recall, last November 2021, the Congress passed a massive infrastructure bill with about $7.5 billion fully dedicated to build EV charging stations here in the United States. That’s going to take the number of charging stations from about 50,000 today, to over 300,000 charging stations in the United States, once the capital has been fully allocated. If we look at the charging infrastructure network today, we estimate that about 27 states do not have a robust infrastructure network or charging infrastructure network to support mainstream adoption of electric vehicles. However, once the capital has been fully allocated, we believe that only a handful of states will fall short of the required charging infrastructure network to support mainstream adoption of electric vehicles. So, in going back to the poll question, we are cognizant that the charging hassle is one of the main constraints in terms of adoption of electric vehicles. However, this is going to change over the next few years, as we have a much more robust infrastructure network not only here in the United States, but really around the world. And also, as the times to charge improve significantly for electric vehicles.

Now, I talked about before the commitments that we’re seeing from traditional auto OEMs. And here, we’re trying to show that in a nutshell. We built a traditional auto OEM / EV commitment and Readiness Index, and what we’re really trying to look at is how much the companies have committed in terms of billions of dollars in investments. It did target the number of cars that they’re planning to have electric, electric models, and many other factors to build this short index here. And as you can see, many of the companies – traditional OEM companies – have very ambitious goals for electric vehicles, many of them committing billions of dollars to electrify their fleets, and most of them with targets is surpassing 50% of their total car sales just within this decade. So clearly, there’s a huge emphasis on electrifying car fleets around the world. One of the key takeaways here is that, as we think about all of these companies going electric, we need to start thinking about the future beneficiaries of these. And we really believe that battery technology company raw material miners, such as lithium miners, are very well positioned to benefit from an increase in adoption, and the ambitious goals that we’re seeing from traditional OEMs.

One of the final slides here on the mobility chapter is really about lithium. I talked about how we believe lithium is one of those key raw materials when it comes to a building lithium-ion batteries for electric vehicles. And if you look at lithium demand, just seeing 2021 lithium demand was approximately 400,000 metric tons of plutonium. By 2030, the number is going to grow 5x, reaching over two and a half million metric tons of lithium carbonate equivalent in demand. Again, very rapid and fast growth is on the demand side of things. Unfortunately, on the supply side of things, the miners cannot react very quickly. It really takes between three to five years for lithium to come to market. From the time you’re putting your capital on the ground to the time you can get to market, it takes multiple years to happen. So, because of that, we’re really entering into this leaching deficits environment, something that could put eventually change around 2025, 2026. But based on the current market conditions and capacity expansion plans, we do not see that happening anytime soon. This is ultimately beneficial for lithium miners, as you think about it, because this is driving lithium prices very high. And this is also offering lithium miners a very good, competitive position in the marketplace and a very good position to negotiate prices with OEMs, something that we believe will proceed over the next few years.

Now, going over another survey that we actually ran a few months ago, where we actually asked the same question to a large number of people, you can see here that it’s very similar to what we were showing before regarding concerns about range, high initial cost, and the hassle of charging – our top three options often selected by consumers. As I talked about before, we believe that range is going to be addressed by the increase in the number of charging stations around the country and, really, around the world. Similarly, with the hassle of charging, where the time to charge is going to improve significantly. And finally, the high initial cost is really going to change just within the next few years as electric vehicles become cheaper and cheaper. And finally, if you look here at electric vehicles in the context of the S shaped curve of adoption, today, the market, it really fits within the early adopters phase. We know that just a handful of people have adapted to electric vehicles, but we believe that by 2030, the EV sales as a percentage of total car sales will reach 36%, and that’s really going to represent about a $1.4 trillion opportunity. And this is really going to be driven by all of the factors that I was talking about before. So, with that, I’ll pass it over to Alec to continue with the presentation, starting with the climate change segments.

Alec Lucas  22:18

Great! Thanks, Pedro. As you mentioned, we are transitioning here to the Climate Change segment and certainly underpinning the idea of what’s the end and, shifting to electrical vehicles, it’s this need to address climate change, as Pedro was discussing. But the bottom line in this section is that Earth’s climate is changing for the worse. We’re now seeing pretty conclusive evidence that human-caused emissions are driving some of these changes that we’re seeing in our climates. And it’s leading to some existential outcomes. However, the good news is, just as our actions are responsible here, we still have the agency and the time to turn things around and escape our climate predicament. A big part of that is transition to clean energy sources, clean technologies, as well as electrical vehicles, which Pedro was just discussing.

So, this is a great slide for really illustrating this causal relationship we’re seeing between human activity and rising temperatures. You can see from these top two left hand charts here, that Co2 concentrations, carbon dioxide, has increased dramatically over the last several centuries. And even if you work on a basis of several thousand years, it’s very unusual, these concentrations. And we now know that around 100% of these emissions since the preindustrial era, which is before 1850, is the benchmark used there. About 100% of these emissions are human caused, mostly from burning greenhouse gas, excuse me, fossil fuels, but also about a quarter of those emissions coming from our agricultural systems. And as a result, concentrations of carbon dioxide have increased about 43% in our atmosphere.

Now what happens when carbon dioxide and other greenhouse gases concentrate in our atmosphere is it creates this blanketing effect that those gases retain heat, much better than base level atmospheric conditions. So, you’re seeing these corresponding temperature increases, which are portrayed in that bottom left-hand chart there. So, what we’re seeing is over the past decade, an average of 1.1 degrees Celsius warming against these preindustrial times. And at those levels of warming, you’re already seeing pretty frightening outcomes. You’re seeing extreme temperatures, both hot and cold. You’re seeing ocean heat waves, ocean acidification. You’re seeing droughts and natural disasters that are increasing both in their intensity and their frequency. Already some pretty frightening outcomes there. Unfortunately, things are likely to get much worse. We’re just two degrees Celsius warming. That’s preindustrial times. You could see extreme heat events occur 5.6 times more likely if 2.6 degrees Celsius hotter. It’s extreme precipitation and drought events, also likely increasing their intensity and their frequency, greater variance and weather conditions as well. And unfortunately, we’re on the path to blow right past that two degrees Celsius. Current projections, which are pretty conservative, could estimate that we’re going to hit around three degrees Celsius of warming by 2100. So that’s the climate change framework here. I’m gonna pass it off to Natalie, for a quick survey question here.

Natalie Noel  25:38

Great, thank you so much. So, the next polling question reads: Are you concerned with climate change? Yes, somewhat, or no? Again. Are you concerned with climate change? Yes, somewhat, or no. And again, you can select your answer choice directly on the screen and hit send. We’ll give you another moment here to submit your answer choice. And while you are submitting your answer, just as a reminder, if you do have any questions for our speakers, you can submit those in the box to the right of the slides and we will do our best to get to as many of your questions as possible. Alrighty, so let’s go ahead and let’s see. We have about 58% saying yes, we have about 26% saying somewhat, and then about 16%, saying no. So, I will turn it back over to you.

Alec Lucas  26:23

Great, thanks, Natalie. And it’s good to see a majority be concerned with climate change. Now, the good news is that we still, again, have the agency to avoid these worst climate change externalities. Many experts contend that if we’re able to limit long-term warming to about 1.5 degrees Celsius above preindustrial times, we can avoid these worst outcomes. Now, an ambitious scenario which would allow us to do this is considered the net zero emission scenario, which is an example that we look at a lot throughout this presentation. And this will entail us reaching net zero emissions by 2050. Now, compare that to what’s been announced, what’s been pledged, even though we are seeing increasing tailwinds from governments beginning to take action on climate change. You’ll see that top right-hand scenario there that if governments follow through on all their climate commitments, we’re not going to quite meet that goal of reaching 1.5 degrees Celsius warming. We see a bit of an overshoot there. Last point here on the slide is if we are to reach net zero emissions by 2050, which again, is what we need to do to avoid these worst outcomes you’re seeing, you’d have to see somewhere in the magnitude of $130 trillion invested towards renewables, clean tech, carbon capture, etc. So, just for perspective there: The good news, again, is we have a lot of the tools that we need, in order to reach this net zero emissions.

To decarbonize renewables are any energy sources able to power our world without contributing to these greenhouse gases that we’re so desperately trying to curtail. You can see on that top left-hand chart that capacity for renewable energy generation has exploded over the last several decades. Solar capacity increased about 18 times between 2010 and 2020 and wind capacity increased about 3.3 times over that period. That’s a more established technology, so that makes sense to see. Now, as capacity is increased, you’re seeing economies of scale develop. You’re seeing innovations in the technology that allows costs to come down. That bottom right-hand chart indicates that the cost of solar and wind has declined precipitously, even over the last decades to the point where it’s cost competitive. We’re out-competing traditional fossil fuels in most markets. So, around the world, you’re seeing that renewable electricity is some of the cheapest that you can put on the grid. And this is obviously very helpful for furthering adoption of renewables. So not only are we seeing this climate imperative, but we’re seeing the economics begin to line up.

Last point here on the slide is that top right-hand chart. For more perspective, right now about north of 30% of our electricity comes from renewables. We’d have to see that share climb to about 90% by 2050 if we are to meet that goal of net zero emissions by 2050. And we’ve seen a lot of innovation in terms of the hardware involved with solar and wind. And this has been a big part of how costs have been allowed to come down. Certainly, there are a lot of components that go into a solar cell and a wind turbine and pretty much all of those technologies were very early in their adoption even a few decades ago. So, the developing economies of scale for those components has been very important. As for declining costs, we’ve seen solar cells decline by 81% since 2010, and that’s traditionally about 64% of the total hardware costs for solar panel. So certainly, a positive sign to see those costs are down. Wind turbines typically depend on if its offshore or onshore. But you can see a wind turbine accounts for about 60% to 65% of the total cost of the wind energy system. So certainly, to see the cost of Vestas, which is a common benchmark for wind turbines, to see those prices decreased about 38%, between 2010 and 2020. That’s also a positive indicator that we see solar costs continue to decline a further 55%, from 2019 levels by 2030. You’re seeing similar levels of cost for the clients potentially for wind power as well. So that’s some perspective on the innovations in the hardware there.

Another really important piece of the puzzle here is efficiency. And this is simply for operators from an energy generator standpoint. To be able to create more output per unit for your land is very important. And although this slide focuses on solar, you’ve certainly seen a lot of growth in that area in terms of wind turbines becoming much larger, and being able to produce more output and doing so more efficiently. So, we see on the right-hand charts here that we’re tracking the efficiency of solar panels over time for different solar technologies. And certainly, there’s been a lot of growth here. I will say these are efficiencies in the lab conditions. So, you are going to see that conditions in the field, efficiencies in the field, aren’t going to quite meet this mark. But it’s a good indicator of where that technology is headed. So, the original single junction cells were only about 4% efficient in the 1950s. And that’s simply not commercially viable. And a big part of solar panels, solar energy becoming more commercially viable, are improvements in this technology to the point where you’re regularly seeing in the field, single junction solar cells operating efficiency north of 20%. So certainly that’s been very important. We’re starting to reach the theoretical limit for this technology of 32.3%. So again, a good indicator for that technology.

There have been a lot of newer innovations in terms of what we’re doing with solar cells and the ability to boost that output through cell efficiency. Namely, we’re looking at multi-junction cells, which is simply when you’re containing multiple light layers of semiconductor materials to absorb a broader spectrum of lights. And this leads to greater efficiencies as well. This certainly increases the maximum efficiency for solar cells. We are seeing a three-junction cell efficiency nearing 70%, where again, the theoretical limit for just single junction is 32.3%. So, this is certainly a big improvement there and an area that we’re looking at moving forward. You can also augment solar panels with other technologies, such as concentrators, which are lens or mirrors, which actually concentrate sunlight onto the solar cells. Further contributing to the efficiency are the bifacial solar panels, which are able to absorb light that reflects off the ground. So, these tremendous improvements can further boost efficiency moving forward. Another neat area we’re looking at is hyper flexible solar applications, like crisp light, which is a very, very thin solar cell that can be contorted in all different directions. You have quantum dot cells, which are semi conducting nanoparticles, which you can integrate into glass or paint. So, besides these efficiency improvements, we’re also seeing a lot more flexibility in terms of applications for solar as well.

So, I’ve been discussing a lot of these opportunities for renewables moving forward. And it’s important to keep in mind some of the challenges for renewables. I did mention earlier that about 30% of our electricity comes from remote renewables globally, which is a great metric, which certainly represents a steady growth over the last several decades. But electricity is only about 20% of total energy consumption. Other segments, such as industry, buildings, transportation – these are segments that are geared towards fossil fuels. So, a big opportunity for renewables moving forward is to electrify these segments. Certainly, this is something that Pedro was discussing in terms of chipping away at emissions from the road with electrical vehicles. But we do have to take a look at electrifying industry electrified buildings, which account for about 1/4 of energy demand and one set of emissions. If we are to adhere to that net zero emission scenario, we have to see about 49-50% of energy use be electric, by 2050. So that’s some perspective there.

Another element here is variable renewable energy, which is just the idea that renewable energy output fluctuates. So, what you find in many markets, is that peak output for renewables doesn’t necessarily align with peak demand. A great example of this is just solar over your typical day. In most markets, solar generation is highest when radiance is highest, which typically takes place late in the morning / early in the afternoon. I’m generalizing, of course, but this is typically how it bears out. But this isn’t when peak demand is. Peak demand is often at night, when the sun goes down, and solar output wanes. What you’re left with is often renewable energy output sometimes having surpluses, where that output simply isn’t being used. And then other times you have shortages, which is a much bigger problem there. Fortunately, we are already developing these solutions to be able to address this in the form of energy storage.

There are several different applications here and one could entail lithium batteries. This is simply another use case for the batteries that Pedro was discussing. This should be more for energy storage on an hourly basis, because energy does degrade in a battery. You have also longer term options as well, such as hybrid electric, and hydrogen, which is actually the topic of the next slide that we’re going to get into – what clean hydrogen is a little bit. But certainly, having these energy storage options where you can direct surpluses of outputs for a later use – this is a very powerful application and could potentially cover renewable energies biggest weakness here.

Green hydrogen as a topic, we certainly can have several webinars on, as it has very diverse applications. It’s a term that I think is coming up a lot. But the way I like to think about it is as a way to extend the usefulness of renewable energy. And there’s two main pillars for how that that’s happening: 1) Hydrogen is a clean fuel source. If you undergo an electrochemical reaction in a fuel cell using hydrogen oxygen, you’re able to produce electricity without releasing greenhouse gas emissions, which again, we’re desperately trying to curtail, to reach our climate goals here. And there are wide range of applications, Certainly you have fuel cell electrical vehicles, of which there are around 30,000, a bit more than that now on the road now. But we do think the bigger opportunity here is for large scale, heavy duty vehicles – heavy duty trucks and cargo ships, airplanes – where the lightweight hydrogen starts to have more of an advantage over lithium batteries when the size of the vehicle scales up.

Also, a really important potential application is stationary fuel cells to power and heat buildings. Again, buildings account for about a fourth of energy demand. And once again it’s the emissions – you actually see that the stationary fuel cells can be a lot more land efficient than renewable energy sources. It’s very difficult to, in some cases, fit a wind turbine in a city. So stationary fuel cells could be a possible solution here. The other application, which I was alluding to last slide, is energy storage – green hydrogen as energy storage. And what you can have is that excess renewable output when there simply isn’t that demand to take it, you can direct that excess energy towards green hydrogen production. You power these machines called electrolyzers, which undergo this process of splitting water into hydrogen and oxygen. And once you have the supply of hydrogen, you have a lot of flexibility with which to deploy that energy at a later time. So that’s certainly very, very possible application for this technology as well. I will direct you to that bottom right-hand chart there. We know right now that green hydrogen costs are quite expensive. It is expensive to create this material. However, we are seeing tailwinds in terms of government policy, government programs that could lead to an acceleration of these cost improvements. You could see green hydrogen become cost competitive with fossil fuels by around 2040. So that’s a really interesting topic. We’ll be happy to take questions in the Q&A to dive further into this.

The last piece of the puzzle here for climate change before we move on to our last slide of the presentation is carbon capture. And when you hear about carbon capture, a lot of what you’re likely hearing is about carbon capture utilization and storage. This is where you attach an apparatus to a point source of emissions, often a coal plant or natural gas plant, and you’re utilizing pipelines or storage facilities to prevent that carbon from actually entering the atmosphere. Another technology we’re looking at is direct air capture, which is where you’re using a sequence of filters or chemicals to capture CO2 directly from the air. And this is a much more expensive process than carbon capture. And certainly, the least expensive option is to never emit this carbon in the first place. However, we’re seeing that in this these scenarios where we’re reaching that zero emissions, a piece of the equation here is this carbon capture technology. Simply put, it buys us time for the adoption of renewables to catch up. So even if theoretically, at scale, there’s a 95%, maximum efficiency for carbon capture, that’s still helping out a lot with carbon emissions. But again, we really need to reduce our carbon emissions to zero. But again, baked into these assumptions of net zero emissions by 2050, you are going to have to see the world start to extract millions of tons of carbon starting in the 2040s. So it’s a piece of the puzzle here.

We’re going to, at this point, move on to the last part of our presentation, which certainly relates to climate change as well, which is food and water. And we’re seeing unsustainable practices around food and water already driving food insecurity. You’re seeing about 60% of global population counting, at one point, lack sufficient access to food. So this is already a huge problem. And unfortunately, it’s likely to get worse. Again, as we discussed, the effects of climate change are likely to become more pronounced, which leads to land degradation, further water shortages, etc. You’re also going to see population growth. And this certainly puts more pressure on food systems just by virtue of having increasing demand. So we’re in a place right now where we really need to come up with these better techniques to boost our outputs, to make better use of our limited resources and ultimately put ourselves in a better position to feed future populations.

I think this is a great slide to sort of give a framework of what we’re looking at with the food crisis. And there are several factors here – it’s not as easy as a cause and an effect. It’s not as easy as climate change causes food insecurity. It’s climate change leads to food insecurity, which leads to less sustainable food production processes, which are more land intensive and water intensive, which in turn, flow back into climate change. This is really a feedback loop that we’re seeing between food insecurity, land degradation, water scarcity, and climate change. So that’s important to keep in mind as we move through the section. A few statistics, as well, to keep in mind as we move through this chapter as well. Global populations are expected to increase about 30% between 2020 and 2060. Clearly, this adds pressure on food systems. We really need to boost food production by about 50% by 2050 in order to accommodate this population growth. We also see that agricultural production is very resource intensive, and it’s not very efficient. So, we are seeing that agricultural practices make up about 70% of water withdrawals, 18% of US emissions, and that 43% of the world’s ice and desert are agricultural. So, important framework here.

AgTech is one of the major ways in which we’re going to be able to boost yields for agriculture. This is any technique that where you’re prudently using water and land and trying to maximize food output, while minimizing these inputs. So some examples that are fall under that umbrella are precision agriculture and agricultural robot controlled environmental agriculture, which are topics we’re going to discuss shortly here. We also have food innovation, which really in this case refers to alternative foods. Our consumption habits are unsustainable and shifting towards alternatives could be very helpful for alleviating some of the resource stress on food systems. And lastly, you also have clean water technology, which targets vulnerabilities throughout the water cycle, whether that’s sourcing of water to treatment and distribution of water, or managing wastewater as well. So precision agriculture is a pretty broad, vast tier of different techniques. Again, these are any techniques or technologies that seek to maximize yields, while conserving your traditional agricultural inputs of water, fertilizer, herbicides, pesticides, labor, etc. And a lot of different technologies can help us do this. Internet of Things, artificial intelligence, and agricultural robots are all technologies that are developing, and that can help us conserve these inputs.

Some great statistics around this diagram here have examples of how AgTech – excuse me, precision agriculture – has led to savings with resources. You see bottom left, 77% reduction herbicide use in some cases. Certainly precision agriculture is known to save water, fossil fuels, and boost yields. What I want to draw your attention to is that top right by the satellite, a 32% reduction in nitrogen use to variable rate applications. In this case, nitrogen use refers to fertilizer, and variable rate applications, I think is a pretty textbook example of precision agriculture. This is a technique where you utilize whether it’s Internet of Things sensors in the ground, you can also use drones, you can use other technologies to closely monitor the health of crops, you can precisely monitor nutrient levels, soil health, water levels, etc. To see how a crop is doing, you then compile this information and leverage it with this satellite imaging technology to be able to see exactly what’s happening with these crops and to provide very specific instructions for farmers, or in some cases, autonomous farming vehicles, which are able to carry out these directions. So what this might look like is Crop A needs a certain amount of fertilizer, the crop is doing a lot better, and it doesn’t need nearly as much fertilizer. So in this case, you’re avoiding needlessly using these resources, which is especially important in an environment like now where agricultural commodities are at a very elevated point.

Another technology that we’re focusing on is controlled environmental agriculture. This is simply the cultivation of any plant or product in a non-traditional enclosed environment. So, this can be a greenhouse, which we’re pretty familiar with, or can be more advanced, such as a vertical farm where the flow of nutrients and water is closely monitored through the stacks of crops. And there are lots of applications and benefits for this technology. One is geographically – you are seeing that this saves a lot of space. You see on that left-hand chart there that a vertical farm requires a fraction of the land needed for the same amount of output as a traditional farm. Also, because you have a high degree of control over these inputs, you end up using a lot less herbicide, land water, and, in the case of a vertical farm, you can use up to 95% less water. So, this is also very powerful in terms of saving resources.

Some applications are also less obvious. The fact that these are enclosed environments means you can unlock year round production, which is very helpful for boosting yield. You unlock more production through protection from the ravages of climate change and land degradation, as these varying weather conditions are not as much of a problem if you have an enclosed environment. Lastly, here also, because of this land efficiency, you end up being able to place these CEA’s in close proximity to the end user, to population centers. So how this bears out – there is less spoilage in the supply chain, there are less fossil fuels being used, and transporting these goods is faster. So multiple benefits here for this controlled environment agriculture, which ultimately expands the useful lands we have for agriculture. At this point, I’m going to pass it off to Natalie for our last survey questions here about alternative foods.

Natalie Noel  49:17

Wonderful, thank you. And the final polling question reads: Would you purchase lab grown meat produced by in vitro animal cell cultures, if priced competitively? Yes, maybe, or no, Again: Would you purchase lab grown meat if priced competitively? We’ll give you another moment here to submit your answer choice and then we’ll go ahead and move on to the results. Again, you can select your answer choice directly on the screen and hit send between yes, maybe, or no. And just as a reminder, additional material can be found in the Documents folder at the bottom of your screen. And alrighty, let’s go ahead and move on to these results here. So, looks like kind of spread across: We have about 40% saying maybe, 35% saying no, and then about 25% saying yes. So, I will turn it back over to you.

Alec Lucas  50:04

Yes, really interesting technology there in the lab grown meat, still extremely early in its adoption. The first restaurant that actually offered lab grown meat was in Singapore in late 2020. So very early stage here. But this is just one example of some of these alternative food choices that we’re seeing beginning to come to market. Lots of information on the slide again. This concerns alternative foods and sort of what this means for resource intensity. The bottom line here is that, again, our consumption habits or diet mixes are unsustainable in terms of resource use. So, 36% of global crop calories are consumed by livestock, but only 4% of these calories translate into calories that actual humans consume. So, there’s clearly a disconnect here in terms of caloric efficiency. And it might not be as much of a problem now, but certainly as populations grow, as we’re really struggling to meet caloric bare minimums for populations, this is something that needs to be focused on or addressed.

You also see that 85% of agricultural land is used to cultivate livestock, 62% of agricultural water is also used to satiate livestock as well. So unfortunately, animals are very resource intensive, and shifting more towards a plant-based diet, or an other-alternative-based diet could yield incredible resource savings. And this is what these charts on the right-hand capture here. That bottom light blue line indicates resource usage, if diets around the world were shifted entirely to plant-based. Now, is that a realistic scenario? Almost certainly not. But it’s just for illustration’s sake. As you move away from traditional protein, you do have a lot more efficiency, especially in land use. You can see that middle term there, that plants are very land efficient, compared to traditional protein. But interesting metrics here. Really quick, one of the hits on the water crisis as numbers here. Clearly, we’re seeing that that renewable water resources are declining. We’ve seen this since the 90s. And it’s only projected to continue. You could see the number of potential total populations that are facing consistent water scarcity more than quadruple by 2050. So, there are a number of reasons, ranging from climate change to unsustainable practices, to pollution, and to natural aquifers drying up or being completely tapped. So, a lot of factors at work here. But this is certainly something with major ramifications for agriculture, as well as just simply feeding our basic human needs.

The technology we are tracking is desalination. This is simply the process of transforming saltwater into clean drinking water. We’ve seen this technology gradually rise to prominence over the last several years from 2000 to 2020 global desalination capacity has increased by five times and we’re likely to see that market continue to gradually grow. But this is simply a big problem in terms of water shortages, and something that there are technological solutions that are being worked on currently. And here’s our last slide of content here before I pass it back to Pedro. But you see here a number of Global X projections here in terms of the alternative food space. Again, we believe we can use this AgTech to optimize production processes for agricultural. But if we’re not improving our consumption habits, you are going to lose some synergies in terms of improving our food systems. And certainly, consumer sentiment is starting to shift towards alternatives. You see that 80% of Americans have either purchased or are open to purchasing alternative food products. So, this is a strong majority there. To that end, we believe that the alternative food space, you could see that market be worth about $86 billion by 2030. And this would be tremendous growth. But we still think compared to the long-term opportunity, this would be a segment that’s still in its early adoption stage. With that, I’m going to pass it off to Pedro for some concluding remarks.

Pedro Palandrani  54:41

Awesome, thank you so much Alec. Lots of information that we went over today. But if you want to learn more about our product offerings and more about our research, you can go to our website You can also follow us on Twitter, but again we have an open architecture research with plenty of content – plenty of research to continue to support your investment decisions. Before we go into the Q&A, I’ll pass it over to Natalie here.

Natalie Noel  55:15

Great! And thank you both for such an informative presentation. Just as a reminder, additional material can be found in the Documents folder at the bottom of your screen. If you do have any questions for our speakers today, you can submit those in the Q&A box to the right of the slides and we’ll do our best to get to as many of your questions as possible. In the event your question is not answered on today’s webcast, a member of the Global X ETFs team will get back to you directly. And if you’d like to have a conversation to further discuss the ideas that were covered during today’s event, please click the one-on-one folder at the bottom of your screen and confirm the request. So, with that, I will turn it back over to Pedro for our first question.

Pedro Palandrani  55:54

Awesome. Thank you, Natalie! So, let’s start here. There’s a question: Will the transition to sustainable energy eventually be slowed by limited rare earth metals and other materials necessary for non fossil fuel energy solutions? And the answer, unfortunately, is yes. We actually believe that many of these disruptive materials are one of the biggest constraints for adoption of many of these renewable energy sources that we talked about – in things like electric vehicles, as well. In the case of rare earths, those are used in fuel cells, those are used in wind turbines, those are used in even other technologies, such as robotic extraction model or semiconductors. So, lots of the newer technologies in the energy industry will require substantial investments for these raw materials. Another one that I talked about before, is also lithium. Again, lithium is one of the biggest constraints and adoption of electric vehicles we believe over the next few years. So lots of investment needs to go into lithium to be able to sustain the growth of electric vehicles. So going over a couple other questions here. This one’s probably for Alec: What impact could the Russia and Ukraine situation have on AgTech? So, over to you Alec.

Alec Lucas 57:22

Right, it’s a great question. And certainly something that we’re tracking. It’s important to keep in mind that we already were seeing food prices increasing dramatically. Over the last couple of years, I believe food prices are up about 75 percent. Since the middle of 2020, a lot of that has to do with a rising commodity pricing environment, in terms of natural gas and oil. But also supply chain constraints related to the pandemic. So that’s certainly a factor. Now, we reached all time food highs in terms of food prices in February, and we did just see results from March where food prices climbed another 13%, mostly because of this crisis in Ukraine. Russia and Ukraine are very important exporters of wheat and sunflower oil and other essential agricultural commodities there. Russia is perhaps the most dominant exporter of fertilizer as well, which has skyrocketed in prices, which in turn, translates into higher food prices. So, you are going to see food prices continue to increase. There are projections that food prices could increase somewhere in the neighborhood between 8-20% or so. So that is a problem. We think that this boosts the investment case for AgTech. You’re making better use of these limited resources. Because if fertilizer prices are so high, and you’re minimizing the use of fertilizer, this is good for everybody. This is good for farmers, this is good for consumers. So we think that this situation in Russia and Ukraine certainly has bearing on food prices, but could draw more attention to the AgTech segment.

Pedro Palandrani  59:22

Awesome thank you, Alec. And we’re at the top of the hour here. So maybe one last question here. Alec, for you as well around hydrogen again – will fuel cell EVs become the norm?

Alec Lucas  59:36

It’s a great question. And again, we’re looking at the bigger opportunity being for those heavy-duty vehicles. We think that there are a lot of advantages that lithium has for the passenger segments. There’s a lot that industry already built out. Again, lithium appears to be working better and better for passenger vehicles. But they’re struggling right now at least to be able to address airplanes or cargo ships. With the weight you would need to have a passenger or commercial jet airliner that’s powered by lithium, it’d be pretty prohibitive for the airplane to take off. So again, we think the larger opportunity there is for fuel cell vehicles to be in those heavier duty vehicles. That being said, there’s going to be a market for it. But we do think that electric vehicles are going to be more of the norm for the passenger vehicle segment.

Pedro Palandrani  1:00:47

Again, thank you so much! With that, I think that will be the end of today’s webinar. Thanks a lot for tuning in! So, I’ll pass it over to Natalie for closing remarks.

Natalie Noel  1:00:59

Wonderful, thank you! And again, if your question was not answered on today’s webcast, a member of the Global X ETF team will reach out to you directly. And if you’d like to have a conversation to further discuss the ideas that were covered during today’s event, please click the one-on-one folder at the bottom of your screen and confirm the request. I want to thank everyone for joining and hope you have a great rest of your day!

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