Arms race: defence versus decarbonization?

Does defence displace decarbonization as the developed world’s #1 policy goal through 2030, re-allocating $1trn pa of funds? Defence versus decarbonization? Perhaps, but this 10-page note also finds a surprisingly large overlap between the two themes. European capital goods re-accelerate most? Some clean-tech does risk deprioritization?

One of the catalysts for starting Thunder Said Energy, back in 2019, as a research firm for energy technologies and energy transition, was the sense that decarbonization was becoming the largest priority in the world.

Yet today, news headlines would suggest that a different theme is becoming the largest priority. The theme is defence. Comparisons between decarbonization in 2019 and defence today are drawn on page 2.

Defence spending is a deterrent against war, and may increase from $2.4trn in 2023, rising by +$1trn to $3.4trn in 2030, and then by a further +$1trn to $4.4trn in 2050, per our breakdowns of global GDP by region, and discussed on pages 3-4.

If the world allocated $1trn pa more for defence by 2030, and $2trn pa more by 2050, then how would these vast sums compete with energy transition expenditures? For an answer, we turn to our roadmap to net zero, and the costs/capex needed for wind, solar, gas, power grids, efficiency, CCS and nature-based solutions, on pages 4-7.

Winners and losers? The most important part of the note speculates as to winners and losers — by theme, by sector and by company. There is potential for more pragmatism and reindustrialization in Europe. Beware of watermelons. Our key conclusions are distilled on pages 8-10.

Ultimately all military expenditures do go somewhere, and what surprised us most is the overlap between defence versus decarbonization. This is most true for critical infrastructure and some energy technologies.

We have already watched the energy transition become the very hungry caterpillar, encompassing $15trn of market cap across a dozen sectors. Including defence. For example, we have written on super-alloys, Rare Earths and carbon fiber. And new technologies such as power-beaming, military drones and thermoelectrics.

More of our upcoming research will focus on the overlap between decarbonization and strategic infrastructure and technologies. For now, some further reading is the energy history of WWII. And our key conclusions on decarbonization versus defence are in this 10-page note.

Copyright: Thunder Said Energy, 2019-2024.