The RISE and FALL of RARE: Climate Transition Risks and Opportunities in 2026

The global energy transition is accelerating, but the path forward for RARE sectors-Renewables, AI, Rare Earths, and Energy Storage-is marked by both unprecedented opportunities and systemic risks. As 2026 unfolds, the interplay of record heat events, coal declines in China and India, and geopolitical resource competition will redefine investment landscapes. This analysis dissects the dynamics shaping these sectors and outlines strategic entry/exit points for investors navigating the climate transition.

Renewables: A Tectonic Shift in Coal-Dependent Economies

China and India's coal power generation fell by 1.6% and 3.0%, respectively, in 2025-the first decline in over 50 years-driven by record additions of solar and wind capacity. China added 300 GW of solar and 100 GW of wind, while India's renewable capacity surged 44% year-on-year. These developments signal a potential peak in coal demand, yet both nations continue approving new coal projects, creating a paradox: renewables are outpacing coal, but legacy infrastructure remains a drag.

However, the U.S. presents a contrasting trend. Under Trump-era policies, coal and natural gas use rose, pushing U.S. emissions up 2.4% in 2025. Meanwhile, solar growth in China is projected to slow in 2026 due to policy shifts from guaranteed pricing to competitive bidding, reducing annual additions to 200 GW. For investors, this highlights a critical divergence: while emerging markets are decarbonizing rapidly, developed economies face regulatory headwinds.

Strategic Insight:
- Entry: Emerging markets (India, Southeast Asia) for solar and wind projects, where demand growth outpaces supply.
- Exit: U.S. renewables, particularly solar, due to policy uncertainty and tax credit phaseouts.

AI: The Double-Edged Sword of Grid Modernization

AI-driven data centers are testing the limits of global grids, with electricity demand projected to grow 17% in 2026. This surge is reshaping corporate priorities, as data center operators seek reliable, low-carbon power. However, efficiency gains in AI models and hardware may temper long-term demand .

Grid modernization is a critical bottleneck. The EU estimates €584 billion in grid capital expenditure will be needed by 2030 to support decarbonization. In the U.S., aging infrastructure struggles to meet AI's energy demands, creating a risk of grid instability.

Strategic Insight:
- Entry: AI-powered grid optimization technologies and microgrid solutions, which address grid resilience gaps.
- Exit: Legacy grid infrastructure in regions with slow modernization (e.g., parts of the U.S. Midwest).

Rare Earths: Geopolitical Tensions and Supply Chain Vulnerabilities

China's dominance in rare earths-controlling 91% of global separation and refining- remains a strategic chokepoint. The U.S. is accelerating domestic production, with companies like MP Materials and Lynas Corporation scaling up processing capabilities. However, geopolitical tensions, particularly with China, and export restrictions complicate supply chains.

India's reliance on Chinese-made components and critical minerals (lithium, cobalt) exposes it to supply shocks. Meanwhile, the EU's Carbon Border Adjustment Mechanism (CBAM), effective January 2026, adds complexity to global trade by requiring carbon-intensity reporting for imported goods.

Strategic Insight:
- Entry: U.S. and Australian rare earths projects with diversified supply chains and advanced processing technologies.
- Exit: Chinese rare earths producers, which face regulatory and geopolitical risks.

Energy Storage: The Grid's New Lifeline

Energy storage demand is surging to address renewables' intermittency. Battery storage investments are projected to remain at ~$20 billion in 2026, driven by falling unit costs. However, U.S. renewable investments have declined 36% due to Trump-era policies, including the phaseout of tax credits.

Extreme heat in 2025 also threatens energy storage efficiency, with climate risks forcing infrastructure adaptation. For example, wildfires and flooding disrupt grid resilience, particularly in regions prone to climate extremes.

Strategic Insight:
- Entry: Grid-scale battery storage in regions with high solar/wind penetration (e.g., Australia, South Africa).
- Exit: U.S. battery projects reliant on volatile tax incentives.

Conclusion: Navigating the RARE Landscape in 2026

The RARE sectors are at a crossroads. While renewables and energy storage offer long-term decarbonization potential, geopolitical tensions and policy shifts create volatility. AI's energy demands and rare earths' strategic importance underscore the need for diversified supply chains and grid resilience.

Final Recommendations:
1. Enter: Energy storage, AI grid optimization, and rare earths in non-Chinese supply chains.
2. Exit: U.S. renewables and legacy grid infrastructure.
3. Monitor: Policy shifts in the U.S. and EU, particularly CBAM and tax credit rollbacks.

As the climate transition accelerates, investors must balance the rise of clean energy with the fall of outdated systems-and the geopolitical risks in between.