Capitalism Won't Save the Planet

There's No Substitute for Policy

If the costs of developing and generating solar and wind electricity have fallen significantly over recent years — it is now reported that they are often lower than those for hydrocarbon-based power — why are so many fossil fuel-based plants (coal, natural gas) still being built? 

It’s true that investments in wind and solar are growing quickly, which is great. 

But at the same time, new fossil fuel-based plants are being built at a rapid and increasing pace, especially in parts of the world where electricity demand is growing most quickly. Fossil fuel-powered generation provided about 64% of global electricity in 1975, and still some 61% in 2022. 

The question is why?

It’s a question that deserves more attention and one that Brett Christophers addresses in his ambitious new book, The Price is Wrong: Why Capitalism Won’t Save the Planet. 

Christophers offers a simple explanation: wind and solar investments are now profitable thanks to hugely reduced costs and critical government-provided support. But they are comparatively much less profitable than investments in fossil-fuel based electricity generation. 

Christophers says models for hydrocarbon-based investments these days generally show IRRs of 15-20% versus about 5% for renewables. The private sector is in the business of maximizing expected profits, so it’s not surprising that there is continued investment where the returns are highest.  It would be illogical to expect capitalists to behave differently.

Christophers’ book goes on to provide a thorough, detailed, and engaging analysis of the many obstacles renewables face. Not surprisingly, he argues that the state must play a much bigger role in electricity generation if we are to meet our decarbonization goals.

Meanwhile, we see other examples of businesses losing momentum on the climate front for similar reasons:

• Shell’s new CEO announces a pivot away from renewables and back to oil and gas. What happens? The stock price soars. As the CEO explains, his job is to maximize returns. 

• Financial institutions drop out of the GFANZ initiative. They are not willing to ditch important customers.

• EY is reportedly scaling back its ambitious net-zero timeline. It’s too expensive. 

• Airlines in the US say they are unwilling to pay any premium for sustainable aviation fuel (SAF). There’s zero appetite to be even fractionally less competitive. 

• Larry Fink of Blackrock downplays climate in his annual letter. It’s not his organization’s job to tell clients how and where to invest, he explains.

Such news lines up with what we’ve been saying here. The private sector’s voluntary climate commitments are positive and should continue to be encouraged, but they will never be sufficient to meet our decarbonization goals because there are real limits on how far they can go. 

Lamenting this state of affairs or attacking business leaders for doing their jobs will not likely advance climate progress. 

What should climate-concerned citizens do?

By all means, continue to push business leaders to pursue all climate solutions that align with the business imperative of profit maximization. Don’t be discouraged. Great progress has been achieved. And there remains plenty more for business to do voluntarily.

But importantly, please also push hard for the public policy that is essential to take our climate progress to the next level. All big environmental wins in the past started with tough regulatory policy. Think Clean Air Act. We should require — not ask — business to take the climate actions that we need, and we should use whatever set of policy options we can make politically feasible (both carrots and sticks). 

And yes — if business leaders are sincerely committed — they should lead the charge on the policy front.

Good thing it’s an election year all around the world — a great time for the climate-concerned to get seriously engaged in our most important work.

Let’s get to work! We can do this.