rethink sustainability
“Climate change is forcing capitalism to be different” – a Bloomberg expert on today’s new economics
“If you’re a big thinker looking at climate and economy trends, there’s no way you can think about them separately anymore.” So says Akshat Rathi, a Bloomberg journalist who reports on climate issues and hosts its Zero podcast, which explores the technologies and policies driving the world towards zero emissions. His first book, Climate Capitalism: Winning the Global Race to Zero Emissions, sets out to show how it now makes more economic sense to support climate solutions than to reject and resist them.
Named one of the best books of 2023 by UK newspaper The Times and praised by Bill Gates, it highlights sustainability success stories from around the globe. We spoke to Akshat about the forces shaping climate capitalism, how entrepreneurs are finding solutions and the technologies he expects to triumph in the years ahead.
What exactly is climate capitalism and how is it different from traditional capitalism?
Capitalism over the past 200 years has largely ignored the cost of pollution. Climate capitalism is a version of capitalism where that is no longer the case. Climate change was described as “the greatest market failure the world has ever seen” in an influential report in 20061, because the damage it is causing could take 5-20% off global GDP. There has since been a big move to figure out what needs to be done to correct that market failure.
I think climate capitalism is also more of a team sport than traditional capitalism. Governments, investors, private capital, big firms with big balance sheets and start-ups with fresh ideas all need to work together to find and scale solutions. But there needs to be a healthy amount of competition too. Markets have repeatedly shown how they help identify the best solutions, products and technologies, whereas governments can pick the wrong winners. So while governments have a role to play in setting boundaries to steer markets in the right direction, they also have to give markets room to play out naturally.
Read also: How Daphne’s deep-tech is cutting emissions
How critical do you see carbon prices in correcting this greatest market failure. Do they need to be higher, stricter, more widespread?
Most economists think a global carbon price is the most efficient way to reduce emissions. Some think the price should be substantial, others that it should be low and increase gradually. The difficulty is the politics of it, and this is what has held it back. That said, even countries that resist carbon pricing can be made to see the value of it by other countries taking action.
Europe is a good example with its Emissions Trading System (ETS). It has altered the direction of industry – emissions by EU industry fell 6.5% in 20222, even though industrial output rose3. And the EU’s incoming Carbon Border Adjustment Mechanism4 will basically put those tariffs on foreign manufacturers who are shipping goods to the EU made using carbon-intensive production methods. This has pushed India towards an ETS.5
You also talk about the need for “patient capital” to solve the climate crisis. Why is this the case, and has it ever been the case at other points in history?
Making any substantial change to how a country’s economy works requires patient capital, and this has typically been government-led. There are many examples in history, but one with energy includes nuclear power in the United States and France after World War Two. A desire to reduce their reliance on external energy sources and to see if nuclear technology could be used for good led to substantial investment with a long-term goal in mind.
However, what’s changed in the following 60 years is that far more money now sits in private hands. Private markets keep getting bigger, so while governments can provide capital and direction, they can’t be relied on alone. We have to find ways to involve private capital.
In the case of software, private capital has played a massive role in making technologies commercial. But software is very fast-cycle and it means a lot of investors have got used to getting high returns at pace. Climate technologies are different as they deal with bigger problems of physics, chemistry and biology, so they take more time to prove. More billion-dollar climate funds are emerging though, and that speaks volumes.
Two major asset managers have recently quit the Climate Action 100+ group.6 Do you think this is a sign of capital being impatient by nature?
I think capital is a bit fearful of politics right now; capital is always very sensitive to politics as it knows any change to policy can have a massive impact. Capitalism also tends to be quite conservative by nature, so to get it to do something substantially different is hard. Climate change is forcing capitalism to be different. If you’re a big thinker looking at climate and economy trends, you can’t think about them separately anymore. They are completely interwoven and they will remain that way, no matter whether action to tackle climate change increases or decreases.
Read also: Investing in a fractured world
Talking of politics, 2024 is going to be a huge year for elections that could lead to big policy changes – are short-term election cycles fundamentally at odds with the long-term thinking that climate change needs?
The way things are now with climate policy, some longer-term thinking is baked in. It means politics can slow the direction of travel, but I don’t think it can change it. The main question now is the pace of progress.
Take the US Inflation Reduction Act (IRA) – it is offering 10-year tax credits, covering three election cycles, and many Republican states are benefiting the most7. This means a Trump victory is unlikely to lead to a full repeal of the IRA. There might be a slowdown, but it will not reverse completely.
It’s the same with the European Parliament elections this year. A worst-case scenario still sees the European People’s Party retaining a majority8. This means things will not shift completely. The European Green Deal is about very long-term thinking and it’s not going to disappear. There will always be push and pull, but I think the goals and direction are there for long term.
For China and India, there is no debate. The Chinese political system is fully dedicated to making sure green technologies are built at scale, and that China will supply them to the world. In India, Modi sees the same thing. Climate technology is a way for India to project its newfound economic status to the world. India also sees China’s tense relationship with the US and EU as a way for it to become a renewable technology manufacturing hub for the world.
You talk in your book about the incentives India introduced for batteries and solar, and how that made the conditions for booms in both. Do you see anything similar happening in other countries right now with other technologies?
The base case for India deploying solar was always there, but it only became strong when solar economics improved in the 2010s, when policy support came in and when entrepreneurship got behind it and looked to make the most of cheaper solar panels. You needed all three things together to unlock it. The same is now happening in Vietnam; substantial policy support and entrepreneurialism combined are driving solar at one of the fastest rates in the world.
Thailand is doing something similar but with vehicles. It’s become the Detroit of Asia for manufacturing traditional, internal combustion vehicles, with many Japanese companies running factories there. Automobiles make up 10% of Thai exports, and Thailand has recognised that if it wants to retain this it needs to move to electric, so it’s set a goal of 30% of all auto production being electric by 2030, and that’s attracting a lot of companies to set up there.
Indonesia has a lot of the minerals needed for the energy transition, but it mainly just mined and exported raw ores until the government decided it needed to figure out how to grab more value from these minerals and the energy transition. It has set mandates on how much ore must be processed before export, and this has created not just economic benefits but is spurring the country towards clean energy and electric vehicles. It’s a virtuous cycle.
What do you think will be the most game-changing energy transition development by 2030?
Electric vehicles, and this will have such huge implications. Peak oil could come much sooner than we expect, and that will substantially alter geopolitics and how we think about so many things. Oil has developed such close links to power over the past century, and it’s not going to go away easily. But when oil demand peaks, that’s going to have major implications for the global narrative, and the International Energy Agency9 says we’re going to see that this decade.
Read also: Rethink Perspectives: 2024, a year of economic normalisation
You describe carbon capture and storage (CCS) as being essential to emissions maths because we have been so slow to act. Should it be a short-term sticking plaster while we find better options, or a long-term solution?
If we just have one answer to solve the climate problem, we are in a difficult place. Multiple options give us a better chance, and carbon capture gives us one more option. It’s a sort of insurance policy for certain sectors while they look for better solutions, rather than the answer to their emissions reductions.
Carbon capture is also attractive to many governments because they are struggling to meet their climate goals. This is spurring entrepreneurs to come up with all sorts of ideas for carbon removal, such as burying wood has absorbed carbon into highly salinated soil10 – a bit like sinking a ship in the ocean.
Technology like CCS isn’t the answer to the climate problem, but without technology, there is no answer. So many of the problems we need to solve exist because the world and our economic systems have not presented opportunities for them to be solved before. Take cement – the same production techniques and materials have been used for 200 years because there’s been no reason – economic or otherwise – to change. Now the climate is providing a reason, so people are starting to think of ways to fix cement, and the number of people who have ideas is amazing, because there are so many places people could have innovated in the past but never did.
1 The Economics of Climate Change: The Stern Review - Grantham Research Institute on climate change and the environment (lse.ac.uk)
2 COM_2023_654_1_EN_ACT_part1_CMR+SWD.pdf (europa.eu)
3 ef6587fe-3193-8228-fde9-f8099690c743 (europa.eu)
4 Carbon Border Adjustment Mechanism - European Commission (europa.eu)
5 Implications-of-carbon-credit-trading-scheme-in-indias-net-zero-strategy.pdf (ceew.in)
6 JPMorgan and State Street quit climate group as BlackRock scales back (ft.com)
7 Republican districts dominate US clean technology investment boom (ft.com)
8 Right wing set for big gains in 2024 EU election, polling shows – POLITICO
9 Global Oil Demand to Reach Its Peak This Decade, IEA Says - Bloomberg
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