Commanding heights of climate action: Only the public sector can save the world

Whenever state support was withdrawn, the price of capital equipment required for renewable energy went up.
Whenever state support was withdrawn, the price of capital equipment required for renewable energy went up.


  • Evidence has piled up that private capital isn’t up to the task and governments must lead transitions to clean energy. Private capital can be de-risked, but even that’s unlikely to create an attractive enough profit proposition for the scale of investment needed to decarbonize energy.

In October last year, Gulzar Natarajan and I wrote that nations may be ill-advised to rely on private capital for the investments they need to make to deal with climate change. However, Brett Christophers takes this argument further in his book, The Price is Wrong: Why Capitalism Won’t Save the Planet. He delves into why private capital, despite its potential, will not invest enough in renewable-energy generation capacity for the planet to achieve its goal of limiting temperature increase to 1.5° Celsius above pre-industrial levels.

First, Christophers marshals a lot of evidence to make his case, and second, he does not absolve the West of its historical responsibilities and its consequent current responsibility to support developing countries with technological, material and financial resources to combat climate change. 

For example, he cites Derek Browers of the Financial Times: “The Western nations that did so much of the damage will have to finance the transition in the developing world—it is astonishing that this idea is still debated (" He does not blame developing economies, particularly India and China, for continuing to rely on fossil fuels for electricity generation. He also acknowledges the substantial investments these two countries make in renewable energy generation capacity.

Also read: Investments in India have benefitted climate change, housing projects: IFC

He questions the belief that private capital will create adequate renewable energy capacity because private capital is rightly about profits. In another age, he says, private capital had turned to coal to power cotton production because it was profitable. Private capital would get invested if energy generated through renewable sources could be priced and sold profitably. Otherwise, not. 

The record is not encouraging. Whenever state support—in terms of subsidies, guarantees, land concessions or tax reliefs—was withdrawn, investment in additional capacity came down, or the price of capital equipment required for renewable energy went up. One of the reasons for this that Christophers does not mention but Ed Conway points out is that renewables are so much less energy-dense than fossil fuels.

Christophers does not condemn private capital. After all, private capital is about property rights and profits. His take on various seemingly compliant but devious methods adopted by financiers-investors-suppliers to profit from electricity prices is interesting. 

He says that it is wrong to cast these transgressions in moral terms because it gives rise to the impression that, but for some deviant market participants which includes reputable names, the market for electricity would function efficiently. That is, there will be efficient price discovery which is fair to the consumer and profitable to suppliers. He questions that premise. He calls it the wrong model and, based on the available global evidence, concludes that private capital is not designed to do the job.

A very insightful quote attributed to Meredith Angwin is worth repeating here: “They are not markets as we know markets. They are complex systems, with new regulations constantly tweaking and trying to improve existing regulations. They are a bureaucratic thicket, not a market. It’s Orwellian. [Electricity is] ‘deregulated’ only if ‘deregulated’ means ‘lots more regulation’. ‘War is peace.’ ‘Deregulation’ is ‘lots more regulation.’ Orwell would be amused."

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Christophers invokes Karl Polanyi to argue that electricity is a ‘fictitious’ commodity, like land and labour. He writes, “…electricity essentially was and is not a suitable object for marketisation and profit generation in the first place." In liberalized markets for electricity, as in Europe, renewable-energy developers take all possible steps to avoid selling at the market price. That is a negation of the market mechanism.

If so, the insistence by Western governments and multilateral bodies that, with de-risking, a wave of private capital is ready to be deployed is baffling at one level. But, at another level, it looks like a case of passing the hat to the private sector. Suppose private capital does not flow to emerging economies for their energy transition. 

It would be easy then to blame these countries for failing fitness tests required to receive that capital. Even so, given the interest costs in developing countries, utility-scale renewable energy generation will take a long time, if ever, to be profitable enough for private capital to be invested in large sums. 

The upshot is that an energy transition on the scale required to keep warming within reasonable limits will not take place. Christophers suggests the solution is for the state to undertake the task, instead of de-risking private capital. “Extensive public ownership of renewable energy assets appears the most viable model."

Also read: India plans a new breed of warriors to battle extreme climate impact: Doctors

In countries like India, this means that we will be back to a full circle. In the past, our state-owned generation and distribution companies were not economically viable partly because we had not gotten prices right, apart from other interventions. That resulted in the unbundling of generation and distribution and some privatization of generation and distribution, and the results have been mixed. 

If the state took over ownership of renewable energy assets, as it once did with fossil-fuel-based electricity generation and distribution assets, would the same problems plague the endeavour? Is retaining ‘extensive public ownership’ and also ensuring investment accountability, production efficiency and accountability possible?

The imperative of an energy transition, which is as difficult as it is desirable, and the compelling evidence that Christophers has shared with us make it necessary that we confront these questions sooner rather than later.

These are the author’s personal views.

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