Investors and consumers balk at costs of replacing fossil fuels with renewable energy, highlighting painful economics of climate mitigation
4 min
In the past few years, Washington and Wall Street started fantasising that the transition to net-zero carbon emissions could be an economic bonanza. “When I think climate change, I think jobs,” President Biden said. When Wall Street heard green energy, it saw profits. As Ford Motor launched an electric Mustang and pickup truck, its market value topped $100 billion for the first time.
This year the fantasy ended. With electric vehicle demand falling short of expectations, manufacturers are dialling back production and buying back stock instead. Offshore wind developers have canceled projects. The S&P Global Clean Energy Index has fallen 30% this year. Ford’s market cap is down to $42 billion.
This doesn’t mean the transition to net zero is over. Officials meeting this week at the United Nations climate conference are just as worried about climate change. Renewable energy continues to expand. In the very long run, it is still the case that economic welfare will be higher with less global warming.
But the economics of getting to net zero remain, fundamentally, dismal: Someone has to pay for it, and shareholders and consumers decided this year it wouldn’t be them.
Politicians and the public tend to think all investment is good for growth, an error that leads to all sorts of muddled thinking about climate.
Technological transformations are positive supply shocks: a new, more efficient technology comes along, and investment naturally gravitates toward this new technology because it is profitable.
By contrast, the green transition is driven by public policy. It is “a negative supply shock, with an accompanying need to finance investments whose profitability cannot be taken for granted,” French economist Jean Pisani-Ferry wrote in a report commissioned by the French prime minister and released in English in November. “By putting a price—financial or implicit—on a free resource (the climate), the transition increases production costs, with no guarantee that the reduction in energy costs will eventually offset them, while the investments it calls for do not increase productive capacity but must nevertheless be financed.”
Pisani-Ferry, who is affiliated with the Bruegel think tank in Europe and the Peterson Institute for International Economics in Washington, is an uncommonly clear thinker on this issue.
He notes the transition involves hefty capital spending today to replace fossil-fuel consumption in the future. Pisani-Ferry estimates a middle-class French family would spend 44% of annual disposable income for a heat pump, and 120% for an electric car. These investments boost demand, but don’t leave families better off since they simply do the same thing as what they replace. And if taxes rise to pay for these investments, families will be worse off, financially.
“It would take an incredible act of blindness to fail to recognise that climate change is happening, that it is—and will increasingly become—severely damaging,” he writes. “It would also be incredibly flippant to claim that this urgent and imperative action will have no economic cost by 2030.”
The most efficient way to redirect consumption and investment from fossil fuels to zero-emissions energy is a carbon tax, or a cap-and-trade system. Europe has adopted such a system plus ever more stringent goals, especially after Russia cut off natural-gas supplies following its 2022 invasion of Ukraine. But as the cost has grown, so has public discontent, from France’s “yellow vest” protests in 2018 to last week’s first-place finish in Dutch elections by the far-right Freedom Party, which wants to ditch all climate regulations.
U.S. leaders have rejected any federal tax or fee on carbon. Biden’s solution is to not ask consumers to pay for the green transition; his Inflation Reduction Act pours, by some estimates, roughly $1 trillion into electric vehicles, renewable energy, hydrogen and other zero-emissions technology.
Subsidies can play a vital role by giving green energy time to scale up and innovate until it is competitive with fossil fuels. But the IRA has been undermined by extraneous conditions such as made-in-America requirements, and by green tech inflation—a byproduct of the IRA itself, which helped fuel demand.
Finally, Biden’s investment agenda was designed for the pre pandemic era when low interest rates flattered the financial profile of renewable energy investment and federal budget deficits were less likely to crowd out private investment. Those assumptions no longer apply.
For years, the cost of wind and solar plummeted, but since 2021 they have risen, according to investment bank Lazard. Interest rates are an important factor, which Lazard estimates affect offshore wind and solar more than natural gas.
Many developers can no longer economically supply power at the rates previously agreed to. Denmark’s Orsted, the world’s largest wind developer, took a $4 billion charge in early November for pulling out of two projects off New Jersey. The company today is worth 75% less than in early 2021.
ClearView Energy Partners estimates about 30% of state-contracted offshore wind capacity has been canceled, and another 25% may be rebid. ClearView analyst Timothy Fox noted lawmakers often mandate increased renewables, but utility regulators must approve the contracts, and one of their primary considerations is cost to ratepayers.
“I am an unapologetic economic regulator,” Diane Burman, a member of the New York state Public Service Commission, said in October as the commission refused to pay wind developers more. Decarbonization and grid improvement must proceed “with costs in mind.”
The financial appeal of EVs has similarly faded. Tesla proved making them can be profitable, but so far it looks like an outlier. Tesla captured the lion’s share of early adopters—drivers willing to put up with the cost and recharging hassle of an EV in return for performance and green credentials. For most drivers, the trade off still doesn’t work—even with subsidies.
True, the IRA has spurred a boom in EV and battery factories. But a successful green transition requires that those factories be profitable, and Detroit’s automakers are still losing money on every EV they sell.
EVs should eventually require less labor and thus be cheaper to build than gasoline-powered vehicles. But auto workers are no more willing to pay for the green transition than consumers or investors. In its recent strike, the United Auto Workers extracted commitments that make it even harder for Detroit to make money on EVs.
In a sobering report this week, Morgan Stanley auto analysts estimated the average non financial company in the S&P 500 spends its market cap in capital expenditure and research and development in about 50 years. GM and Ford spend theirs in 1.9 and 2.6 years, respectively. “This cannot continue, in our view.”
The green transition remains critical, but its path will be fraught until someone agrees to pay for it.
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With US$40 million already committed, the Global Talent Fund is attracting investor attention with a strategy focused on building globally scalable consumer brands alongside high-profile talent.
2 min
A new investment fund targeting celebrity-founded consumer brands has secured US$40 million in commitments and is rapidly approaching its US$50 million fundraising target, signalling growing investor appetite for alternative opportunities beyond traditional asset classes.
The Global Talent Fund, which has a maximum raise of US$100 million, focuses on building and investing in consumer businesses alongside celebrities, athletes, and influential personalities who play an active role as co-founders rather than simply endorsing products.
The strategy is based on the belief that changes in consumer behaviour, particularly the rise of social media and digital engagement, have fundamentally altered how brands are built and scaled.
GTF founding partner Jeremy Hunt, who is helping lead the fund’s strategy, said consumers increasingly feel connected to personalities they follow online and are more willing to support products developed by those individuals.
“Consumers are searching for content to engage with, and when a celebrity they like or follow takes them on the journey of creating a product or brand, they genuinely feel part of that process,” he said.
The fund is targeting high-growth consumer sectors including wellness, hydration, beauty and recovery, areas Hunt believes continue to benefit from strong global demand and ongoing innovation.
Rather than backing celebrity endorsement deals, the fund is seeking businesses where talent is deeply involved in product development, brand creation and long-term growth.
According to Hunt, authenticity remains one of the biggest differentiators between successful celebrity-backed brands and those that fail.
“The consumer can see clearly if someone is simply being paid to promote a product,” he said. “The winners are typically the brands where the celebrity has genuinely helped build the business from the ground up.”
The model has attracted support from several prominent Australian investors and business families, reflecting broader interest in alternative investments with global growth potential.
Hunt said consumer brands offered a level of tangibility that many investors found appealing.
“Consumer brands are what we touch, feel, smell and taste every day,” he said. “Our investors understand the growth potential in the model, but they also want to be part of the journey.”
The fund’s rapid progress towards its fundraising target comes amid growing recognition that celebrity influence, when combined with strong commercial execution and scalable business models, can create significant enterprise value.
With several high-profile celebrity-founded businesses generating billion-dollar exits in recent years, supporters of the strategy believe the opportunity remains in its early stages.
