Why No One Wants to Pay for the Green Transition - Kanebridge News
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Why No One Wants to Pay for the Green Transition

Investors and consumers balk at costs of replacing fossil fuels with renewable energy, highlighting painful economics of climate mitigation

By GREG IP
Sat, Dec 2, 2023 7:00amGrey Clock 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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Milestone birthdays and anniversaries, weddings, and graduations are momentous life occasions that some like to mark with large and elaborate celebrations.

And the deep-pocketed set are still in catch-up mode after a party-throwing standstill during the pandemic that went on for many months during the height of the lockdowns and social distancing. Bashes since then have become ever more extravagant and experiential—mere get-togethers, they’re not.

Hosts are also seeking any excuse to throw an event and having parties with the same “wow” factor for far less significant reasons, or for micro-occasions as they’re called, and even “just because,” according to luxury event planners who work with this elite set.

Colin Cowie, a planner based in New York and Miami who regularly orchestrates multimillion-dollar gatherings and was behind Jennifer Lopez’s and Ben Affleck’s wedding, calls it the “event revolution.”

“Large-scale events have become the norm,” Cowie says. “The wealthy, who are used to celebrating their life moments in a big way couldn’t do anything during the pandemic and are now going all out for anything they host.”

His company, Colin Cowie Lifestyle, plans 30% more events today than pre-Covid and has a lineup booked for the next two years. An example includes an upcoming million-dollar dinner party in the Hamptons simply to socialise with friends. It’s an affair with free-flowing Dom Perignon, centre-cut filet mignons, and unlimited caviar.

Colin Cowie Lifestyle plans 30% more events today than pre-Covid
Calen Rose

Other high-end planners also attribute the rise of over-the-top celebrations to a “live life to the fullest” attitude that’s become prevalent in the last few years. But they say that these parties aren’t necessarily about spending more than before—rather, they’re increasingly creative, thoughtful, and, with respect to weddings, longer.

Lynn Easton, a Charleston-based planner, says that her typical wedding used to span two days and entailed a rehearsal dinner plus the wedding itself. “Now, it’s a five-day bonanza with events like a groomsman lunch,” Easton says.

Easton also plans glitzy milestone birthdays such as one for a 60th where the host flew 60 friends and family to a private island. Dinners were multi-hour affairs in various locations around the isle with the showpiece being a five-course meal where the food was presented on dishes that were hand-carved in ice.

Another planner, Victoria Dubin, based in New York and Miami, says that, in a new precedent, the weddings she’s tapped to design kick off with striking welcome meals. She recently planned an al fresco rehearsal dinner at the Brooklyn pizzeria Roberta’s that recreated a Tuscan garden. Elements included potted herbs, lemon trees, vintage olive oil cans, ceramic plates, and table cards presented with palm leaves in limoncello cans.

Another planner, Victoria Dubin, recently planned an al fresco rehearsal dinner at the Brooklyn pizzeria Roberta’s that recreated a Tuscan garden.
Aletiza Photo

Pashmina shawls hung from chairs to keep guests warm, and freshly baked pizzas and Aperol spritzes were in ready supply throughout the evening.

Stacy Teckin, the groom’s mother, hosted the party with her husband, Ian, and says she sought to pull off a dinner that made an impression on their guests. “The wedding was delayed because of Covid, and now that we had the chance to celebrate, we wanted to go all out,” Teckin says. “I’m not sure we would have done that before.”

In another example, acclaimed planner Norma Cohen threw a wild safari-themed bar mitzvah for a client.

A four-day wedding in Paris where the ceremony was in a historic chateau and the host paid for guests to stay at Hotel Crillon
Norma Cohen Productions

The memorable occasion transpired at Spring Studios in downtown Manhattan and saw 400 guests be transported to the African plains: Details included mammoth replicas of wildlife such as giraffes and elephants, servers in safari themed attire, and entertainment dressed like giraffes. The event was one of several over-the-top parties Cohen’s arranged recently.

A four-day wedding in Paris where the ceremony was in a historic chateau and the host paid for guests to stay at Hotel Crillon, one of the city’s most luxurious properties, also ranks high in Cohen’s memory.

Then there’s a destination party in London that Cohen planned for a client who was turning 40. It as a six-day affair with dinners at swanky spots such as Cipriani, the Arts Club, and Cecconi’s at Soho House. The finale was Lancaster House, a mansion in St. James, where guests were entertained by cabaret dancers from the famed Ibiza club Lio Ibiza and feasted on prime rib and lamb chops and imbibed on Krug champagne.

“People today don’t want to host events,” Cohen says. “They want experiences that take you away to a different place and make you forget that the real world exists.”