Can Capitalism Save Climate?
By: Travis Knoll, March 25, 2024
Social responsibility’s relationship to economic systems stands at the heart of today’s climate debates. The question of whether those who generate wealth should look out only for financial impacts on their businesses or measure their own impact in society has built entire divides between global sustainability reporting systems. However, what if capitalism does not contradict, but in fact, accelerates, the transition to Net-Zero by 2050?
Akshat Rathi’s Climate Capitalism seeks to understand why climate goals persisted and expanded even in the face of a Trump-inspired backlash in the United States. “How did it all happen under capitalism (p.2)?” Rathi seeks to answer his own question with examples highlighting the importance of public-private-non-profit synergy.
Chapter 2 opens with the rise of Wan Gang, a Chinese physicist, engineer, and bureaucrat who built the state incentives that have made China a leader in electric car battery production. In a trend that Rathi highlights throughout the book, Gang would apply his education first to European car manufacturer Audi before returning to China. There he convinced science minister Zhu Lilian and China’s State Council to bet big on car batteries. Becoming science minister himself, he oversaw $60 billion in government spending between 2009 and 2017 on electric manufacturing, which gives China a vertically integrated supply chain and have left other countries playing “catch-up (25).” China has since switched to mandates and questions remain on the industry’s competitiveness or Chinese consumers’ tolerance for higher vehicle prices post-subsidy. But Chapter 3 suggests that China will be loathe to abandon battery manufacturing. It has built up a substantial competitive advantage through companies such as Contemporary Amperex Technology Limited (CATL), which provides batteries to automotive powerhouse Voltzwagen and has only just encountered competition from solid-battery startups such as the United States’ QuantumScape.
Chapter 4 uses mega solar farms like Pavagada Solar Park to explain the history of solar battery technology and strategies for relatively cash-strapped emerging market countries to subsidize a leapfrog to green electrification. India has done so both through policy consistency and convincing farmers heavily in debt to lease valuable land for the construction of said solar farm and the promise of steady, if somewhat reduced, income. It has also relied on foreign direct investment and local green entrepreneurs like Sumant Sinha to catalyze the finance when the cash-strapped national government ends subsidies for renewable construction. The government has balanced out the difficulties of doing business in a country with high cost of capital and inefficient infrastructure with “reverse auction” contracts in which the lowest renewable energy builders win government contracts. Rathi sees India’s ability to catalyze finance as an example to other cash-strapped nations.
Chapter 5 follows the career of the International Energy Agency (IEA)’s director, Turkish economist Fatih Birol. Birol has sought to make an agency which tends to look out for rich countries and the petroleum energy sector a reliable source of information on the climate transition. While shifting to a broader audience, the IEA retains its advantages in having the ear of the largest energy producers and its nimbleness in not being bound by the consensus-driven politics of the United Framework Convention on Climate Change (UNFCCC) proceedings. Rathi does not shy away from the IEA’s failures, pointing out the huge misses in its World Energy Outlook and its late entry into Paris-aligned scenario creation.
Chapter 6 covers Bill Gate’s formation of Breakthrough Energy Ventures to catalyze climate innovation since the Paris Agreement. Rathi argued that while the government can take the first steps on high risk projects, private financial capital can scale successful first-stage projects up (100). BEV invests in companies in hard-to-abate sectors such as cement. Companies such as Calix have redesigned their heating process, retrofitting kilns to emit pure carbon dioxide, which can then be more easily captured. Others such as Ecocem work to reduce clinker in its cement mix. Solida replaces clinker with clay (105-106). BEV also created grant and equity programs for companies like LanzaJet developing green jet fuel (109). Forming a motif on the importance of public-private partnerships and blended finance, Rathi explains that BEV also directly lobbies the US Government for policies that will create a demand for said projects once they are scaled up. This can range from a carbon tax, to nuclear energy, to the Inflation Reduction Act (107-108).
Chapter 7 chronicles two stories, failures and successes respectively, of two Carbon Capture and Storage (CCS) technology companies. He noted that the practice, associated with “clean coal” advocates, first found cool support even among oil and gas companies (119). The first was the coal carbon capture Kemper Project, which failed because of a series of project delays and drop in natural gas energy prices (122). The Petra Nova carbon capture project, which relied on traditional oil-and-gas carbon capture technology survived a similar fluctuation because of binational (US and Japanese) public and private sector support (124). Nevertheless, even it suffered delays during Covid-Era price fluctuations and Rathi acknowledges that the financial model’s dependency on high oil prices make carbon capture hard to scale. Said scaling issues continue garner criticisms from NGOs and business press alike.
However, he remains bullish on carbon capture storage because of rising carbon prices, government incentives, projects such as Norway’s Northern Lights Project (130), and the sheer necessity of negative emissions.
Chapter 8 moves beyond the geopolitics and public financing of carbon capture to a case study of a company, Oxy, led by Vicki Hollub. She sought to make a full transition to a “carbon management company (134).” She set out to accomplish this not by simply injecting carbon underground, but rather through direct air capture techniques (143). California’s Low-Carbon Fuel Standard (LCFS) and the Inflation Reduction Act, gave Hollub the room to scale her solutions.
Chapter 9 covers the transition of Danish Oil and Natural Gas (DONG Energy) to Ørsted. The company expanded in the wake of the 1970s oil embargoes and Danish pushes for energy efficiency. The company diversified its energy holdings to account for falling future reserves. Financial difficulties, the European Union’s new emissions trading system, and Denmark’s hosting of the 2009 COP15 forced it to focus on fundamentals. This meant renewable wind power and divestment from fossil fuel production. DONG went all in to integrate assets production, transmission and retail and leveraged its expertise in offshore drilling to build offshore wind. Now Ørsted, it provides an example to other oil companies, like Brazil’s Petrobras, looking to make the leap to renewable energy production.
Chapter 10 covered the constructive political tug-of-war between the Labour and Conservative parties in Britain and Dutch legal developments which strengthened plaintiffs’ ability to force concrete climate action through the courts. The former led to a national consensus on climate change. Labour first signed up for the Kyoto Protocol, but it was conservatives that used national climate legislation to reboot their political fortunes in the 2005 and 2010 elections. Advocacy organizations such as Friends of the Earth and the World Wildlife Fund strengthened the legislation. In Dutch courts, a 1932 case brought by May Donoghue established a “duty of care” which climate activists leveraged to hold Shell accountable to its own climate commitments. These cases highlighted the importance of making climate a vote-driving issue, building bipartisan consensus, and pursuing effective climate-impact litigation.
Chapter 11 covers Unilever’s successful green transition and Exxon’s failed bid to stop the election of environmentally friendly board members. Unilever managed to increase revenues by 30 percent with a 50 percent reduction in direct emissions. He reformed governance by shifting quarterly reports to annual ones, establishing training programs, and mental and physical health programs. At a global scale, he backed efforts to track palm oil production and decouple it from deforestation. These moves, its connections in the public relations sector, and the support of global NGOs helped it resist a hostile takeover by Kraft Heinz. Exxon was the direct inverse of Unilever. It had long resisted adopting a climate policy and after the Church of England Pensions Board divested in the company, activist shareholder Engine No. 1 convinced institutional investors Black Rock, State Street, and Vanguard as well as shareholder services firms ISS Governance and Glass Lewis to back the election of climate-friendly candidates to the board of directors. This chapter highlighted the reputational and rewards of sustainability and the reputational and financial losses that can come from ignoring sustainable practices.
The book is an excellent blend of historical overview and technological detail. Running through well-known cases and profiling globally known business people and companies makes the climate transition seem inevitable. That said, the author acknowledges several shortcomings that call into question the very optimism his book conveys. After all, he could not “explore solutions needed” in island or poorer countries. This despite the reality that the brunt of climate change and the most innovative climate adaptation will necessarily come from Small Islands and Developing States (SIDS). The book has an almost Thomas Friedmanesque focus on the North Atlantic and Asia as well as faith in technological innovation. For all of the technological solutions detailed, not one chapter covered Nature-Based Solutions (NBS) or the emerging climate entrepreneurs in Latin America and Africa.
In short, one wonders if he could have balanced Gates’ efforts out with a SIDS diplomatic powerhouse like Barbados’ Mia Mottley and her Bridgetown Initiative. Brazil itself has developed a carbon market system bill that stands to blend outreach to marginalized communities and economic incentives for carbon-intensive industries.
The book makes a convincing case for the viability of climate technology. Rathi leaves the important work of confirming his faith in markets in other global contexts for future journalists to future journalists and experts.
