In The Price is Wrong, you offer an argument about why capitalism has failed to solve the climate crisis that differs from those of many other thinkers. What is your particular intervention?

In the book, I’m trying to add another voice to existing arguments on the Left about why the climate crisis is proving obdurate. My argument is that a lot of what needs to happen to transition us away from fossil fuels is not particularly attractive to business.

The area I focus on in the book is clean-energy generation. Owning and operating solar- and wind-power facilities and generating electricity for sale is generally not very profitable. That’s a huge problem if solar and wind are the main answers to the climate crisis and if governments are relying on the private sector to drive the development of renewable energy.

Both of those suppositions are broadly true: almost all relevant actors say that solar and wind are key to the green transition, and most governments have said that that transition is up to the private sector. Because of this, the constraints on expected profitability are a real problem.

The Left often assumes that everything the private sector does is inherently profitable, which includes thinking that “green capitalism” is just like any other form of capitalism and that the private sector is awash with profits. I don’t think that’s the case. One of the main reasons that capitalism hasn’t been greening at the pace we need is precisely because it’s not an attractive proposition in profitability terms.

Many have thought that reductions in the price of renewable energy would make a green transition economically feasible. Why do you think focusing on the price of renewable energy is unhelpful for thinking about its viability?

The economics of the transition to renewables and away from fossil fuels has traditionally been understood through a focus on price. For years, commentators and politicians on both the Left and the Right argued that renewables would not be broadly pursued while they remained more expensive than fossil fuels.

The argument was twofold: first, governments needed to intervene in the economics of power generation to offset that cost disadvantage, and second, governments only needed to do that for as long as those inherent price differentials continued to exist. Once price parity had been achieved on power generation, governments could safely remove those support mechanisms, renewables would be able to stand on their own two feet, and the energy transition would be resolved.

That has remained the dominant economic lens for understanding the energy transition for a long time. But price parity on generating power was achieved years ago, and yet we’re not moving toward renewables at anything like the rate we need to. Renewables are growing quickly, but not quickly enough to displace fossil fuels. Electricity generation from renewables has been purely supplemental to — rather than substitutive of — electricity generation from fossil fuels, which is a massive problem. The traditional economic lens can’t explain that.

At the end of the day, it’s not about price; it’s about profitability. Prospective developers — and, just as important, the financial institutions that lend them the money to carry out that development — will only invest if there is a solid expectation that the profits from doing so will be sufficiently attractive.

The cost of generating power enters into the equation, as do costs like physical delivery of power to customers, which can come at a high premium. When renewables developers need to finance a new facility they are hoping to build, the big question financial institutions ask them is how much profit they expect to generate from that facility over the next twenty or twenty-five years, given their anticipated costs and revenues. A development will only take place if the developer is satisfied that they will be able to earn a sufficient amount of profit over that time period. If you talk to the entities in that world — developers and bankers — they talk about profits, not price.

What is the role of the financial sector in renewable energy? Why are financial institutions so important for renewables?

It’s easy to think that, in the renewable development industry, it’s the developers who decide whether and what type of facilities get built. Although that’s superficially true, the reality is that it’s actually the financial sector that decides whether renewable facilities get built and at what pace.

The initial construction of most solar and wind farms is financed primarily with credit from financial institutions. Once a renewable energy plant is up and running, there are almost no ongoing operating costs except the repayment of these debts. For every renewable development that takes place, there are multiple developments that don’t take place, because the prospective developers were unable to raise the financing on sufficiently attractive terms.

Finance is also particularly important because of the relative youth of the renewables industry. In the context of capitalist history, renewables have existed only for the last decade or so; they are very young.

Oil and gas companies, if they are developing a new oil or gas field, fund the new drilling and exploration from cash they have earned through existing operations. It’s completely different for a renewables company. A handful of big companies with significant cash reserves are active in renewables development, but for every one of those, there are dozens of small-scale players that require external financing to develop new projects.

If you look at the big players, they also tend to finance development of new renewables projects principally through external debt financing. That means that finance plays a much more significant role in the renewable sector than it does in many other sectors of the economy.

Financial institutions play a significant role not just on the debt side of renewables, as providers of loans for new projects, but also on the equity side. Large asset-management and other financial investment institutions, such as Brookfield Asset Management, Macquarie, and Blackrock, are major owners of renewable energy–generating facilities around the world.

Can you talk about renewable energy generation in the Global South? What are the obstacles to it? How is it currently financed, and what do you predict for its future?

This is probably the most important question. Many debates in Europe and North America focus on what’s happening in those regions, but the future of the planet, in terms of the power sector, the electricity sector, and related emissions, will not be decided by what happens in Europe and North America.

One reason is that the transition to renewables has already proceeded further in parts of Europe than it has in many other areas of the world. The other is that energy demand and, in particular, demand for electricity will not increase in Europe and North America at anything like the rate at which it’s expected to increase in non-Western parts of the world. India, where hundreds of millions of homes have only recently gotten access to electricity, is a good example.

The Global South is also where the countries that are currently most reliant on fossil fuels for electricity generation are concentrated. Over 80 percent of electricity generation in South Africa is coal-based generation. In India, it’s about 75 percent; in China, it was about 65 percent in 2022. The pace of these countries’ transitions away from fossil fuels will determine the overall growth in power-sector emissions over the next few decades.

The problem here is that, in large parts of the Global South, there are far more obstacles to financing new solar and wind power than there are in Europe and North America. Private sector lenders perceive renewables development in the Global South to be much riskier than in various Western nations. I say “perceive” because whether that perception accurately reflects actual risk is almost neither here nor there — it’s the risk perception that dictates the interest rates at which they are willing to lend.

In recent years, many studies have shown that it can be five or six times more expensive to raise private financing to develop solar or wind power in various African countries than it would be in most European countries. Because of this prohibitively expensive debt financing, most renewables projects don’t get off the ground.

That’s why there have been growing calls in recent years, both from those countries themselves and from politicians, regulators, activists, and campaigners in the Global North, to reduce or subsidize the cost of that financing through multilateral institutions like the World Bank. People are trying to facilitate a faster pace of transition in Global South countries by making finance more affordable to them.

It’s impossible to make global generalizations about the “energy transition,” because the energy transition looks completely different in different parts of the world — both in terms of the extent to which it has been achieved so far and the political, logistical and financial challenges that remain. If you talk to people in various parts of the Global South about the energy transition, many of them say, “Forget energy transition — we just want to think about energy access.” If you’re in a country where hundreds of millions of homes don’t have access to energy, then the energy transition is not your main concern right now.

What caused the energy crisis of 2021 and 2022, and what were its impacts — especially in terms of renewable energy?

In 2021 and 2022, there were significant challenges with simply being able to generate enough energy in many parts of the world. This was in part because of shortages of necessary fuels, and it was particularly severe in countries that still rely on coal and gas to generate power.

The cost of generating power went up a lot in many parts of the world. Those costs were passed on to consumers, and many governments stepped in to offset the impact on consumers of those energy increases. The centers of the energy crisis were Western Europe, China, and Southeast Asia, and the crisis looked very different in all those places.

The Russian invasion of Ukraine had a significant impact in Western Europe. A lot of energy supply in Western Europe has recently been reliant on Russian commodities: coal, oil, and natural gas. Because of Russia’s use of energy supplies as an economic weapon, the war threw the energy supply into emergency mode, which had a negative impact on the development of renewables in the short term. Germany, for example, which had been reducing its reliance on coal, had to resort to significantly increasing its reliance on coal in 2021 and 2022 in order to generate electricity in the absence of natural gas.

In the long term, the crisis actually gave a bit of a lift to European development of renewables. Because natural gas prices went up so much, any economic advantages that renewables did have were enhanced by the increase in natural gas costs during the crisis.

Even more important than the economic reasons for this transition was the political logic: a lot of the impetus to accelerate renewables development in Western Europe during the crisis arose because of national concerns with energy security. The folly of relying upon an unpredictable overseas nation for energy security was thrown into stark relief in 2021 and 2022 in a way that it hadn’t been in a long time.

One argument you heard from a lot of mainstream European commentators in 2022 was: there’s no energy crisis. Households and industry have proven endlessly adaptable, and this is the power of the market at work. The price of energy has gone up drastically, in terms of both gas and electricity, and we in Europe have successfully responded to that.

That’s not true. There were two main reasons why what many feared would become a catastrophic energy crisis in Europe did not, in fact, become one. One was that governments came to the rescue by giving out massive subsidies to households and industry, which protected households from a significant proportion of the cost increases.

The second reason was that Europe exported the energy crisis to other parts of the world. Western European nations compensated for the fall in the supply of natural gas from Russia by importing natural gas from other places at prices that meant that parts of the world that had been relying upon those natural gas supplies were no longer able to afford them.

That’s particularly true of South Asian nations. Natural gas that, in the ordinary scheme of things, would have gone to Pakistan, Bangladesh, and India to help fire power plants in those countries instead went to Western Europe, because Western European nations essentially outbid them for that fuel.

Because of this, the energy crisis proved far more significant and consequential in South Asia than in Europe. There were far more rolling blackouts in those countries than in any Western European nation.

You touch on several different ways that governments can and do subsidize renewable energy, including derisking, public ownership, and public-private partnerships. What are the major myths circulating about these different forms of government involvement? What are the most effective forms of government support?

When it is announced, anywhere in the world, that private sector renewables are standing on their own two feet and not relying on government support, it is a significant myth. There is nowhere in the world where renewables are not substantially reliant on government support.

Every time that governments have tried to substantially reduce support to renewables, investment has collapsed, which in itself highlights the necessity of ongoing government support to private sector renewables. Because the data show that renewables is just not very good business from a profitability standpoint, you need — and have historically needed — government support in order to keep profitability at a level that will maintain private-sector interest.

Once government support is reduced and profits inevitably fall, there’s a chilling effect on investment where the private sector withdraws. Unless governments are willing to take on the burden of substantially developing renewable power themselves, through public ownership, they have no choice but to continue to subsidize and support it.