Is This a New Era of ‘Climate Capitalism’?

Can capitalism solve climate change? Wrong question, argues the author and journalist Akshat Rathi: In fact, you can’t solve climate change without capitalism. Look around the world, as Rathi does in his new book Climate Capitalism, and he says you’ll find companies and leaders who are proving that cutting carbon emissions is not just possible, but also profitable.

The venture capitalist Sophie Purdom, the founder of Planeteer Capital, spends her days looking for those profitable climate companies. She says that a newer, smarter generation of climate startups is on the way.

In this week’s episode, recorded earlier this month live at Princeton University, Rob and Jesse host a special in-person conversation with Rathi and Purdom. They talk about the rise of Chinese EVs, what interest rates mean for the energy transition, and the proper role of policy in decarbonizing. Shift Key is hosted by Robinson Meyer, executive editor of Heatmap, and Jesse Jenkins, a Princeton professor of energy systems engineering.

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Here is an excerpt from our conversation:

Robinson Meyer: I guess a question I’d have, maybe, for both of you is, how much of this is a China story? How much of the amount of progress that we’ve been able to do is actually because of Chinese industrial policies — the sheer scale of the Chinese market and the different incentives that exist on the demand side there to bring down the cost of solar, or batteries, or any of these technologies that are now the main engines of decarbonization?

Sophie Purdom: I think so much about the supply side of the market, right? Those solutions and the innovation, which then kind of ideally ports over, if you succeed, into deployment, which has its own set of challenges and concerns and capital levers and policy integrations. I’d argue that the U. S. overall sits further on the supply versus demand side, relative to a global positioning, and that China’s been playing the demand side of the game much better.

Akshat Rathi: The beauty of wanting to do this book was, to me, watching these lessons. So if you look at the solar story: invented in America; really scaled up in Europe, when Germany and Spain were providing a ton of subsidies for solar manufacturers to put rooftop solar in the early 2000s; and then really scaled up in China when they made a ton more capital available and just flooded the market, so to speak.

Take the electric vehicle story, a very different one because the new energy vehicle policy that made China the biggest maker and consumer — and now exporter — of electric cars actually takes inspiration from California’s zero emissions policy. It’s a vehicle mandate, right? So you have this policy that kind of worked in one state, forced the rest of America to think about it, but China just applied it nationwide and ran with it. So you can apply lessons from one country to another and have policies — one of those beautiful things, which, it can translate if you can tweak it to work in that political economy where it needs to operate.

Jesse Jenkins: Let’s talk a little bit more about the particular form of climate capitalism with Chinese characteristics, how this sort of worked out. There’s a couple of case studies in the book of CATL and BYD and how they have come about. One of the things I want to underscore is, we’ve talked about how American-centric we often are. We sort of think, well, we got to drive all of this. But China increasingly is the world’s biggest market for all of these solutions, right? For EVs, for solar PV. They’re also, in many cases, the world’s largest manufacturer. And the scales are just staggering.

Now, I mean, we in the U.S. deployed just shy of 40 gigawatts of solar last year, something like 36 to 38 gigawatts. China deployed 280 gigawatts. More than half of the global market for solar was in China last year. So it’s not ... They started off selling to Spain and Germany, but now, their domestic market is enormous. You can tell a very similar story about EVs, where more than half of the market for EVs is in China — increasingly, more than half of the manufacturing, and now, rapidly, exports too. So what is the flavor of the capitalism story there?

Because many of these companies are state-owned enterprises, at least partially, there’s a strong hand of industrial policy guiding where investment occurs and making it cheaper, and giving free land, and all kinds of different things there. But of course, at the end of the day, there is a lot of ... it is in many ways capitalism. There’s a lot of financial motivation that has led these companies to scale and grow.

This episode of Shift Key is sponsored by…

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Music for Shift Key is by Adam Kromelow.