There’s a contradiction at the heart of Climate Week: There’s never been such widespread agreement about the causes of climate change and the necessary solutions, but an enormous gulf remains between where the global energy transition needs to be and where it is.
During conversations with political and business leaders, entrepreneurs, and the heads of think tanks, the main feeling we noticed was cautious optimism. Some of the biggest companies are finally figuring out how to decarbonize profitably. The Inflation Reduction Act set a new gold standard for policymakers that many countries are scrambling to either take advantage of or replicate. Technology is developing fast, and being deployed. But the problem isn’t cracked.
A sentiment we heard a lot from businesses was: We’re ready to deploy or scale Climate Solution X if only one or two things were different. Sometimes this is a buck-passing strategy. But there are also genuine obstacles, because the political and financial systems of the past are often ill-equipped for the specific nature and risks of the energy transition. Here are some of the main worries people expressed to us this week.
Putting the right price tag on risk
Imprecise or nonexistent data is holding back a lot of decision making. Ulrike Decoene, chief sustainability officer with the French insurance giant AXA, said that pricing policies for fossil fuel projects is easy because they haven’t changed much for decades so the costs and potential problems are well understood. But the company lacks that kind of data for renewable energy projects, or for electric vehicles. For AXA to cut the carbon footprint of its insurance portfolio, she said, the hardest part is figuring out how to insure new technologies, rather than cutting old ones. Bankers said they’re still figuring out how to adjust their profit expectations for renewable energy projects to make more of them investable. Consultants told us clients wanted more granular data on the impact of their carbon-cutting efforts.
Money in the wrong places
Sometimes the government incentives that exist aren’t designed to make it into the right hands. Takajiro Ishikawa, CEO of Mitsubishi Heavy Industries America, said his company is fielding hundreds of inquiries from operators of power plants and industrial facilities to install carbon capture. But since the IRA passed, they haven’t reached a close on a single one, because no one can agree on how to divvy up the law’s juicy carbon capture tax credits between the companies that emit, capture, transport, and sequester carbon, all of whom have to spend money and take risk to make a project happen. “We’ve been talking to a lot of banks, advisors, tax accountants, legal people, the Department of Energy, nobody has an answer,” he said. In the climate startup world, too, there’s an imbalance between early-stage venture capital, which is now in abundance, and late-stage growth capital, meaning many good ideas get started but then fizzle once they reach the stage of actual commercialization.
Infrastructure is lacking
Even if the technology is ready, and the finance is deployed, knotty and interrelated issues to do with human and physical infrastructure remain: There aren’t enough well-trained people to do the jobs the economy of the future requires, and the grid isn’t ready for what is to come. On the former, executives reported a lack of all kinds of skilled professions, from heat-pump and EV-charging installers to advanced scientists for the development and — from the perspective of investors — verification of the science behind emerging climate technologies. On the latter, issues abound from the interconnection queue to limited investment in expanding and strengthening transmission capacity. Karin Svensson, CSO of Volvo Group, said a lack of charging infrastructure remains one of the key reasons why owners of commercial vehicle fleets have been so hesitant to buy electric trucks.
Where to begin
For many companies, decarbonization involves taking unfamiliar risks that they may be willing to take but haven’t yet figured out how. The array of options is dizzying, management capacity is finite, and executives worry about the reputational and financial cost of making the wrong investment or choice. Some consultants and think tanks are seeking to remedy this (with the latter profiting along the way, of course): Schneider Electric, for example, published 10 steps that building owners can take to reduce carbon emissions in a sector responsible for, by some measures, 37% of global carbon emissions; the Environmental Defense Fund, a nonprofit, this week rolled out a program aimed at pointing businesses to the highest-impact measures they can take.
Room for Disagreement
The good news is that behind a lot of these anxieties is an eagerness to sort them out. There are disincentives to being a first mover, but also a lot of upsides. There are few executives who don’t accept the inevitability of the energy transition, and know they have a stake in not being left behind. Perhaps more importantly than anything, entrepreneurs, executives, and investors all told us the scale of the challenge presented a huge business opportunity, a significant reframing from prior years where the energy transition was seen less as a winning investment and more as a draining cost.