Clean energy development is a climate and national security issue
It was not too long ago in America that there was strong bipartisan political support for action on climate change. In 2008, then Speaker of the House Nancy Pelosi sat next to the former Speaker, Newt Gingrich, in a TV ad for who else but Al Gore. It was a very different world, where even Gingrich believed in the science of climate change. Today, the topic is a political minefield with no sign of being cleared.
What often gets lost in the turbulent politics and heated rhetoric of climate change is a cold scientific fact: The climate crisis will only be solved by reducing carbon from the atmosphere. The numbers do not lie. Each gigawatt of carbon-free energy is a step in the right direction. And the only way that will happen is by deploying trillions of dollars (mostly) of capital to build alternative energy systems that will eventually replace fossil fuels. Yet, with most climate investment frameworks, strategies, and organizational mandates, this straightforward equation too often gets lost in a thicket of Intersectionality.
Is climate action a populist threat or a national security imperative?
Trying to solve all the world’s problems simultaneously, says billionaire turned climate champion Tom Steyer, is a hope, not a climate strategy. Progress toward tackling the interconnected social and governmental issues heightened by the climate crisis can only be achieved with significant progress first toward solving the scientific problem. And that requires deploying unprecedented amounts of public and private risk-adjusted capital investments to build climate-resilient infrastructure and new carbon-free energy systems.
Capital, however, is politically risk-averse, and both American political parties are doing their best to scare it away from climate solutions. Since the Obama Administration, when climate change had a moment as a bipartisan issue, it has morphed from a common civic concern to a divisive social wedge issue. In last month’s presidential election, the word climate had become so toxic that Democratic candidate Kamala Harris rarely uttered it. But it was too late. For years, Democrats had taken an issue that had once been primarily a focused environmental concern and turned it into a poisoned chalice for every social and political grievance of Democratic constituents. This handed candidate Trump the perfect opportunity to ride a robust wave of anti-ESG backlash to tar climate action as a populist threat to working-class Americans.
But climate change is hardly “woke.” The environmental crisis has triggered a global push to embrace clean, renewable energy. Across the world, economies are undergoing a tectonic shift as both public and private capital embrace a thesis for a viable green industrial revolution.
Amidst China’s broadening competitive advantage, a more conservative administration may be needed for climate tech.
Alternative asset manager KKR estimates $300 trillion in public and private capital will be needed between now and 2050 to construct the infrastructure base to protect us from rising climate violence and build alternative energy systems. Trillions more will be invested in the upstream critical materials to drive this construction and generate power.
America’s uncertain green future
However, with Trump’s election, it appears America is on the verge of opting out on this once-in-a-century opportunity. What made for a good campaign talking point may now translate into disastrous economic policy — and a national security risk for the new administration. Trump’s attacks on all things “green” also undermine critical investor confidence, which is needed if capital is to be deployed quickly and at scale to tackle the climate challenge. Worse, any step backward by America on the green transition allows its chief economic rival, China, to consolidate its position as an emerging superpower in the green industrial supply chain.
Source: The Institute for Energy Research
Amidst China’s broadening competitive advantage, a more conservative administration may be needed for climate tech and climate-related infrastructure investing to finally separate itself from the fatally flawed concept of ESG investing. ESG’s overly complicated layers of voluntary and compliance-based investment products have distorted demand in the broader green industrial capital market.
Now, investors can focus on something they can understand and measure—energy and infrastructure projects. As of 2023, there was $3.9 trillion in dry powder across all private capital strategies. However, this capital remains largely sidelined until public capital deployment and policy are realigned to adequately de-risk green industrial assets rather than support ESG investment strategies.
A perfect example is investments in critical minerals needed to manufacture batteries. There is a $800 billion capital gap in capital required to fund mineral project development. The government now has the power to transform the critical minerals industry so that it behaves more like the oil industry, given their similar role in respective energy supplies. Instead of shoehorning social justice concerns, Trump administration policymakers, perhaps encouraged by Elon Musk, may now seek to streamline permitting processes and stimulate offtake insurance markets to stabilize the critical mineral industry, which has long been plagued by planning and permitting delays.
Confronting China’s first-mover advantage on green energy
Transforming America’s green industrial capacity is also a national security priority if it wishes to blunt China’s goal to “own” the emerging green economy. However, in a broad sense, it already does. China controls over 80% of global critical mineral supply and processing. Put into a more recognizable perspective, no country controls more than 15% of the worldwide oil supply.
Source: Institute for Energy Research
China has a substantial first-mover advantage in realizing the threat of the climate crisis. A few years ago, images of smog-shrouded Chinese cities captured the world’s attention. It was on par with the London “Pea Souper” days when smog from coal burning turned noontime into midnight.
Faced with an international reputational disaster and growing domestic discontent, China used the power of central planning to lean upon the very industries and institutions that created the pollution to change course by government edict to become a global leader in cleaner energy production and the most efficient destination for climate-tech production. Aiding the transition is a deep manufacturing sector and an exponentially expanding high-quality human capital base.
There is no reason that America can’t quickly find its niche in a new green economy.
If Swedish battery manufacturer Northvolt’s recent bankruptcy tells us anything, it is that the US and its Western compatriots have a long way to go in constructing a competitive position in their own battery value chains necessary to compete with China.
The new soft power
This won’t be easy. China’s early move into renewable energy allowed it to establish a mature critical mineral base before the US and Europe even began negotiating action plans toward developing their own. China has seized control of essential value chains both domestically and internationally, most notably under its infamous soft power strategy of predatory infrastructure lending in sub-Saharan Africa. Chinese lenders account for 12 percent of Africa’s private and public external debt, which increased more than fivefold to $696 billion from 2000 to 2020.
By 2030, Chinese companies are expected to control over 76% of DRC cobalt production and 46% of global production by 2030. This cobalt can be swiftly shipped back to the mainland, processed, and applied to downstream production within China’s mature critical material value chain.
However, with a change of tone from the Trump Administration, there is no reason that America can’t quickly find its niche in a new green economy. Entrepreneurial innovation, military preeminence, bottomless consumer demand, and deep dollar-based global capital markets have allowed America to dominate and transform the global economy since the end of World War II — most recently with the power of the internet, data, mobile phones, endless stores of grain, and artificial intelligence.
The opportunities of building a clean, green economy mean it is time to put politics aside and re-discover a bipartisan approach to meeting the growing challenges and opportunities of rapidly evolving global energy systems and China’s drive to dominate green industrialization. The US and its allies have a profound responsibility and opportunity to leverage their global capital market leadership and significant domestic mineral supplies to scale their answer to China’s green dominance – and blunt the climate crisis with science-based economic and financial solutions.
Tom Mckillop is in his final year at the University of Edinburg, pursuing an MA in Economics. His research concentration is on credit and leverage cycles and their effects on capital markets, energy infrastructure, and critical minerals.
Featured photo – Happier days: Nancy Pelosi and Newt Gingrich in an Al Gore-funded climate advertisement, 2008.
