Here are two more-or-less irrefutable propositions: + Capitalism will not be going away any time soon. + The climate crisis is so awful and urgent that action must be taken now.
Based on those certitudes, it seems obvious that harnessing capitalism is our only hope to address global warming. But many climate protesters don’t see it. They keep holding up signs that say things like “Capitalism is Killing Us.”
Granted, for 150 years capitalism treated earth’s atmosphere as a free and open sewer to dispose of pollution and greenhouse gases. Even after scientists clearly explained the dangers, many entrenched businesses either did nothing or denied the problem. The global business community has been a cheerleader for heedless consumption and unbridled energy use.
But in the last few years a capitalist counter-movement finally emerged. Its most prominent exponent was Larry Fink of BlackRock, the world’s largest investment firm. In his annual letter in 2020, he declared bluntly, “climate risk is investment risk.” That was no surprise to many, but him saying it changed the mood. Fink himself has, disappointingly, dialed back his fervor, but his epiphany is now widely shared. Capital is flowing toward companies with climate solutions and away from those with unaddressed climate risks. The balance of power on Wall Street is shifting. Meanwhile, some of the world’s largest and most valuable companies have become aggressive climate champions. Microsoft, for example, has promised to take actions sufficient to be effectively net zero all the way back to its founding in 1975.
Even as market forces are shifting, governments are prodding further. The European Union has begun requiring companies to account for their emissions and act to reduce them. This movement has a long way to go but possesses unquestionable momentum. Europe’s carbon taxes and new Carbon Border Adjustment Mechanism are having a global impact.
The United States came up with an alternative. Faced with implacable resistance to carbon pricing or taxes (making emitters pay to pollute), the Biden Administration decided to try carrots instead. The Inflation Reduction Act of 2022 created a ten-year program with the largest-ever set of financial incentives for climate tech and climate-responsible business practices. While some might say these steps by the EU and U.S. show that government, not business, must save humanity, in fact the IRA represented the U.S. government’s embrace of the idea that business must do the heavy lifting. This is the new world we need, in which capitalist companies are encouraged by enlightened governments.
The Congressional Budget Office estimates the IRA includes $392 billion in tax credits and other support for climate-related business activities. But none of the tax provisions are capped, so Goldman Sachs and others suggest IRA incentives could eventually total more than $1 trillion. That trillion in public investment will generate additional trillions of private investment.
And business is responding. As of mid-August, exactly one year since President Biden signed the IRA into law, companies had launched climate-related projects in 44 states worth $278 billion. In February the EU added its own Green Deal Industrial Policy, to promote climate-friendly business investment, on top of its other efforts. Countries around the world are now frantically altering their tax policies to avoid losing business to the U.S.
Here’s another way capitalism is addressing climate: insurance companies have identified climate-threatened property risks that business and homeowners didn’t appreciate. Major firms have withdrawn or increased the price of policies across the country and around the world for properties that are threatened by flooding, hurricanes, and wildfires. It’s an early detection mechanism that forces sustainable development and discourages unsustainable development.
Billions of the world’s people must of course change their behavior to address climate. But now that it’s unleashed, there will be no force greater than capitalism to help them drive climate action.
- David Kirkpatrick