Forget the Paris climate accord, the fight against climate change is getting real. One way we know that is that the market capitalization for the electric-car maker Tesla this week exceeded that of Exxon, the biggest Western oil company, for the first time.
Before we celebrate the news that the 0.999999% (the 1% minus Donald Trump) now recognize that the future no longer belongs to fossil fuels, let’s bear in mind that Wall Street is something of a madhouse these days. If you follow the market, you’d think there was no coronavirus or that a vaccine was just days away from solving it.
But the stock market isn’t entirely disconnected from reality as much as it is connected with demand for stocks by investors flush with cash who have nowhere else to put it. Yet even in this hyper-charged environment, investors are selective, and that has left traditional energy companies big losers.
On the Tel Aviv Stock Exchange, which has been a model of probity compared to Wall Street, shares of renewable energy stocks have been rallying since their March lows. Today, their combined market cap is about 25 billion shekels ($7.2 billion), almost double the value of the energy companies traded on the TASE.
Whether it’s giant Exxon or Israel’s Delek Group, traditional-energy stocks sank due to the collapse of global oil and gas prices. But there is something much bigger at work than that. Low fossil fuel prices shouldn’t be giving a lift to Tesla or to alternative energy companies; quite to the contrary, it should make them less competitive against lower-cost fossil fuels. The reason it hasn’t in investors’ eyes is that whatever the price of oil or gas or coal, the future of energy lies with renewables.
In Tesla’s market, global sales of electric vehicles rose nearly five-fold in 2015-2019 and continued to grow last year despite governments in many cases pulling back financial incentives. EVs account for less than 3% of all car sales, but that figure is projected to grow to 28% in 2030 and 58% in 2040. Government incentives are encouraging this growth, but what is really driving the market is a steady improvement in battery technology and overall costs. By the mid-2020s, an EV should cost less than an internal combustion car even without subsidies.
The same trends are underway in electric power. A decade ago coal was generating nearly half the U.S. supply; this year, according to a U.S. government forecast, its share is expected to fall to just 19%. Renewables, including hydropower, will supply more electric power than coal for the first time ever this year, even though the Trump administration has been pushing coal consumption.
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Electric utilities haven’t become better global citizens. Rather, technology advances have cut the cost of solar and wind power by 70% to 80% over the last decade. It’s now cheaper to power a generating plant with alternative energy than with coal. Between the greener energy mix and lower electricity consumption due to the coronavirus, the U.S. will belch out 11% fewer carbon dioxide emissions this year.
Academics, activists, officials and policy wonks have been pushing for change like this for some time amid growing anxiety over climate change. They have written reports, proposed regulations, lobbied politicians to reach global agreements and staged rallies. But what really needed to happen was for the business world to climb on board, and finally that’s what is happening.
The climate change community by its nature distrusts business and the bigger the business it is the more it distrusts it. The community’s ideal is for government officials armed with data, regulations, deadlines and moral fervor to reduce the world’s carbon footprint. The role of the corporate world, in their view, is to be dragged along kicking and screaming by the enlightened class.
Enlightenment has its role. CEOs, investors and entrepreneurs read the same op-eds we all do and are influenced by them. But the real change depends on technologies being developed to lower energy usage. You can shame people into refraining from air travel, but it won’t change enough people’s habits in the long run to make a dent in aircraft energy consumption. Better to design an electric plane, as one Israeli startup has done.
But for that to happen, businesses, in particular startups, have to lead the way. In the 21st century, that’s where innovation originates. There is certainly a role for government in subsidizing early efforts and setting regulations, but in the final analysis, it’s the profit motive (or to put it more gently for those who find the idea distasteful, price competitiveness) that will really effect change.
In that respect, Wall Street is even less idealistic than a typical corporate CEO, who at least has to pay lip service to public opinion. Apart from a few institutions dedicated to ethical investments, few investors buy, say, a wind-power stock as a vote in the future of the planet – if anything, it’s a vote for the future of their wallets.
It’s not as an inspiring way to lead us away from climate disaster as is chanting angry slogans at a protest or liking a Greta Thunberg video. But the stock market’s ethical neutrality makes it a pretty good signpost for the way the world is really going.