We are at a green tipping point for capitalism. Its drive for innovation will explode – solves

Even if they accept the mechanics of the price mechanism, staunch skeptics could point out that economists have been saying the same old thing about carbon pricing for ages. As early as 1997, more than 2,700 economists, including nineteen Nobel laureates, issued a public statement ahead of the Kyoto Protocol international negotiations, arguing in favor of carbon pricing to address climate change. Over twenty years later, carbon is still largely underpriced and we are still grappling with the problem. On top of the changes in citizen concerns and voting preferences that we now see, something else makes the green tipping point credibly near.35 Year after year, slowly but surely, environmental regulations have been piling up, investment in green R&D has been accumulating, and government-supported pilot projects have proliferated. As a result of the actions and investments of visionary first movers, philanthropists, and dedicated early adopters, renewable technologies have been rolled out more and more. We saw in Chapter 5 what happens when this is the case: production prices fall, as firms benefit from learning curves. The learning curve for solar photovoltaic is particularly stunning, as production prices are down 99.6 percent since 1976, from $106 to $0.38 per watt (Figure 6.1). Even professional forecasters knowledgeable about the business have been taken aback by the speed at which this has happened. In 2014, the International Energy Agency predicted that average solar prices would reach $0.05 / kWh by 2050, thirty-six years later. In fact, this took six years. As a result of such rapid progress, 2020 marked a turning point: in that year, new energy production became cheaper for renewables, specifically via solar and onshore wind power, than for the cheapest fossil-fuel alternative (Figure 6.2). This powerfully implies that, going forward, the most cost-effective way of producing electricity will also be climate- friendly. This shifts the green transition from a luxury consumption choice, reserved to rich countries and citizens, to a profitable investment opportunity—and, at the macroeconomic level, firmly into new economic growth model territory. It is of greatest importance that this has happened for electricity generation, because this is a fundamental building block. Most climate mitigation plans specify a two-step approach: first, electrify everything that can be electrified (which is why, for example, we see today’s strong push toward electric cars, substituting for combustion engine vehicles); and second, ramp up the share of renewable energies in the electricity generation mix.36 We are on the verge of a world where capitalism’s wind fills the sails of the green transition and we no longer have to rely on the goodwill of philanthropists and dedicated early adopters willing to take one for the team. Following profitable opportunities, financial market money will start flowing to clean technology producers at scale, getting out of older, polluting sectors. As these “brown” sectors decline, they will lose economies of scale, effectively falling backward on their industrial learning curves. Accessing loans will become harder for them, and so will attracting talent. We will see a steady move from a world where it is necessary to decide, even at individual consumer level, whether to go for the cheaper option or the greener option, to a world where both motivations point to the same choice. From an economic perspective, the beauty of this is that we return to a decentralized logic, where we no longer have to rely on the hope that people are willing to make day-to-day sacrifices to benefit future generations and society at large—or be stuck in a world where poorer households need to decide between end of the month and end of the world. Personal and societal incentives will align as if led by a green invisible hand—without the need for the complete ideological conversion that ecosocialism demands. From a political economy perspective, once green technologies also become the most profitable investment opportunities, it becomes politically much easier to introduce or ramp up carbon pricing.