‘Net Zero’ Will Make Wall Street Richer at Main Street’s Expense

Follow the money and note who benefits from creating an artificial demand for renewable energy

Joshua Rauh and Mels de Zeeuw. Mr. Rauh is a senior fellow at the Hoover Institution and a professor of finance at the Stanford Graduate School of Business. Mr. de Zeeuw is a senior research analyst at Hoover. Excerpts:

"Any government mandate that a large amount of capital must be swiftly retired and replaced creates a tremendous opportunity for financiers, no matter the underlying reason.

Suppose a government announces that all machines of a certain color, say brown, must be destroyed and replaced with machines of a different color, say green. Owners of the brown machines aren’t happy, but those who can finance the new green machines will profit handsomely. This artificial demand distorts the efficient allocation of capital and comes at a great cost to economic prosperity.

This thought experiment isn’t so different from current developments in the energy industry. Government mandates and incentives are artificially driving demand for renewable energy. The political desire to cater to climate concerns is increasingly benefiting large financial companies, which have been quick to lend their support. Institutional investors have been preparing by reducing their fossil-fuels exposure."

"isn’t true . . . that the benefits of energy transition investments make their ultimate net costs minimal or zero. The boosters of the energy transition are ignoring the opportunity costs of replacing existing energy production with renewables."

"The crowd-out will be substantial. The $130 trillion in private capital pledged to support the energy transition, more than 135% of the world’s gross domestic product in 2021, is $130 trillion that can no longer be invested in other productive activities. No economy has infinite productive or financing capacity."

"The opportunity costs will be the investments that aren’t made, the products and services not invented or scaled up, the jobs not created in other industries, and the productivity gains and prosperity that don’t materialize."

"The huge increase in demand for financing and factors of production raises the cost of capital and labor inputs. Further, U.S. households and businesses will face higher utility prices because of electricity grids’ greater reliance on expensive battery storage technology."