Swaminomics | Right climate for Indian investment in green tech

I think climate challenges will be met, but not because of summits and global idealism. It will happen because enormous sums are being poured into green innovation by profit-driven corporations, incentivised by modest government subsidies and mandates. Forget lectures on making enormous sacrifices to meet climate targets. Voters dislike sacrifices. The 1997 Kyoto Protocol on climate failed to meet its targets. The next 2009 Copenhagen summit flopped too. The 2015 Paris Summit abandoned enforceable goals, letting countries make unilateral, unenforceable pledges. Alas, pledges do not mean reality. Rich countries promised $100 billion per year to help poor countries tackle climate change, but little has materialised.

Full-blooded US commitment is vital for success, but absent. The US signed the Kyoto protocol but did not ratify it. The USA backed the Paris Agreement but dumped it when Trump became President. Biden has reinstated it. But clearly no US President can bind future Presidents, so 30-year targets are fluff.

All global pledges are not futile. A few like the Montreal Protocol on Ozone can succeed. Others can produce partial gains. But climate pledges will never get priority over local politics. French President Macron imposed modest fuel taxes to curb emissions but rolled them back after angry demonstrations from rural folk. Voters want green benefits without bearing high costs.

Does that make success impossible? No, harnessing human ingenuity can yield marvellous results. When Covid struck, gloomy experts said no new vaccines had ever been made in under five years. Yet in less than a year companies across the world produced vaccines, and billions have been inoculated. Success came not from noble idealism but from governments incentivising drug companies, which hoped for gargantuan profits from a huge global market. Expect something similar — modest incentives followed by profit-seeking innovation — in climate issues. When the Copenhagen summit failed in 2009, nobody dreamed that in a decade solar and wind power would become cheaper than coalbased power. Germany subsidised solar energy, hoping to incentivise German firms. Unexpectedly, Chinese firms found the German market so attractive that dozens jumped into the fray, rapidly gained scale economies, and sent solar prices crashing, benefiting the whole world.

Solar and wind energy prices have fallen over 90% since 2000, incentivised by only modest subsidies. However, solar and wind energy are intermittent. Cheap storage is needed for them to ensure power 24/7. Fortunately, storage battery costs are also plunging too. New batteries plus renewables will power the world in a few decades, based on commercial profitability. Apart from power, fossil fuels are used in transport and industries like steel and cement. Tesla has led the charge in electric cars, and the world’s top auto companies are going electric.

Adani and Ambani are investing billions to become the world’s top green companies. Ambani aims to cut green hydrogen prices to one dollar per kilo in a decade, making it cheaper than fossil fuels for producing steel and cement. He is building mega-factories for solar panels, storage batteries, fuel cells and electrolysers for green hydrogen. He is acquiring foreign companies like REC Solar Holdings, without waiting for international transfers of cash or technology. He expects to be commercially profitable, not dependent on doles. Finance was a problem in the old days. But today global venture capital and private equity provide trillions in equity and cheap loans to any company in any country with good ideas, even if profits will come only after years of waiting. This financial flood has created over a thousand “unicorns”— new unlisted companies worth a billion dollars — across the world. “Green investing” has become a global craze, so Adani Green’s share price has soared tenfold in two years. Demographic change has created a ”savings glut” globally. This, along with easy money from central banks, has produced an avalanche of cheap finance. Hence a ride-sharing company like Ola can easily finance the biggest two-wheeler factory in the world.

If difficulties crop up, Ola, Ambani and others may get government support. Some ventures will sink altogether. But enough commercially viable companies will emerge to deal substantially if not wholly with climate change. This includes new technologies for mitigation (like developing high temperature resistant seeds) as well as prevention of warming. Even if global temperatures rise above the targeted 1.5 degrees, adaptation can deal with the consequences.