In today’s issue:

  • What really drives the transition to clean energy (and it isn’t politics)
  • Why Republican senators have to choose between rhetoric and reality
  • The energy transition will stay on track regardless who wins the US election

I’ve always said that economics drives the energy transition, not narrative.

With the US election looming, you might think a second Trump presidency would undo all the progress that’s been made in the US in recent years.

But it didn’t during his first time in office, and I doubt it will again, even if he beats Kamala Harris in the election in November.

Remember, Donald Trump “digs coal”. One of his slogans is “drill baby drill”. He’s said he will look to repeal President Joe Biden’s clean energy-focused Inflation Reduction Act, the IRA, on day one if he’s elected.

Does this spell the end of American efforts to tackle climate change? I don’t think so.

Because for years now, there’s been a clear division between those of us who study the energy transition and its investment implications, and others.

I think possibly the biggest gap between what full-time energy workers think and most other people do centres on politics. The classic view is that green technologies like solar and wind are expensive luxuries – burdens we must bear, imposed on us from above, to tackle climate change. That it needs to be imposed by governments.

Meanwhile, leading figures like Mark Lewis, head of climate research at hedge fund Andurand Capital, have been pointing out for years that it’s all about economics. “The energy transition will be propelled by its economic viability,” he says.

That’s because the cost of the key technologies that will do most of the heavy lifting in slowing carbon emissions – i.e. solar, wind, and batteries – have all fallen by 80-90% over the past decade.

Fossil fuels have never had competition before. Suddenly, they’re being undercut. New renewables are a cheaper form of power than gas in most of the world now. Solar became the cheapest form of power in history a few years ago.

While the cost of coal power has stayed flat at around $110/MWh over the last ten years, solar fell from $360 to $40/MWh.

It’s happened so fast, most people simply haven’t caught up – including, perhaps, Donald Trump, who claims to “know windmills very much” and says he’s “studied it more than anyone”.

In fact, the falling costs are driven by something called learning curves, where across many different technologies it’s been proven that as manufacturing capacity scales, costs fall in proportion. Usually, a doubling of capacity leads to roughly an 20% cost decline. And solar has just grown so quickly that costs have plummeted.

That’s why, despite all of Trump’s rhetoric, his presidency actually saw the record amount of investment in solar and wind power in US history.

And why Texas, fossil fuel capital of the US, is leading the way on many zero-carbon energy metrics, including generating more than double the power from renewables than even the former champion and vocal energy transition advocate, California.

It’s all about the economics.

A conflict of interests

But the plot gets even thicker when it gets to Biden’s flagship clean energy policy, the IRA. The Republicans fought vocally against it, but now they might have to eat their words.

According to Bloomberg, “one Republican critic of the IRA said, using fairly typical language, that [the IRA] would ‘raise taxes’ and ‘throw money at woke climate and social programs that won’t work.’ That critic, Rep. Richard Hudson, represents North Carolina’s 9th district.”

That just happens to be where Toyota is building a mammoth battery plant – the single largest investment in the US clean energy supply chain that will employ 5,000 locals and power half a million electric vehicles (EVs) every year.

In fact, the areas actually benefitting from the IRA are mainly all Republican.

As the Bloomberg article states,

Of the 51 projects in the country that top the $1 billion mark, 43 are in red districts,” And of the top 25 districts in the country for announced cleantech manufacturing investment, 21 have a Republican representative in the House,” Those 21 districts alone account for an aggregate $119 billion of investment — more than half the national total — and more than 80,000 jobs. This is nothing less than a landslide.

Another example is the $1.9 billion EV plant in Marshall County, Mississippi, which will employ 2,000 people, equivalent to 15% of the local labour force. Its Republican representative called it “truly life changing” for his constituents.

Republican states tend to be more rural, with more land and therefore space for large new factories. Plus, they often have more pro-business tax and regulatory environments, which also helps to explain why investment has gone there.

In all, a whopping 78% of IRA investment has gone to Republican states.

Source: Bloomberg

So will Trump really backtrack on the IRA if he wins in November, given all it’s doing for Republican voters? Will he look to kick Toyota out? Are 5,000 local jobs “woke”?

I don’t believe so, and with the brutal and continuing negativity on stocks in the sector, I believe that valuations are now deeply compelling for many of the more resilient and higher quality clean energy companies. But that’s a story for another time.

For now, it’s not often that Nick Hubble and I agree on green energy. But he also thinks politics doesn’t matter, and politicians aren’t in charge. His research took a different route, but reached the exact same conclusion. Politicians don’t matter, economics do.

For me, I certainly don’t think the energy destination will be thrown off track, no matter who wins the US election in November.

Nick’s conclusion is perhaps darker, and more threatening, especially for UK citizens like us.

In the long history of The Fleet Street Letter, there have been some remarkable predictions that came to pass, much to everyone’s surprise. This includes predicting the onset of WW2, down to the very month it began.

Today, Nick’s making a different kind of prediction. But like me, he’s arguing that politics doesn’t matter, and that you need to pay attention to what does.

To see what he has to say…

And judge his predictive power for yourself…

He’ll be laying out his exact thesis and how it will affect you in an upcoming presentation. Keep an eye out for that.

Until next time,

James Allen
Contributing Editor, Fortune & Freedom