Economics Outweigh Politics in the Energy Transition
Rising demand offers a range of low-carbon investment choices, according to Rahul Bhushan, Managing Director at ARK Invest Europe.
Global emissions have reached a new record high. While that sounds alarming, it’s worth taking stock of the energy transition with a clear-eyed view.
Beneath the headline numbers, the forces shaping the energy landscape are shifting dramatically. Clean energy, especially solar, is scaling faster than anyone expected, costs are plummeting, and even in an environment where political support may waver, market forces continue to accelerate the transition.
End-of-life support for legacy players
Conventional wisdom says Donald Trump’s return to the US presidency would be a major setback for sustainability, but that thinking overlooks key structural forces.
The EV tax credits under the Inflation Reduction Act (IRA) were designed as a lifeline for legacy car companies struggling to compete in an EV-only world. Removing these subsidies doesn’t slow the EV transition – it simply pulls the plug on companies that were already too late to the game. Tesla, BYD and other leading manufacturers don’t need handouts to drive adoption. Their advantage comes from cost, performance, and scale, not government incentives.
Solar may actually boom under Trump. Deregulation, streamlined permitting, and reduced red tape will make it easier to build large-scale solar and battery storage projects and forecasts for global solar power installations in 2024 have continuously been revised upwards.
And 95% of projects waiting to be interconnected to the US grid are solar, storage and wind. And, the backlog continues to increase.
In 2024, solar accounted for 78% of all new power capacity in the US, making it the largest source of new capacity for 13 consecutive months. This exceeded the US Energy Information Administration’s (EIA) December 2023 projection of 58% by 20 percentage points. Battery energy storage system (BESS) prices fell 20% in 2024.
The economics are simple: renewables are the lowest-cost energy source, and in a deregulated environment, that only accelerates.
Coal, oil, and the reality of energy demand
Despite record-high renewables growth, coal consumption also hit a new peak in 2024, with global demand still rising and China leading the way.
The reality is that energy demand isn’t declining. AI, electrification, and industrial growth require more energy, not less. And for now, fossil fuels are filling the gap.
It’s easy to see this as a setback, but here’s a different perspective: the US reached peak hydrocarbon production, not under a Republican, but under Joe Biden. The country now accounts for 20% of global oil production, exceeding 13 million barrels per day. This isn’t a political issue – it’s a response to global energy demand.
The question for investors is not whether fossil fuels will disappear overnight (they won’t), but rather: Where is the growth? And that answer is increasingly clear.
The next chapter in nuclear
One of the biggest beneficiaries of shifting energy policies and net-zero ambitions could be nuclear energy. Small modular reactors (SMRs) are advancing toward commercialisation.
Advanced reactor designs, including thorium and molten salt reactors, are moving from theoretical discussions to real-world development, and regulatory reform could accelerate the industry’s transformation.
After decades of stagnation, over 20 countries have pledged to triple nuclear capacity by 2050, and private sector interest surging – including from major tech firms – the industry could be on the cusp of a significant revival.
AI: A problem or the ultimate efficiency engine?
AI is energy-hungry, and its growth has led to rising emissions from data centres. But it’s important to put this into perspective.
US data centres are expected to require an additional 47 GW of energy by 2028. China, by comparison, added 165 GW of solar in 2024 and will add 170 GW in 2025 – a scale that dwarfs AI’s energy footprint. This growth should see China’s cumulative solar PV capacity reach close to 900 GW by the end of 2025, before topping 1 TW in 2026.
But it’s AI’s ability to drive emissions down across other industries that’s really compelling.
- Aviation: Google and American Airlines are using AI to reduce global aviation emissions by one-sixth – a bigger impact than all US data centres combined.
- Food waste: AI-driven forecasting is already reducing food waste, which accounts for 8-10% of global emissions – more than the entire airline industry.
- Industrial emissions: AI is helping develop biologically inspired materials, reducing reliance on fossil fuel-based materials while increasing recycling efficiency.
So, the idea that AI is simply an emissions problem is too narrow a view.
What’s next?
The sustainability conversation is shifting. Investors who focus only on legacy narratives – that political change derails progress or that AI is an unmitigated climate threat – risk missing the bigger picture:
- Renewables are now the cheapest source of energy, and deregulation will likely accelerate adoption;
- The EV market will grow without subsidies—legacy automakers will not;
- Nuclear is poised for a resurgence, but innovation will be key; and
- AI’s climate cost is real, but its ability to optimise and decarbonise entire industries is even more profound.
The transition is not happening because of government mandates – it’s happening because it makes economic sense. Investors who understand that – will be the ones who benefit.
The post Economics Outweigh Politics in the Energy Transition appeared first on ESG Investor.