“Profit over Planet: How Dynamics of Capitalism Hinders Sustainable Energy Transition in Developing Countries”

In a world where shareholders, board rooms and organizations are driven by figures of profitability, investment decisions are mainly determined by their ability to return profits to the investors in a short term. This is the essence of capitalism where profit maximization remains the ultimate goal for every business, organization or company. With the prevalence of capitalism in the business world today, it becomes difficult to prioritize investments that “do good” when they do not guarantee profits and attractive return on investments in the short-term. In other words, it can be opined that the current business climate prioritizes short-term financial gains over long-term sustainability, limiting energy transition.

Due to the prevalence of such capitalist driven business climate within the energy industry, energy transition becomes difficult to implement, as the mechanisms of capitalism hinder transitioning. For example, within the energy industry, environmental costs are usually avoided and externalized by capitalist fossil fuel companies. In fact, it is common practice that multinational oil companies operating in resource-rich developing countries most at times get away with the environmental damage caused by their operations. Instances include the infamous Ogoni oil spill in Nigeria caused by Shell, the significant CO2 emissions released by oil and gas companies in the Gulf of Guinea and the countless cases of indirect environmental impact of fossil fuel extraction amongst others. In similar vein, there are also health concerns resulting from air pollution caused by fossil fuel utilization, which the society unfortunately bears. Without these hidden and avoided costs, fossil fuel operations become artificially cheap, resulting in profit maximization.

One of the different oil spills from fossil fuel exploration in Nigeria. Photo Credit: Getty Image

Hence, investors tend to prioritize oil and gas investments in these developing countries over renewable energy products that require higher upfront investment costs, although they offer long term sustainability benefits. There is also the issue of systemic risks and economic volatilities that directly impact profitability in these developing countries. For instance, a report by Hydrogen Council and McKinsey Company states that country-related risks such as legal uncertainties, political instability and monetary volatilities in developing countries deter investors from these countries, especially as regards renewable energy investments. It is on this note that it is reported ~2% of global renewable energy funding is invested in Africa. With a capitalism mindset, these companies become unwilling to take the investment risks even though it would enhance environmental sustainability.

Also, this is regardless of the fact that their investments would solve the burgeoning carbon emission problem that would be witnessed in these developing countries in the near future, as a result of significant population growth and industrialization. Further, it must be highlighted that the overly focused capitalist organizations are heavily involved in lobbying, wielding significant political influence in these developing countries. With such influence, fossil fuel companies tend to get subsidies that make market dynamics favourable to their operations while making energy transition technologies disadvantaged, promoting unlevel playing field. There is also the overwhelming use of media influence in these countries to swing public perception in favour of operations of fossil fuel companies, with tens of millions of dollars spent on fossil fuel advertorials per annum.

In addition, the incumbent energy infrastructure is one that strongly aligns with the supply chain of the fossil fuel industry, which guarantees return on investment in the short term without recourse to the fact that it is reported by Bloomberg that for $1 that goes in fossil fuel, $3 has to be invested in renewable energy technologies, if net-zero must be achieved. Unfortunately, this energy investment dynamic is not the case in developing countries as there is huge infrastructural gap and challenges, making it difficult for investors to put their monies in these markets, since short-term profit is not guaranteed. Therefore, these developing countries that lack the public funds to provide these infrastructures, continue to be less attractive spots for renewable energy investments.

Finally, there is the moral argument where western capitalists are required commit to solving the environmental problem that they have caused in these resource-rich developing countries, over years of fossil fuel exploration and production. From this perspective, it is argued that even though there is no short-term profit in renewable energy investments in these countries, the need for sustainability should override profit maximization in their investment decisions. Hence, the investment portfolios of fossil fuel companies in these countries should increasingly consist of renewable energy projects, if net-zero emissions must be achieved.

In summary, the current overly focused capitalist business climate within the energy sector hinders rapid energy transition, especially in developing countries. However, overhauling this capitalist business behaviour would be a long shot. Instead, gradual challenges in investment behaviour can be made by investors, with a burden of morality and prioritization of sustainability over profits at certain instances. With such developments, developing countries would stand a chance to secure increased investment in their renewable energy market, which is critical to helping them transition to clean energy ecosystems.