This is an edited transcript of a video talk given by geopolitical strategist, Peter Zeihan, on the green transition in the US.
Today we are going to talk about the end of the green revolution in its current form - at least in the United States. There are three things that have come together to basically destroy the economics of the green transition. And then, a couple of things on the side that are making it more difficult anyway.
The first has to do with the baby boomers. Two-thirds of them have retired, which means that all of the money they were saving for retirement has been liquidated and gone into less exciting financial instruments such as Treasury bills and cash. That means there's less capital available for everything. So, we've roughly seen the cost of capital in the United States increase by a factor of four in the last five years, which has nothing to do or very little to do with Government policy. It's just that there's less money available in the system overall. So, mortgage rates go up, car loan rates go up. Anything that needs to be financed goes up. And that's a real problem for green tech.
When you're looking at, say, a conventional thermal power plant, coal, natural gas, that sort of thing, you only pay for about one-fifth of the cost of the life of the plant at the front end. That's your upfront construction. Then about two-thirds of the expense over the full life of that power plant is the fuel coal or natural gas, and you buy that as you go.
That's not how it works with wind and solar. With wind and solar, about two-thirds of the cost has to be paid up front. And that means it has to be financed. Well, if you increase the cost of financing by a factor of four, all of a sudden you're talking about a financial commitment that's huge compared to what it would have been just five years ago. And that is now happening across the entire space. That alone would have probably ended 70% of the power plants that are solar and wind just off the top.
The second problem, of course, is that because you have to finance everything up front in the first place, anyone who wanted to do the green transition really needed a helping hand from Government, typically at the Federal level. The Biden administration, through things like the Inflation Reduction Act (IRA), was very big in providing that financing. Well, that's basically gone to zero under the Trump administration. So your financing costs have gone up by a factor of four, and you don't have any outside help. But the real killer, especially for solar, has now been the tariffs.
Almost all of the photovoltaic (PV) cells that are used in solar systems are produced in China, oftentimes with slave labor. While most of the folks in the green transition were willing to overlook the slave labor thing in order to get the panels that they needed, you can't really overlook a 145% tariff. So, if the PV sales cost you 2.5 times as much and your financing cost has quadrupled, that's just not going to fly.
Now it's not quite as bad for wind because there are some non-Chinese providers of wind turbines, most notably in Northern Europe. There, we have a tariff at the moment of 10%. It was 20% a week ago, and that just introduces a lot of uncertainty into the system. So both of those things are gone. Wind, little on the edges maybe, and solar is absolutely out of the question for most people now.
The only other remaining piece is batteries. When the Biden administration slapped a lot of tariffs in early-2024 on Chinese electric vehicles to keep them out of the US market, what happened is the Chinese repackaged all of the EV batteries into container units to be sold as grid storage. And so in calendar year 2024, adding battery storage was the cheapest form of power that you could add to your system.
The Texans, in particular, boned up on that hugely. Because if you can have a battery grid system, it's better economics than having a natural gas peaker plant because peaker plants would normally only run a few days of the year. Instead, the batteries can take that load. As a result, Texas was the number one green energy state, using their solar system to generate power during the day, store the extra in the batteries, and then use that during peak demand and evening hours when the sun's going down. It worked really well and shaved 4-8% off power costs.
But now we have 145% tariff on all of those batteries as well. I don't want to say that that's going to stop cold, but the pace of the application is going to slow considerably because the Chinese dominate that space and we haven't built the industrial plant yet to fill the gap for ourselves. So for the moment, it’s likely to be a minimum of two years, probably, until we have a better battery chemistry, probably until we have better PVs, certainly until we have a more diversified manufacturing base, which is a ten-year process.
We're looking at the green transition taking a beating.
Peter Zeihan, founder of Zeihan on Geopolitics, is a geopolitical strategist, speaker and author. This article is general information and does not consider the circumstances of any investor. This is an edited transcript of Peter's video, The Fire Hose of Chaos: The Green Transition Is Over, posted on 1 May 2025.