Private Investment is Key to Climate Policy Success

President Biden’s domestic infrastructure and jobs plans emphasizes a massive, unprecedented clean energy transition. Media coverage has perhaps understandably focused almost entirely on the high levels of public spending in the plans. But as Treasury Secretary Janet Yellen noted recently, the main purpose of federal policy is to stimulate private sector investments which will represent the lion’s share of capital flowing into clean energy in the decades ahead.

The goal of most public direct investment, incentives, and tax policies is not to build the clean energy economy of the future by the government. Rather it is to create the conditions so the private sector can build the world class system America needs to be competitive. This focus on unleashing private sector investment must be at the center of the infrastructure policy agenda, and Democrats must emphasize it more forcefully to gain Republican support.

Fortunately, American businesses of all types are rapidly becoming convinced of the value proposition in clean energy. From United Airlines’ commitment to achieve net-zero carbon emissions, to General Motor’s shift to an all-electric vehicle fleet, to ExxonMobil’s new plan to build a massive carbon management cluster near Houston, the movement by the mainstream business and financial community toward a climate-forward, low-carbon business model is striking. The question now is can Congress write a bipartisan bill that unleashes U.S. private investment and makes these business goals commercially viable.

As a former energy project developer during the initial clean technology push a decade ago, I can attest that the commercial landscape is far more dynamic today. In the previous boom, there were innovative projects desperately seeking capital, which was scarce and expensive. Today, the situation has matured so there is an abundance of capital chasing clean technology projects.

Yet the rising investment demand for clean energy opportunities is creating a “pile up” of dollars, suggesting that while some elements for climate-focused investment are aligning, conditions are still not quite right for transformational change. The central role of the government now should be to help unleash this pent-up cash.

Government has not acted sufficiently in part because there remains confusion and disagreement on Capitol Hill and elsewhere about how decarbonization can be accomplished. Arguments from the left suggesting government should take on the responsibility of decarbonization—and contentions from the right that the private sector can do it alone—both miss the mark. Experience in both policy and industry suggests success is only possible if government works in close collaboration with the business community, designing policies that enable private investors to deploy their capital into financially attractive investments.

For one thing, the public sector cannot invest directly at scale to build and operate all the infrastructure that is needed for net-zero by 2050. Energy is one of the largest economic sectors in the world, and public resources simply cannot do it all, fast enough, with the requisite entrepreneurism and risk tolerance to meet our climate goals. Nor are governments able to rapidly adapt to changing market opportunities, competition, and technological evolution.

At the same time, the private sector cannot put the full force of its resources, ingenuity, and capital into the clean economy without public engagement and strong policy frameworks to ensure they receive an attractive return on investment. Many of these elements—consistent and simple to use clean energy tax credits, enabling infrastructure like electric vehicle charging and carbon dioxide pipelines—are in the Biden proposal. But Congress must do more to unlock private investment.

Much is made of what companies “should” do, the unbending laws of capitalism remind us that companies act in their self-interest and money flows only to where there is a return. We need a clear-eyed view on what to expect from the private sector and how to harness its hunger to achieve our climate goals. Corporate pressure and voluntary goals, no matter how laudable and even essential, will not be enough.

Policymakers and stakeholders must break free of counterproductive dynamics from the previous climate campaigns and move past punitive measures against companies based on past actions. Instead, Congress, the administration, environmental stakeholders, and business leaders must engage collaboratively on a clear and ambitious net-zero policy strategy that brings all parties to the table in a bipartisan way. The long march toward a clean energy economy is underway, and the U.S. has the technology, innovation, business expertise, and workforce to prosper in the process. Collaboration between government and industry is the missing piece.

Sasha Mackler directs the Energy Project at the Bipartisan Policy Center. Mr. Mackler previously worked on carbon capture project development at Summit Power Group and in biomass energy market development at Enviva.