For every $1 invested in pulling fossil fuels from the ground and building fossil-fuelled power plants, about $2 is now being invested in clean-energy technologies. Only five years ago this ratio was 1-to-1, not 2-to-1: a dramatic sign that we are moving in the right direction on energy investment.¹

But, as with every other aspect of the transition, we are not moving fast enough. The $1 trillion a year that the fossil-fuel companies are investing is roughly consistent with the level that would be needed in a world where governments broke their promises and failed to deliver the emissions cuts they have signed up for. This is, in effect, what the fossil-fuel executives are betting will happen. 

More than that: they are spending tens of millions of dollars on lobbying and advertising campaigns to be sure it happens, seeking to torpedo the energy transition in every way they can. Off the coast of North America, the fossil-fuel companies are now pretending to care about whales, as a way to block offshore wind farms. In many countries, they are financing the campaigns of right-wing populists who dispute the validity of climate science. This is not the only evidence that they don’t believe in the transition, though: you only have to look at where they invest their cash. Only about 2.5 percent of it is going to alternative energy sources,² even as the companies run glossy advertising campaigns claiming to be on board with the new era.

Major banks have been promising for years to wind down their financing of fossil fuels, but their pledges are wearing thin. A coalition of environmental groups that tracks the issue reported earlier this year that since the Paris Agreement was adopted, banks have poured $6.9 trillion into financing fossil fuels.³ Without doubt, the world still depends on these fuels and some financing is necessary to keep them flowing for the time being, but we are not seeing the wind-down in fossil finance that the International Energy Agency says is necessary.

If governments do intend to live up to their promises, then the level of fossil-fuel investment is far too high. The IEA calculates that if the world is to get on track for the Paris goals, investment in coal, oil and gas production needs to be falling by almost $80 billion a year; instead it is rising by close to $50 billion a year.⁴

As heartening as it is to see clean energy beating fossil fuels to secure investment capital, the numbers are ominous in certain ways. The clean investment is overwhelmingly going into just three economies: China, Europe and the United States. This highlights, yet again, the risk that developing countries are going to be left behind, or worse, that they will be forced to embrace fossil fuels due to a lack of financing for clean energy.

The basic problem is that investment of all kinds, and clean power plants in particular, is seen as risky in these economies, and the interest rates demanded by investors can easily be two to three times those in the West. This effectively makes renewable energy unaffordable. Fossil-fuel projects are easier to finance, often because the bulk of the product will go to export markets in exchange for hard currency. Many fossil-fuel projects are also financed by state-owned enterprises at low, government interest rates, while renewable energy is the province of private developers who invariably have to pay higher rates.

Efforts to solve this problem at a global scale have been unimpressive so far. Rich countries have struck a series of partnerships with countries like South Africa and Indonesia, promising to help buy down the interest rates on projects to equitable levels, but misunderstandings and conflict have plagued the effort, and little has been achieved so far. The World Bank, which helps to finance projects in developing countries, is working on its own plan, but it is still unclear how ambitious it will be.

Not only is clean investment inadequate in developing countries; many of them are spending heavily to subsidise fossil fuels. In other words, instead of spending money to make the problem better, they are putting up immense amounts of public cash to make it worse. On first blush the numbers are astonishing, and the subsidies look like a huge pot of money that could be tapped for the energy transition. 

India, for example, spends $32 billion a year, or 1 percent of its total economic output, subsidising fossil fuels. This is 10 times what the United States spends for the purpose. Saudi Arabia spends $129 billion a year, or nearly 14 percent of its economic output; petrol in Saudi Arabia is sold for about 50 US cents per litre, or about $2 per US gallon. No country can outdo China, though, which underprices fossil fuels throughout its economy to the tune of $270 billion a year.⁵

Grabbing this huge pot of cash and putting it to better use is not nearly so simple as you might imagine. The subsidies going directly to producers of fossil fuels are actually modest in most countries. The United States spends only $3 billion a year for that purpose — a pittance, though it has spent more in the past. The big subsidies are in middle-income countries like China and India, and they are consumer subsidies, designed to lower the cost of fuel for poor people.⁶

Politicians in these countries mess with such subsidies at their peril, and they know it. Sudden attempts to jack up fuel prices can provoke protests, riots and even coups d’etat. Yet history shows that it can be done, and ought to be done. It just has to be done carefully.

The subsidies in India are actually a good bit lower than they used to be, because the Indian government phased in cuts over time. Helping poor people with the cost of living is of course a worthy social goal, but the smarter way to achieve it is to help them directly, with cash benefits, instead of underpricing fossil fuels across an entire economy.

Getting governments to see this has been a long struggle. Yet we were making progress, with subsidies falling year by year, up until the Russian invasion of Ukraine. The huge spike in fossil-fuel prices caused governments across the world to panic and institute new subsidies, and we now face a long period of trying to unwind those and get back on track.

In part because the world of finance has embraced fossil fuels for too long, it is about to face a reckoning. For decades, money managers and other investment professionals have got away with voluntary disclosures about their environmental records. That allowed many of them to paint themselves in a positive light — a practice known as greenwashing.

But new, mandatory rules are coming into force. Companies face new provisions requiring accurate reporting of their environmental footprint, and potential penalties if they do not comply. In the United States, the Securities and Exchange Commission has adopted a mandatory measure, though it is weaker than many people had hoped. The rules in Europe are strong, however, and California has adopted stronger measures than the S.E.C. Many of the big American corporations will be subject to those rules.

The era is dawning when lying about a corporation’s environmental record can get its executives thrown in jail.