Jeremy Grantham on Investing in Green Tech

Episode Summary

Executive Summary: Tyler Cowen interviews Jeremy Grantham on climate, resources, and bubbles. Grantham argues that lithium and other material constraints make the green transition far harder than commonly assumed, that capitalism and markets underprice commons problems like erosion and climate risk, and that current asset markets fit a recurring “super bubble” pattern. He is optimistic about green tech, VC, fusion, and geothermal, but warns that timing and denial remain dangerous.

Main Topics: Resource constraints and the green transition (Priority: 5/5): Grantham argues the global mining industry cannot supply enough lithium for a full-scale green transition and says the economy must redesign around alternative chemistries like sodium and potassium batteries. Climate change as a commons failure (Priority: 5/5): He contends markets and capitalism are poor at anticipating climate risks, topsoil loss, water shortages, insect collapse, and other slow-burning environmental threats that are not internalized properly. Green policy, energy economics, and unintended demand effects (Priority: 4/5): The Biden climate and taxes bill is praised as both a signal and a subsidy for green innovation, though Grantham notes the up-front energy and materials intensity of building green infrastructure can temporarily raise fossil-fuel demand. Super bubbles and market behavior (Priority: 5/5): Grantham defends the idea that rare, recurring bubble episodes can be identified from history and human behavior, and he believes current markets—especially U.S. equities and global housing—fit that pattern. UK decline, Brexit, and Thatcher (Priority: 3/5): He attributes much of Britain’s long malaise to Brexit and sees Thatcher as a major meritocratic reformer who made the UK more competitive and modern. Long-term demographic and ecological risks (Priority: 4/5): He emphasizes underappreciated risks from soil erosion, biodiversity loss, water stress, and aging populations, arguing these could become severe within decades. Innovation optimism: VC, fusion, geothermal (Priority: 4/5): Despite his warnings, Grantham is upbeat about U.S. venture capital, second-generation nuclear fusion, and geothermal as likely routes around energy and resource bottlenecks.

Key Arguments: Lithium is the binding constraint for current battery-based decarbonization; known reserves are far short of what a full green transition would require. Green energy has near-zero marginal operating cost, so once installed it can outcompete fossil fuels over time. However, the build-out of green infrastructure is material- and energy-intensive up front, which can increase fossil-fuel demand in the short run. Capital markets do not reliably price commons problems such as climate change, soil erosion, or biodiversity loss before they become acute. Climate damages are likely far larger than many economists estimate; Grantham rejects low-GDP-loss projections as dangerously implausible at higher temperatures. Current market conditions resemble prior super bubbles because euphoria, peak profit margins, and investor disregard for fundamentals recur in rare but recognizable patterns. Real estate, especially coastal property, may not reprice much until insurance and financing become unavailable, then could fall abruptly. The UK’s long-run weakness has been worsened by Brexit, which reduced investment, labor inflows, and competitiveness. Future solutions will likely come from technological substitution and engineering workarounds, not from trying to force existing resource systems to meet impossible targets. Fusion and geothermal are promising, but even if fusion works, it may not be economical if storage and renewables continue to get cheaper.

Data Points: Lithium coverage of needed green transition: ~5% - Grantham says known lithium reserves would only cover about 5% of what is required to green the entire economy once. Battery replacement cycle: Every 30 years - He notes that batteries would need replacement on roughly a 30-year cycle, compounding resource needs. Climate policy investment base: Half of principal - He says the Grantham Foundation has half its principal in early-stage green tech. Biodiversity decline: 50% to 75% - He claims insect populations have fallen by roughly 50%, possibly closer to 75%. Wild insect biomass decline: Over 1%, closer to 2% per year - He cites annual biomass declines in wild insects as a warning signal. Topsoil loss in Midwest: From at least a foot to an inch or two - He says Midwest topsoil reserves have shrunk dramatically, reducing safety margins. South Korea fertility rate: 0.8 - Used as an example of severe demographic collapse. Japan fertility rate: 1.35 - He cites Japan as another low-fertility country facing aging and shrinkage. United States fertility rate: 1.65 - Used for comparison in the demographic discussion. United Kingdom fertility rate: ~1.7 - Mentioned as part of the broader developed-world fertility slowdown. Climate temperature threshold concern: 5°C - He says no serious climate scientist believes stable global society has much chance at 5 degrees Celsius warming. Potential temperature catastrophe scenario: 10°C - He argues economist damage estimates are absurd if one imagines warming of this magnitude. Bubble characterization: 2.5 to 3 sigma - He describes the current market situation as a major overextension akin to a statistical outlier. Foundation investments: ~45 - He says the foundation has completed about 45 early-stage green investments in two and a half years. Current age: 83 - Grantham references his age while discussing life stage and future plans.

Pivotal Quotes: "We are just going to have to find another way to make lightweight batteries using something other than lithium." — Jeremy Grantham: On the central material bottleneck to the energy transition. "We’re the bacteria in the petri dish. ... We can see the outer rim." — Jeremy Grantham: On finite resources and why growth must eventually hit limits. "We are making this planet hostile to life in every form." — Jeremy Grantham: On ecological degradation, including insects, soil, toxicity, and water stress.

Implications: Listeners should expect a faster, more resource-constrained transition than policy rhetoric suggests, with major opportunities in green tech and hard tech. Grantham’s warning is that climate, biodiversity, and bubble risk are all underpriced until they suddenly aren’t.