Finding Calm in the Chaos: Q2 2026

In this episode, we reflect on the folly of using government to pick winners and losers.

 

The Accumulating Market Damage from Political Chaos:

• $60 billion in automotive write-downs following retrenchment from electric vehicle strategies.
• $15 billion in write-downs tied to sustainable aviation fuel and hydrogen investments
• Additional losses across chemicals, electricity, and heavy industry
• 2x those numbers in related economic losses

In total, more than $100 billion destroyed.

Of necessity, the business of energy production and use has been heavily regulated in Western economies. That intervention works best when it delivers:

• Abundance, choice, affordability (all byproducts of market competition),
• Predictability for investors, and
• Environmental protection for society.

Increasingly, rather than defining the outcomes society needs, Western governments have sought to determine the technologies through which those outcomes will be achieved.

That distinction matters.

 

Goals Are a Public Responsibility. Discovery Is a Market Process.

In The Use of Knowledge in Society (1945), Friedrich Hayek argued that the information needed to allocate resources efficiently is dispersed among millions of individuals and firms. No government possesses enough localized knowledge to know which technologies, business models, or production methods will ultimately prove superior.

Markets exist because they are mechanisms for discovery.

Governments, when at their best, excel at something different: defining collective objectives. They can decide that society should reduce greenhouse gas emissions, improve energy security, strengthen domestic manufacturing, or lower consumer costs. Those are legitimate public choices. What governments are poorly equipped to do is identify, years in advance, the specific technologies that will achieve those objectives most efficiently.

When policy confuses these two functions – setting goals and choosing means – the predictable result is wasted capital.

Both the political left and right repeatedly cross this line.

Many of the recent write-downs reflect precisely this mistake. Investors were encouraged to concentrate capital in technologies favored by government rather than technologies validated by competitive markets. As political priorities changed, investments that had been encouraged under one policy framework suddenly became liabilities under another.

 

A different approach would have produced different incentives.

Had policymakers instead established durable performance goals while allowing firms greater freedom to determine how to achieve them, two outcomes are likely to have followed.

First, companies would have pursued more diversified and commercially resilient investment portfolios. Firms would have balanced technological, regulatory, and market risks, making their investments less vulnerable to electoral cycles and more compatible with the gradual evolution of customers, suppliers, and infrastructure.

Second, decarbonization would have become more deeply embedded in ordinary market incentives: improved efficiency, lower costs, stronger supply chains, consumer demand, and global market competition. Progress driven by these forces is inherently more durable because it becomes economically advantageous rather than merely politically required.

The same reasoning applies in reverse. If advocates of expanded domestic energy production are principally interested in economic growth, employment, and energy security, then the source of that energy should be irrelevant. Policies that obstruct economically viable renewable generation while subsidizing uneconomic coal production narrow domestic supply options, raise energy costs, weaken supply chains, and increase dependence on imports.

The U.S. Acid Rain Program demonstrated exactly this principle. Rather than prescribing particular control technologies, it rewarded emissions reductions. The market responded by discovering solutions that policymakers had neither anticipated nor designed. Emissions fell faster and at dramatically lower cost than expected.

 

That model deserves far more attention than it receives.

 

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The Lesson Neither Political Coalition Has Fully Learned

This issue cuts across contemporary energy debates in Western democracies. One school of thought frequently assumes that achieving decarbonization requires governments to identify preferred technologies and accelerate their deployment. Another increasingly assumes that strengthening domestic energy production requires discouraging technologies that depart from historical energy systems.

Although these approaches from opposing political coalitions conflict in important ways, they share the same underlying conceit: that government should decide which technologies deserve to succeed.

The recent wave of corporate write downs should be seen for what they are: compelling evidence to avoid picking winners. Restricting competition is no more economically defensible when it favors incumbent fossil technologies than when it favors specified low-carbon technologies.

 

A Challenge for Climate Advocates

Supporters of rapid decarbonization should ask whether current policy approaches adequately protect the private-sector partners needed to achieve long-term environmental goals. Behind every major write-down are executives and investors who committed capital to technologies encouraged by public policy. Those losses will inevitably shape future investment decisions. Those burned once will become more than twice shy.

That should, for climate advocates, be sufficient cause to reconsider how its policy choices influence the durability and effectiveness of its coalition. How much future support can be expected from those whose careers were materially damaged by advocating climate investments?

Markets rarely evolve according to optimistic forecasts. Politics is even less predictable.

If environmental progress depends upon sustained private investment, then policy should be designed to remain effective even when governments change and technologies evolve differently than expected.

Technology-neutral performance standards generally accomplish that better than technology mandates.

California’s Low Carbon Fuel Standard illustrates the point. Despite prolonged legal challenges and changing market conditions, its performance-based structure attracted billions in private investment, achieving significant climate progress while avoiding investor losses associated with more prescriptive approaches.

 

A Challenge for Energy Traditionalists

Advocates of expanded domestic energy production confront the same question from the opposite direction.

If the objective is greater energy abundance, lower costs, stronger domestic supply chains, and improved economic competitiveness, then every technology capable of contributing to those outcomes deserves an opportunity to compete.

Policies that obstruct economically viable renewable energy generation while preserving uneconomic alternatives reduce competition, increase costs, and narrow future options.

That outcome is no more consistent with market economics than technology mandates are.

 

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The Broader Principle

Society needs energy, transportation, and a clean environment.

• It is appropriate for government to create structures to reward preferred outcomes.
• It is folly for government to dictate how markets achieve those outcomes.
• It is malpractice for government to impede reasonable actions in pursuit of those outcomes.

When governments reward outcomes rather than prescribe technologies, investment becomes more resilient, innovation becomes more diverse, and political change becomes less economically destructive.

When governments instead attempt to choose technological winners, markets eventually remind them how little anyone can know about the future.

More than $100 billion in economic losses should be reminder enough.