Why No One Wants to Pay for the Green Transition

In the past few years, Washington and Wall Street started fantasising that the transition to net-zero carbon emissions could be an economic bonanza. “When I think climate change, I think jobs,” President Biden said. When Wall Street heard green energy, it saw profits. As Ford Motor launched an electric Mustang and pickup truck, its market value topped $100 billion for the first time.

This year the fantasy ended. With electric vehicle demand falling short of expectations, manufacturers are dialling back production and buying back stock instead. Offshore wind developers have canceled projects. The S&P Global Clean Energy Index has fallen 30% this year. Ford’s market cap is down to $42 billion.

This doesn’t mean the transition to net zero is over. Officials meeting this week at the United Nations climate conference are just as worried about climate change. Renewable energy continues to expand. In the very long run, it is still the case that economic welfare will be higher with less global warming.

But the economics of getting to net zero remain, fundamentally, dismal: Someone has to pay for it, and shareholders and consumers decided this year it wouldn’t be them.

Politicians and the public tend to think all investment is good for growth, an error that leads to all sorts of muddled thinking about climate.

Technological transformations are positive supply shocks: a new, more efficient technology comes along, and investment naturally gravitates toward this new technology because it is profitable.

By contrast, the green transition is driven by public policy. It is “a negative supply shock, with an accompanying need to finance investments whose profitability cannot be taken for granted,” French economist Jean Pisani-Ferry wrote in a report commissioned by the French prime minister and released in English in November. “By putting a price—financial or implicit—on a free resource (the climate), the transition increases production costs, with no guarantee that the reduction in energy costs will eventually offset them, while the investments it calls for do not increase productive capacity but must nevertheless be financed.”

Pisani-Ferry, who is affiliated with the Bruegel think tank in Europe and the Peterson Institute for International Economics in Washington, is an uncommonly clear thinker on this issue.

He notes the transition involves hefty capital spending today to replace fossil-fuel consumption in the future. Pisani-Ferry estimates a middle-class French family would spend 44% of annual disposable income for a heat pump, and 120% for an electric car. These investments boost demand, but don’t leave families better off since they simply do the same thing as what they replace. And if taxes rise to pay for these investments, families will be worse off, financially.

“It would take an incredible act of blindness to fail to recognise that climate change is happening, that it is—and will increasingly become—severely damaging,” he writes. “It would also be incredibly flippant to claim that this urgent and imperative action will have no economic cost by 2030.”

The most efficient way to redirect consumption and investment from fossil fuels to zero-emissions energy is a carbon tax, or a cap-and-trade system. Europe has adopted such a system plus ever more stringent goals, especially after Russia cut off natural-gas supplies following its 2022 invasion of Ukraine. But as the cost has grown, so has public discontent, from France’s “yellow vest” protests in 2018 to last week’s first-place finish in Dutch elections by the far-right Freedom Party, which wants to ditch all climate regulations.

U.S. leaders have rejected any federal tax or fee on carbon. Biden’s solution is to not ask consumers to pay for the green transition; his Inflation Reduction Act pours, by some estimates, roughly $1 trillion into electric vehicles, renewable energy, hydrogen and other zero-emissions technology.

Subsidies can play a vital role by giving green energy time to scale up and innovate until it is competitive with fossil fuels. But the IRA has been undermined by extraneous conditions such as made-in-America requirements, and by green tech inflation—a byproduct of the IRA itself, which helped fuel demand.

Finally, Biden’s investment agenda was designed for the pre pandemic era when low interest rates flattered the financial profile of renewable energy investment and federal budget deficits were less likely to crowd out private investment. Those assumptions no longer apply.

For years, the cost of wind and solar plummeted, but since 2021 they have risen, according to investment bank Lazard. Interest rates are an important factor, which Lazard estimates affect offshore wind and solar more than natural gas.

Many developers can no longer economically supply power at the rates previously agreed to. Denmark’s Orsted, the world’s largest wind developer, took a $4 billion charge in early November for pulling out of two projects off New Jersey. The company today is worth 75% less than in early 2021.

ClearView Energy Partners estimates about 30% of state-contracted offshore wind capacity has been canceled, and another 25% may be rebid. ClearView analyst Timothy Fox noted lawmakers often mandate increased renewables, but utility regulators must approve the contracts, and one of their primary considerations is cost to ratepayers.

“I am an unapologetic economic regulator,” Diane Burman, a member of the New York state Public Service Commission, said in October as the commission refused to pay wind developers more. De carbonisation and grid improvement must proceed “with costs in mind.”

The financial appeal of EVs has similarly faded. Tesla proved making them can be profitable, but so far it looks like an outlier. Tesla captured the lion’s share of early adopters—drivers willing to put up with the cost and recharging hassle of an EV in return for performance and green credentials. For most drivers, the trade off still doesn’t work—even with subsidies.

True, the IRA has spurred a boom in EV and battery factories. But a successful green transition requires that those factories be profitable, and Detroit’s automakers are still losing money on every EV they sell.

EVs should eventually require less labor and thus be cheaper to build than gasoline-powered vehicles. But auto workers are no more willing to pay for the green transition than consumers or investors. In its recent strike, the United Auto Workers extracted commitments that make it even harder for Detroit to make money on EVs.

In a sobering report this week, Morgan Stanley auto analysts estimated the average non financial company in the S&P 500 spends its market cap in capital expenditure and research and development in about 50 years. GM and Ford spend theirs in 1.9 and 2.6 years, respectively. “This cannot continue, in our view.”

The green transition remains critical, but its path will be fraught until someone agrees to pay for it.

Reporting season has once again reminded investors that a strong profit does not guarantee a rising share price, and a large loss does not always trigger a sell-off. What matters most is how each result compares with expectations and, increasingly, what management says about the year ahead. During the August 2026 season, companies offering credible turnarounds or unexpectedly strong guidance were rewarded handsomely, while those flagging weaker margins, slowing demand or greater uncertainty were punished.

The following ranking draws on Morningstar’s review of 164 ASX-listed companies and measures each company’s share-price movement on the day it reported. This captures the market’s immediate response to the earnings announcement, before subsequent economic developments, dividends and company-specific news cloud the picture. Here are the five biggest winners, and the five hardest-hit losers, of the season so far.

The five winners

1. Bapcor (ASX:BAP): +41.0%

Bapcor delivered reporting season’s largest relief rally after presenting early evidence that its troubled automotive-parts business was stabilising. Although underlying revenue fell 1.8% to $1.92 billion and underlying NPAT collapsed 85% to $10.8 million, underlying EBITDA of $152.5 million exceeded guidance.

More importantly, working-capital initiatives released $68.5 million in the second half, lifting cash conversion to 109.4% and reducing net debt by 63% to $135 million. The statutory loss was $431.6 million, largely because of non-cash impairments. Investors focused on improving operational momentum, stronger liquidity and management’s expectation of modest FY27 revenue growth.

2. Zip Co (ASX:ZIP): +18.2%

Zip comfortably surpassed its FY26 targets, sending the buy-now-pay-later provider’s shares sharply higher. Transaction volume rose 23% to $16.7 billion, while cash earnings before tax, depreciation and amortisation jumped 58% to a record $268.9 million. Statutory profit climbed 46% to $116.4 million, and the cash operating margin expanded by 4.2 percentage points to 20%.

The strongest signal was guidance for FY27 cash earnings of $340 million—around 26% growth and above analysts’ forecasts. US transaction volume increased 42.5% and now represents three-quarters of group volume, offsetting weaker customer activity in Australia.

3. CSL (ASX:CSL): +17.3%

CSL’s result was hardly spectacular in isolation, but it cleared a market bar that had fallen dramatically following earlier downgrades and restructuring announcements. Underlying NPATA was US$3.1 billion, down 2% in constant-currency terms, while operating cash flow reached US$3.51 billion.

CSL maintained its full-year dividend at US$2.92 per share and completed a A$1 billion buyback. The real catalyst was FY27 guidance for approximately 5% underlying profit growth, compared with market expectations closer to 2%. After an extended period of earnings disappointments, investors interpreted the outlook as evidence that CSL’s core plasma business was approaching a sustainable recovery.

4. Judo Capital (ASX:JDO): +16.9%

Judo Capital demonstrated strong operating leverage as its specialist business-lending franchise expanded. Full-year profit before tax rose 34% to $168.1 million, while pre-provision profit increased 42%. Gross loans and advances grew 18% to $14.7 billion, reaching the top of the bank’s guidance range and comfortably exceeding broader system growth.

Deposits increased 24% to $12.2 billion, return on equity improved by 1.1 percentage points to 6.4%, and earnings per share rose 29% to 9.9 cents. Reaffirmation of the FY27 outlook gave investors confidence that loan growth could continue without sacrificing margins or credit quality.

5. Super Retail Group (ASX:SUL): +15.8%

The owner of Supercheap Auto, rebel, BCF and Macpac reported record sales of $4.2 billion, up 3.2%, despite cautious discretionary spending. Profitability went backwards: normalised profit before tax fell 7% to $306 million and normalised NPAT declined 2.8% to $226 million as transformation spending weighed on margins. Nevertheless, the result exceeded subdued expectations, online sales grew 5.3% and membership across the group’s loyalty programs reached 13.1 million. Investors were also encouraged by positive early FY27 trading, stable gross margins and continued market-share gains. A fully franked 33-cent final dividend added to the appeal.

The five losers

1. Hansen Technologies (ASX:HSN): –21.2%

Hansen’s historic result met expectations, but investors recoiled from its outlook. The utility and communications software provider achieved an underlying EBITDA margin of 31%, exceeding its 30% target, while generating strong cash flow. However, management designated FY27 an “investment and transition year”, signalling a roughly five-percentage-point margin contraction as spending on products, sales capabilities and organisational changes increased.

Revenue had already been broadly flat, leaving investors concerned that the investment program would depress earnings before new growth appeared. Leadership changes, including the chief executive’s departure, added uncertainty. Management expects revenue growth and margins above 30% to return in FY28, but the market was unwilling to wait.

2. Life360 (ASX:360): –19.4%

Life360’s headline growth was impressive: quarterly revenue rose 38% to US$159 million, subscription revenue increased 31%, and adjusted EBITDA climbed 53% to US$31.1 million. Monthly active users reached 102.4 million and paying circles grew 27% to 3.2 million. The sell-off reflected expectations rather than a collapsing business.

Net income fell 18%, the net margin contracted from 6% to 3%, hardware shipments dropped 18%, and full-year EBITDA guidance was merely maintained. After a strong valuation run, investors wanted a larger upgrade and clearer evidence that heavy investment in advertising, international expansion and artificial intelligence would generate additional earnings.

3. PEXA Group (ASX:PXA): –17.0%

PEXA reported a 7% increase in continuing-operations revenue and 12% EBITDA growth to $152 million, accompanied by a two-percentage-point margin expansion. Free cash flow increased 39%, suggesting the core Australian electronic-conveyancing platform remained highly profitable. Investors instead concentrated on management’s warning that property-transfer volumes could decline, alongside regulatory uncertainty surrounding the fees PEXA can charge.

The company is also continuing to invest heavily in its loss-making international expansion. Morningstar considered the market reaction excessive, arguing that structural transfer-volume assumptions had not materially changed, but the combination of softer near-term activity and regulatory risk overwhelmed the respectable headline numbers.

4. SEEK (ASX:SEK): –14.3%

SEEK produced solid FY26 figures, including 10% revenue growth to $1.20 billion, a 15% rise in EBITDA and 28% growth in adjusted earnings per share. It also lifted its fully franked annual dividend by 13% to a record 52 cents. Those achievements were overshadowed by falling paid job-ad volumes and cautious FY27 assumptions.

The statutory accounts included a $201 million loss from the SEEK Growth Fund and $377 million of significant items, making the headline result considerably less attractive. Investors were particularly concerned that economic weakness could limit volumes while the company continued investing in platform integration and artificial-intelligence products.

5. JB Hi-Fi (ASX:JBH): –12.3%

JB Hi-Fi’s full-year result was broadly respectable, with group sales rising 5% to $11.1 billion and underlying earnings per share increasing 6% to $4.48. The damage came from its current-trading update. Australian sales were almost flat during the June quarter and deteriorated further in July, while earnings in the core Australian electronics business fell 3.6%.

Housing-related categories were particularly weak as higher living costs and interest rates constrained household budgets. With JB Hi-Fi entering the season on a demanding valuation, an in-line historic result was not sufficient: the loss of sales momentum prompted investors to rapidly reduce their expectations for FY27.

Overall, the season showed that share prices react less to whether profits rose or fell than to the gap between results and expectations. Bapcor was rewarded for being less troubled than feared, while several fundamentally profitable companies were punished because their outlooks failed to justify elevated valuations.