money burning

Growing up, my mother would constantly remind me: “A stitch in time, saves 9”. This was good advice. Putting something off will only make it more difficult and costly later. Unfortunately, we haven’t heeded this advice in our energy sector.

Climate change was being discussed are early as the 1950’s and Carl Sagan told congress in 1985 that it was the biggest issue facing humanity. We have had at minimum 38 years get something done (at least maybe a realistic and feasible plan), but no. Not only did we kick the can down the road, our carbon emissions continued to go up since then, making the task harder and more expensive.

Due to our procrastination, we have added significant costs (yes this energy transition is going to be very expensive). I break them into 4 categories.

  1. Decarbonization of the energy sector. (this is the original goal; we just have much less time)
  2. Adaptation. Since we decided to do nothing and run the climate change experiment, we will now need to spend trillions on mitigation (sea walls, population relocation, climate immigration) and extreme weather damage recovery. These costs are in addition to the costs to decarbonize the energy sector and had we acted sooner could have been avoided.
  3. Risk management costs. Our decarbonization efforts will need to accelerate and that is the danger. As my mother also said: “haste makes waste”. This energy transition is already increasing outages and reducing power quality causing a significant increase in plant production problems. To deal with this deteriorating situation, businesses are forced to invest in additional equipment such as backup generators, power quality management systems and new operating procedures.
  4. Reduced economic growth. All of this will be expensive, and businesses will need to invest more capital in business continuity projects and insurance. This will reduce the amount of investment available for economic growth. In addition, the increase in demand for capital to fund these “basically non-economic value creating activities”, will increase the cost of capital, interest rates and inflation.

Wish I had a happy ending to this story. Unfortunately, we made the decision to procrastinate and run the experiment and now the bill is due. Good luck.