Inertia in Infrastructure Development : Some Analytical Aspects, and Reasons for Inefficient Infrastructure Choices
This paper uses some simple conceptual models to draw out various implications of infrastructure investments with long lifetimes for the ability of societies to reduce their future greenhouse gas emissions. A broad range of such investments, related both to energy supply and demand systems, may commit societies to high and persistent levels of greenhouse gas emissions over time, that are difficult and costly to change once the investments have been sunk. There are, the author argues, several strong reasons to expect the greenhouse gas emissions embedded in such investments to be excessive. One is that infrastructure investment decisions tend to be made on the basis of (current and expected future) emissions prices that do not fully reflect the social costs of greenhouse gas emissions resulting from the investments. A second, related, set of reasons are excessive discounting of future project costs and benefits including future climate damages, and a too-short planning horizon for infrastructure investors. These issues are illustrated for two alternative cases of climate damages, namely with the possibility of a "climate catastrophe," and with a sustained increase in the marginal global damage cost of greenhouse gas emissions.
| Summary: | This paper uses some simple conceptual
models to draw out various implications of infrastructure
investments with long lifetimes for the ability of societies
to reduce their future greenhouse gas emissions. A broad
range of such investments, related both to energy supply and
demand systems, may commit societies to high and persistent
levels of greenhouse gas emissions over time, that are
difficult and costly to change once the investments have
been sunk. There are, the author argues, several strong
reasons to expect the greenhouse gas emissions embedded in
such investments to be excessive. One is that infrastructure
investment decisions tend to be made on the basis of
(current and expected future) emissions prices that do not
fully reflect the social costs of greenhouse gas emissions
resulting from the investments. A second, related, set of
reasons are excessive discounting of future project costs
and benefits including future climate damages, and a
too-short planning horizon for infrastructure investors.
These issues are illustrated for two alternative cases of
climate damages, namely with the possibility of a
"climate catastrophe," and with a sustained
increase in the marginal global damage cost of greenhouse
gas emissions. |
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