Some Economics of ‘Dangerous’ Climate Change: Reflections on the Stern Review
- Simon Dietz, Nicola Patmore, +4 authors Dimitri Zenghelis
The reality bites for ‘green energy’ when the economic assessment shows it as not a viable investment. Economic assessment for projects normally uses Return on Investment (ROI), Payback Period (PBP), Life Cycle Assessment (LCA), Life Cycle Cost (LCC) and Cost Benefit Analysis (CBA). Several studies have argued against these tools; but they are common due to lack of alternatives. To demonstrate the detrimental effect of these tools, they are applied in two simulation cases known as Passive Architecture (PA) case and non PA case that intend to use photovoltaic (PV) as a power source for mechanical cooling in the living/dining area. In all situations, ROI, PBP and LCC portrayed PV as unfavorable investment mainly due to its high capital cost that dwarfs the likely financial gain of not having to pay electricity bills. The study found LCA and CBA as inappropriate for the purpose because their considerations exceed the boundary of house owner’s concern. These methods miss to capture investment in PV as a process from the status quo, i.e., using mains electricity from the grid. They do not account for the marginal benefits of associated actions such as using Energy Efficient equipment or making a house to be climatic responsive as shown in the PA case. Indifferent use of these gauges had resulted for economic misrepresentation of PV and consequently hinder public acceptance of such ‘green energy’.