Irish Times Column, March 7th, 2024

Oscar Wilde famously quipped that a cynic is someone who knows the price of everything and the value of nothing. The observation is particularly relevant in today’s discussions on climate change, which typically focus on immediate costs and disruption, rather than the long-term benefits of taking action.

Cutting greenhouse gas emissions is certainly worth it in the long run – after all, the payoff is a planet with a habitable climate. However, because this benefit is global and is mainly for future generations and for people already facing climate threates, who mainly live in developing countries, this argument does not wield as much influence as it should in convincing countries, businesses or individuals to act.

Viewed through a lens of the upfront cost alone, transforming the world’s energy system, from fossil fuels to renewable energy and electricity, is clearly not going to be cheap. The cost of building large-scale infrastructure, such as offshore wind farms or a new metro lines, can run into billions of euros. The price of new electric vehicles is beyond the budget of many drivers, and the cost of a deep home energy retrofit is prohibitive for most households.

Yet, multiple studies have shown that the net cost of ambitious emissions reductions is low and manageable, even without considering the huge benefits from avoiding climate damage.

For example, the European Commission’s recent recommendation for a 90 per cent cut in greenhouse gas emissions by 2040 is supported by a detailed impact assessment, which concluded that the increased costs from a more ambitious target would be balanced by long-term savings, and reeduced climate damages.

Echoing this, a study from the London School of Economics’ Grantham Institute shows that strong climate action not only avoids huge economic losses from climate change, but the benefits from cutting emissions exceed the costs. In the UK, the net benefit is projected to be about 4 per cent of GDP.

Renewables, electric technologies and energy saving measures will largely cover their own costs over their lifetimes: this transformed energy system will eventually eliminate the need for fossil fuels. And fossil fuel dependence is staggeringly costly. According to the International Energy Agency, the oil and gas industry earned a 4 trillion dollars in 2022 from selling fossil fuels, in a year when fossil fuel subsidies reached 7 trillion dollars, or 7 per cent of global GDP.

The financial challenge in transitioning to a sustainable energy system lies not in the costs per se, but in securing the necessary finance, establishing policy frameworks that support long-term planning, and fairly rebalancing taxes and subsidies to support sustainable, rather than fossil energy.

Unfortunately, this shift is hindered by various cognitive biases, including a widespread “status quo bias”. This reflects a tendency of individuals and societies to prefer things to stay the same and to underestimate the costs of the status quo. According to Professor Pete Lunn of the ESRI, behavioural science has demonstrated that people are instinctively resistant to change, even when it is ultimately a change for the better.

This resistance is partly due to hyperbolic discounting, where people prioritise immediate, smaller savings over larger benefits in the future. When considering whether to invest in solar panels, for example, people typically focus on the immediate financial outlay rather than the reduction in electricity bills decades into the future.

The energy transition is filled with decisions that require upfront investment for future gain. These decisions are easier for people who can take on debt and are not already financially strained: Someone struggling to pay bills right now is unlikely to want to take on debt to invest in energy saving measures, even if those measures lead to lower bills in the future. Access to low-cost finance is closely related.

At the national level, governments have hesitated to take on more debt to fund large infrastructure projects. Reiterating the many studies that find net benefits from strong climate policies, a recent report commissioned by the French Prime Minister also found that it would be counterproductive to delay action to limit public debt.

Dealing with the legacy of MetroLink is a case in point. A previous incarnation of the project was dropped in 2011 because of austerity measures, a decision that is now sorely regretted as costs have soared and Dublin remains in gridlock.

Households, too, would have been better shielded from the recent energy crisis had there been earlier investments in energy efficiency and renewables.

These examples should impart important lessons for the State and households alike: Delaying investments in sustainable energy will prolong the fossil fuel status quo, driving climate change and exacerbating economic vulnerabilities. To avoid this eventuality, we must focus on the value, rather than the cost, of change, because the cost of doing nothing is astronomical.