The investment decisions of companies are based on pay-back calculations. They make some of all the possible investments that show positive pay-back. This is not because managers are not concerned about the environment or about the future of the planet. It is because their remit is to make decisions that turn out to be profitable for their company and employer. Companies may give small sums for good purposes in society, but their big investments need to turn a profit. Each company also needs to make better and more profitable investments than its competitors, in order to survive over the long term. These basics are given by the market and by the law.
Global warming is a very pressing issue, but a more stable climate is what economists call a “public good”, which everybody in society could enjoy. It is very difficult for any particular company or nation (for that matter) to calculate the future pay-back of investments in the reduction of CO2 emissions. Emission rights try to change this, but will do so only to a small degree. It is impossible to calculate the pay-back time of most of the necessary investments in CO2 reduction.
The peak in global oil production, which an increasing number of experts now hold to be imminent, provides a much clearer basis for calculation of the cost to companies and nations, but still the pay-back time for an investment is impossible to calculate, because each company is dependent on the investments of other companies. If only a few companies make large scale investments, they only reduce our oil consumption a little and their competitors may benefit from this, without paying. What is clearly calculable is the possibility for companies to reduce the cost of transportation, energy and fuel in the future, by using less energy intensive technology.
While this is an important improvement, it still only covers a fraction of the cost to society of a reduced oil supply. The most important cost is related to the need to maintain economic growth and the other imperatives and consequences that follow from this. We need to break the relationship between global economic growth and oil supply and reduce our dependence on oil for transportation. Still, when we have economic growth, given our present system, we also have the best opportunity to finance investments in new technology and changes to our energy systems.
In order to do this we need projects with the explicit aims to achieve a reduced dependence on oil in the first place, knowing that companies will have the incentive to finance only a fraction of the necessary investments. We need to analyse and make strategies. We need plans and managed change. We will need large scale public investements in technology development and implementation.