Technological pathways for reducing emissions: uncertainty and options costs for the teacher’s pets, Working model, Preliminary draft, 21 June 2021

Scientists tell us we need to reduce emissions as fast as possible but there is considerable uncertainty about the technologies necessary to do this in the electricity sector and their economic costs. Here is the problem.  In Australia there seems to be a determination to do this using solar and wind. These are the proverbial  ‘teachers pets’.  If we do this we will be unique amongst industrial countries because we do not have grid scale back up. We would be making a ‘bet’ with the economy. Is this a good  idea?

Nobody knows.

What we do know is that we can’t answer the question using the type of short term accounting costs that are commonly applied. We know that all economic costs and externalities need to be considered.  Had we used short-term accounting figures for solar, for example, it would never have  been built. We also know that as we develop an electricity system along one pathway we make it more costly to switch to another if things turns out bad.  

In this preliminary briefing paper we consider the effects of uncertainty on the relative economic costs of different pathways.  For the simple model studied the ‘bet’ is a bad idea under most plausible conditions. If this is correct then we should reconsider the strategy and apply a more diversified approach.