Inertia in Infrastructure Development

Abstract

This article uses some simple conceptual models to derive implications of infrastructure investments with long lifetimes for future greenhouse gas (GHG) emissions. Such investments, related both to energy supply and demand, may commit societies to high and persistent levels of GHG emissions that are costly to change later on. I identify several strong reasons to expect that the implied GHG emissions are excessive. First, 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 GHG emissions resulting from the investments. The second is excessive discounting and too short planning horizon for investors. These issues are illustrated for two alternative cases of climate damages, namely, the possibility of a ‘climate catastrophe’ and a sustained increase in global damage cost of GHG emissions.