10 Comments

But it is a sunk cost by 2030. The resources will have been consumed and the facilities built. It is up to us as a society to say that we value reduced emissions, which the sunk cost facilitates. The cost to build the existing coal power stations is also sunk, but that cost is feeding emissions. As we don't price the climate into our power bills, we have to make a 'judgment' to build the infrastructure that will deliver the future we want. Once built, future generations will benefit from the fact that we devoted resources to the new infrastructure, rather than something else.

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So can we claim some SMR builds as a sunk cost then (say the first 3 out of 5)?

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SMR = Small Modular Reactor? Obviously, once the money is spent and resources deployed, it is a 'sunk cost'. It cannot be recovered. The only question then is it better to scrap it or to use it.

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They are not sunk costs now though. Imagine the furore if CSIRO did this with SMRs. The public deserve to know the full transparent cost, not just the 'cost of the new entrants'.

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You posited 'some SMR builds'. I took it that you were saying they had already been built. Obviously, before committing to spend, we need to weigh up the alternatives. That process will require 'value judgements' and 'forecasting' (in terms of external conditions and technology, as well as cost and alternatives. A very imprecise process.

My original reply posited a situation where we've made the decisions so that by 2030 the money had already been spent. At that point the money is a sunk cost.

I take the view that where the probabilities are small but the consequences dire/existential (not just for humanity), and long lasting, we should err on the side of minimizing the risk, even at some considerable cost. Though 'cost' is really the wrong word. Cost in this context is spending money on a wide range of initiatives all aimed at reducing the risk. That money when spent creates new jobs and new infrastructure. And then goes on circulating.

There is a 'cost' to the industries and employees that lose funding and jobs as a result, but that is a 'short term' dislocation (maybe two or three decades) that has happened countless times in the past, as old industries die and new ones emerge.

We should see that money is provided to support their transition... so we collectively bear the cost, not just those who have until now provided a much needed 'public good' in the form of fossil fuel.

A Universal Basic Income set to keep the labour market in dynamic balance could go a long way to smoothing the transition

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I struggle with the notion of sunk costs.

Our grid that tax payers financed was sold to privateers. They borrowed to fund that purchase. That funding incurs an ongoing finance cost that we pay on our electricity bills as a network charge. Money leaves my wallet - how is this a sunk cost?

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You can't reach the conclusion that renewables plus supporting transmission is more expensive, not less, without an appropriate counterfactual. AEMO's projections include a very large increase in electricity use that has to be supplied by new sources of generation, with supporting network costs. There isn't a credible alternative future scenario that doesn't include higher network costs. The simplifying assumption, then, is that those new network costs are sunk.

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Bygones are indeed bygones.

I wish the price regulators adopted the sunk cost approach to pricing water and electricity for monopoly privatised and corporatised utilities! Economic rationality is an irregular verb. Meanwhile Sydney and ACT households are charged again and again for dams they have long since paid for - as part of their "efficient" regulated water prices! - likewise with electricity etc.

Just as well we don't have Roman roads to charge tolls for!

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I am thinking OMG!!!

We may not create massive climate costs and risks that will probably destroy all of civilisation!!!

We may avoid air pollution that kills hundreds of people, how awful!!

We should not be arguing about any of these distractions, and just getting on with removing all reliance on fossil fuels.

No new investments in fossil fuels should be the principal.

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And you call yourself an economist. The earliest a NPP could be online in Australia is 2045, what are we going to do between now and then, spend capital and operating costs one way or another to keep the lights on. After it is spent it is a sunk cost and you can't get it back

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