Say it ain’t so! Dodgy numbers in climate change calculations
The IEA has a little report out about the calculations being made concerning climate change. A useful conclusion would be that more than some are being a little economical with the actualite here. For example:
….alongside borrowing costs well below market rates. …..rising financing costs….voters must be told the true scale of the costs and trade-offs involved
Obviously, those true costs must be revealed. Democracy cannot happen when all are subject to misdirection after all. The potential misdirection is in such things as those borrowing costs, the cost of capital, discount rates and all that: it’s terribly easy to - if you should want to - mislead by fiddling with these.
But what are we to do here? One thought comes to mind. So, as the Sec of State, Ed Miliband, recently announced to Parliament the funding for nuclear has been agreed:
As noted, the project’s capital structure will be backed by the RAB funding model; this is a tried and tested approach to funding large-scale infrastructure, and the first time this approach will be used for a UK nuclear project.
RAB is regulated asset base and the method behind that is here are the discount rates used, here are the costs of capital, here’s the interest rate likely and all that. So, we’ve got a set of such numbers already in use, contractually set, to get the nuclear programme working. Sadly, those are not - as far as we know at least - public knowledge. But those numbers exist, they are being used.
So, all we need to do is make those numbers public then make sure that all the numbers used in the calculation of renewables costs agree with those for nuclear. All are attempts to describe the same future after all, those background numbers should be the same.
The other way of putting this. We now know - because the numbers have been set - what we’ve got to pay people to invest in the energy system. Thus we should be using those same numbers to measure how much we’ve got to pay to get people to invest in the energy system. Thus all of the CCC, NESO and so on calculations should be using those costs of capital, expected returns, interest and discount rates.
We agree this is only a thought. But why not?
Tim Worstall