Clean power and clean water are, as the International Energy Agency points out, interdependent and it may be worth considering why, and what other dependencies are involved.
Such dependencies are defined in economics as externalities – “an indirect cost or benefit to an uninvolved third party that arises as an effect of another party’s (or parties’) activity”. They have been illustrated as examples of market failure, where a market transaction fails to reflect the true costs and benefits involved. But it’s probably more a question of market inefficiency, where the real global costs and impacts of a transaction are not reflected in the fair price of an asset.
With sustainability-focused activities too it’s a matter of balancing the various externalities. For instance, a recent report by the Net-Zero Asset Owner Alliance notes the potential impact of carbon capture solutions on water and the environment. These are chiefly biomass solutions where carbon dioxide is captured through the production of biofuels, which can drain water for growing biomass crops and pollute the local ecosystem through the use of fertilisers. Likewise, the production of green hydrogen requires significant water resources.
These are just a few of the trade-offs that can be involved in any such calculation, which is the point of the whole exercise. Believers in the Hidden Hand, private vices/public virtues, and other moralistic philosophies, which profess that virtues can somehow be enacted through market mechanisms, can comfort themselves by reflecting that all they need to do is broaden their focus. Sadly, the human capacity to close one’s eyes to the real costs of what they’re doing is a perennial of history.
For those not stuck in culture war bunkers, this looks, coldly and objectively, like a financial and business opportunity they can’t afford to miss. After all, Fatih Birol, executive director of the IEA, has described the growth in the green economy as “staggering”, so why not embrace the opportunity and ride the growth?
All the market-based calculations surrounding the green opportunity versus uninsurable, unbankable legacy carbon economy exposure are looking very persuasive. And the realities of climate change are dismal enough to satisfy any aficionado of Malthusian catastrophes.
