Capital Cycles and the Timing of Climate Change Policy
One key source of greenhouse gas emissions is the capital equipment that supports the world’s economic activity. Capital stock — such as power plants, factories, and transportation infrastructure — is expensive and can last for decades. Such capital also presents important and conflicting constraints on policy-makers who are attempting to reduce a society’s GHG emissions. On the one hand, attempts to reduce emissions too quickly may create a drag on the economy if they force the premature retirement of capital. On the other hand, delaying reductions may raise the cost of future actions because the facilities built today can still be polluting decades from now.
This report aims to help policy-makers better understand the patterns of capital investment. Pew commissioned Robert Lempert, Steven Popper, and Susan Resetar of RAND, and Stuart Hart of the Kenan-Flagler Business School at UNC-Chapel Hill, to analyze the literature and interview top decision-makers in leading U.S. firms.