Wall of money & jevons paradox

Wall of Money and Jevons Paradox

Renewable capacity is growing fast, and renewable energy projects enjoy a wall of money to finance them. Indeed, many say that renewable is now cheaper than new capacity fossil fuel.

The funding of the Global Transition to Net Zero seems assured then. All is well with the world.

But a problem remains. Renewables must displace current fossil fuels in full and provide power for growing use over the next 30 years and onward. Energy use globally grows some 2.3% p.a., and so by 2050 use might nearly double.

Furthermore, consumption may well increase significantly more than that. Aside from the then three billion global middle class, the Jevons Paradox might apply strongly. Demand expands as price falls, and in a geometric manner when demand is elastic. And so linear extrapolation of energy demand might be proved too small by far.

Alarmingly, two more things say that investment in renewables will be too slow for our 2050 Climate needs.

Firstly, investment follows viable projects, which in turn follow demand. Both follow the price signal once seen, but big-time lags at each stage hinder the pace of transition funding.

Second, energy investors in new and existing fossil fuel investment and operation are swayed by ownership sunk cost, or easy or low-cost access. A fossil fuel asset in use now might have a remaining life of decades.

Investment in renewable infrastructure is not short term. The moves within the global economy in the next three decades are strongly, not business as usual. Major change is not likely; it is inevitable.

UNFCCC (United Nations Framework Convention on Climate Change) estimate $125 Trill. of investment is needed by 2050 to fund the Transition, which is some $4.3 Trill. each year (estimates vary, all are huge). For context, the Global 2021 actual investment was less than one-fifth of that annual requirement.

Plainly, a fresh look at dynamic investment models and the multi decade probability assumption drivers is much needed.

Risk and return as they say. There is no free lunch. But it is the judgement overlying these critical long-term assumptions that will separate investment winners from losers, and rather soon too.

https://en.wikipedia.org/wiki/William_Stanley_Jevons

https://ourworldindata.org/cheap-renewables-growth

https://unfccc.int/

Robert Head

Lead Consultant

Robert works with organisations of all types as a reward consultant or interim reward professional providing reward solutions, interim management and consultancy.

Robert is experienced in working across multiple sectors (including public listed, private equity, commercial, financial, non-profit, and charity).

Robert has deep subject matter reward experience in corporate governance, executive reward, remuneration committees, reward strategy, reward policy, annual bonus, long-term incentives, transformation and change, corporate actions, mergers and acquisitions, and restructuring.

Robert is experienced in stakeholder management working closely with Chairs and executive directors including CEOs and CFOs, non-executive director members of remuneration committees, members of executive committees including business unit CEOs/Presidents, senior HR business partners and other line executives, senior management in other organisations, outside specialists and advisers, and investors.

Robert Head Corpgro

Jane Allen

Lead Consultant

Jane has over 30 years of Reward experience within listed multinational organisations and consultancy environments.

Her expertise covers Total Reward (strategy and programmes), benefits & wellness, pensions, executive compensation, Remuneration Committee support, annual and long-term incentives, VCPs (value creation plans), M&As and restructuring.

Jane has successfully established reward teams and best practices for all key reward processes, leading on complex local and international issues across UK and US listed, family owned, and PE backed ownership structures.

She has a keen interest in ESG and how this can be reflected within Executive Pay to align with the long-term sustainability of businesses. 

Jane is a Fellow of the Pensions Management Institute and a Chartered Insurer. She is an independent Trustee for The Economist Pension Plan.

Damian Carnelll

founder director

CORPGRO is a reward consultancy specialising in executive incentives particularly those connected with growth; and ESG.

Damian has extensive experience advising leading companies on all aspects of executive compensation and equity plans. He was previously with Willis Towers Watson, Aon, and Ernst and Young. 

Damian’s extensive experience in executive compensation and equity plans means he is fully familiar with Corporate Governance norms, institutional shareholder views and proxy voting both advisory and binding.

Damian Carnell Corpgro