The trillion dollar paradox | George Zaidan

0:00The older I get, the more comfortable I am with making upfront investments. When I was younger, this was much more painful. I knew the long-term benefits of an initial big spend would pay off, but my immediate reaction was always, heck no, it can't be worth it. I'm not necessarily talking about the stock market either. I'm talking about making big commitments upfront for the sake of a better, easier future experience. Take, for instance, the dentist. Yes, I'll admit, an unpleasant dental procedure coupled with the sticker shock is not motivating. But in the long run, it makes sense to get a filling or replace the leaky old ones rather than wait till the tooth situation becomes a way bigger and way more expensive problem.

0:46If my immediate concern is spending money, well, money is coming out of my pocket either way. It's just that in one of those scenarios, the cost might be much steeper in the future and it won't just be my wallet that gets hit. I'm Madhupak Inola. This is TED Business, a podcast from TED. Today, we're learning all about the trillion-dollar paradox. It's something we've talked about before on this show, the upfront cost required to transition the world to clean energy and the new infrastructure and hardware required to divest from fossil fuels. Sure, it seems really expensive, but actually, as this TED-Ed lesson explains, the price of inaction is much worse.

1:28Then after the lesson, we'll talk about how we get people on board. But first, a quick break.

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4:14That would cost years worth of water trucking fees. But once built, you and all future generations would have unlimited water for only the minor cost of maintaining the well. So, what's the best way forward? Continue trucking in water or build the well? Is the trillion dollar price tag that comes with transitioning the world to clean energy worth the cost of investment? Like the trucked-in water, fossil fuels aren't free. There are the costs of the actual fuels, which, adjusted for inflation, haven't changed much for 140 years. And then there are the costs of maintaining and updating our extensive fossil fuel infrastructure.

4:59On the other hand, the wind, water, and sunlight needed to power renewables are all free and in unlimited supply, just like the village's newly discovered water table. There's just the upfront cost of building infrastructure to harness them. To fully transition to a green economy, we'd also need to invest in electrifying entire industries, building new renewable energy plants, deploying large-scale energy storage, and more. Back in the early 2000s, most economic models predicted those costs to be completely impractical and prohibitively expensive. For example, one model estimated that solar power would be about$157 per megawatt hour in the 2020s, which is far more expensive than coal was projected to cost.

5:53But a slow revolution has been happening over the past two decades. In the early 2000s, some countries like Germany and China and some tech companies decided to invest huge sums of money in solar infrastructure. This led to more research and development, which brought the costs down far below what even the most optimistic model had predicted. Today, solar is 84 % cheaper than that early model projected it would be, making it cheaper than power from coal in much of the world. This change is so dramatic that some economists now think switching to renewable energy quickly could save trillions of dollars in the next three decades.

6:38despite the upfront cost. And of course, there's another important cost to consider. Global warming is very, very expensive. Extreme weather, rising sea levels, crop failures, health issues, and industry disruptions all cost money. Coming back to our village example, it would be as if the more water you truck in, the more that traffic degrades the road. Ruts get deeper, sides erode, maybe part of it falls away in a landslide, eventually the road would become unusable. Economists have also tried to predict how expensive future warming will be. The widely cited DICE model posits that the cost of climate change-induced damage rises approximately as a function of global average temperatures squared.

7:32So, if temperatures rise by 2 degrees, costs rise by roughly a factor of four. In other words, these models assume that costs will rise smoothly and continuously. But many economists today argue that assumption is wrong because it ignores catastrophic events like the collapse of the Amazon, melting of polar and Greenland ice, and widespread crop failures, just to name a few. Any of these would cause huge, sharp spikes in costs. In fact, the U.S. government keeps track of climate disasters that incur more than a billion dollars in damages, and since 1980, they've already recorded 400 of these events.

8:19The total bill is estimated to be an eye-watering$2.8 trillion, just in the U.S. For decades, the argument in favor of transitioning to a green economy was, let's take the financial hit now. It's hard, but it'll protect the world for future generations. But that argument relied on economic modeling that underestimated the costs of a warming world and overestimated the costs of transitioning. We now know the economic outlook is different. Making the investment to transition not only protects the world for future generations, it also saves us money in our own lifetime. It's just the most logical thing to do.

9:16That was a TED-Ed lesson by George Z. Aydin. Beyond the moral imperative to protect the world's most vulnerable from the ravages of the climate crisis, it's becoming increasingly clear that we can't afford to do nothing. Just look at the news. You'll see how extreme weather events are already so costly for families, corporations, and governments. And projections show costs are only going to go up. So why is it so hard to gather the resources needed to make big investments? Why is it so hard to dislodge old narratives from lobbyists and politicians that have a vested interest in keeping things the way they are or denying that there's a structural problem in the first place?

10:02Why is it so hard to act and do the hard work now in order to avoid a worse future for all of us? I think this is where stories come in. These numbers are huge, yes, and scary sounding, but the more we share about the people we know, or the places we've been that are related to the climate crisis, touched by fire or flood or extreme heat, the more real it becomes and the harder it gets to ignore. It's up to us to come up with new narratives and new compelling ways of distilling this information to match the urgency of the moment. At least, that's how I got myself to finally go to the dentist. That's it for today.

10:42TED Business is part of the TED Audio Collective. This episode was produced by Hannah Kingsley-Ma, edited by Alejandra Salazar, and fact-checked by Julia Dickerson. Special thanks to Maria Ladias, Farrah Degrunge, Daniela Balarezo, Tansika Sangmanibang, and Roxanne Heilash. I'm Madupa Akinola. Thanks for listening. Thank you. Schwab. Hosted by Katie Milkman, an award-winning behavioral scientist and author of best-selling book, How to Change, Choiceology is a show about the psychology and economics behind our decisions. Hear true stories from Nobel laureates, authors, athletes, and everyday people about why we do the things we do.

11:54Listen to Choiceology at schwab.com slash podcast or wherever you listen.