Payback Analysis: An Impediment to Sustainability

Thursday, October 19, 2006

From the most recent edition of Petroleum and Natural Gas Watch by Michael Vickerman:

To a traditional economist, one who boils life’s complexities down to income, outflows and the time value of money, our decision to install a solar domestic hot water system doesn’t make a whole lot of sense, principally because the return is tiny relative to the large up-front outlay.

But in reducing this transaction to simple, measurable flows of dollars in and dollars out, economists filter out a great deal of relevant information that might confound their notions of rational economic decision-making. Though economists will concede that there are other valid factors besides pure price considerations on which to base one’s purchasing or investment decisions, they aren’t likely to register meaningfully in the economic models they use. Instead, these factors are categorized—and marginalized—as “externalities”—a semantic purgatory designed to prevent these considerations from crimping corporate America’s style.

Read the full commentary at RENEW's News & Views.