Environmental Engineering Reference
In-Depth Information
first be answered. However, it is difficult to define the longest period of time
that is applicable for compound interest calculations. For instance, at an
interest rate of 8 per cent, the invested capital increases tenfold within 30
years. In 100 years the invested capital has increased 2200 times. These periods
are already relevant for investments in the energy sector.
With increasing periods of time and increasing interest rates, the
probability of losing part of the capital, or even the whole capital, increases
significantly. In the past, wars, currency reforms and environmental
catastrophes have caused the total loss of available capital. In the long term,
these events are actually necessary to keep our economic system running,
otherwise the compound interest would bring infinite consumption in which
case, the interest rate would become zero. Nowadays many people have
difficulty in accepting that large-scale capital losses could also happen to them
since the past 50 years have been relatively stable. In the first half of the 20th
century, however, events such as the two world wars and the Great Depression
destroyed huge amounts of capital. In the near future, natural disasters will be
more and more responsible for capital losses (see section on costs for
environmental and health damages, p251).
Sometimes, an investment even causes the events that destroy the
investment. An example is a war loan in the case where the war is lost. At the
end, multiples of the invested capital are lost. The same could happen in the
energy sector. An investment in a nuclear power plant can not only cause the
loss of the invested capital but also the loss of much greater assets if a
maximum credible accident occurs. Investments in fossil energies support the
greenhouse effect; the consequences of the greenhouse effect such as huge
storms or floods will also cause high losses of capital. However, these events
will not usually destroy the fossil energy installations that have been financed
with the investment.
Increasingly, arguments are put forward that high capital growth should
be sacrificed for the protection of existing capital. Investments in technologies
that avoid the negative effects of other technologies can help in securing
capital. Investment in renewable energy systems should also be seen from this
point of view.
Responsibility of capital
It is nearly impossible for an investor to realize all the possible consequences of
an investment. However, the higher the rates of return the higher the risks; this
is a well-known rule. The risk for investments in the energy sector does not
only include the invested capital but also much greater assets as well. Certainly,
not all investments that receive a return on capital will eventually cause losses
in capital, but all investments do have responsibilities, especially in the energy
sector. Article 14 of the constitution of Germany expresses this appropriately:
'Property imposes duties. Its use should also serve the public
weal.'
(Tschentscher, 2003)
