Press Release: New Report Examines Patterns of Capital Equipment Investment and Retirement

For Immediate Release:  
November 18, 2002

Contact: Katie Mandes, 703-516-4146

New Report Examines Patterns of Capital Equipment Investment and Retirement

Washington, DC - Patterns of capital investment by businesses can have a major impact on the success and cost-effectiveness of climate change policies, according to a new report from the Pew Center on Global Climate Change. Capital equipment, such as electricity generation plants, factories, and transportation infrastructure, is a major source of greenhouse gas emissions. "Due to the high cost of new capital, firms often are reluctant to retire old, less efficient facilities and equipment," explained Eileen Claussen, President of the Pew Center on Global Climate Change. "Replacing existing capital stock with more efficient technologies will take time, but that process can be encouraged by certain policies."

Capital Cycles and the Timing of Climate Change Policy examines patterns of capital investment and retirement, or "capital cycles," and discusses implications for climate change policy. Report authors Robert Lempert, Steven Popper, and Susan Resetar of RAND, with Stuart Hart of the Kenan-Flagler Business School at UNC-Chapel Hill, combined analysis of the literature on investment patterns with in-depth interviews of top decision-makers in leading U.S. firms. Their work provides insights into the differing patterns of capital investment across firms and sectors.

The authors found that capital has no fixed cycle. Firms often invest in new capital to capture new markets. In the absence of policy or market incentives, expected equipment lifetimes and the availability of more efficient technologies are not significant drivers of capital stock decisions.

The report suggests certain policies that can stimulate more rapid turnover of existing capital stock. These include: (1) Putting in place early and consistent incentives that would assist in the retirement of old, inefficient capital stock; (2) Making certain that policies do not discourage capital retirement; and (3) Pursuing policies that shape long-term patterns of capital investment.

"It is crucial for policy-makers to understand the market factors and policies that drive capital investment patterns, and to start designing climate change policies accordingly," said Claussen.

A complete copy of this report -- and previous Pew Center reports -- is available on the Pew Center's web site, www.c2es.org.

###



The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States' largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, nonprofit, and non-partisan organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.