Analysis of Investment Trade-Offs and the Cost of Policy Inaction in the Green Energy Transition

Abstract

Background. The intensification of climate, energy and geopolitical risks contributes to the formation of a fundamentally new paradigm of strategic economic planning. For countries characterised by institutional fragility and increased geopolitical vulnerability, postponing the green energy transition is associated with a potentially non-linear escalation of economic losses due to the cumulative and mutually reinforcing impact of systemic risks.

Purpose. The study aims to conduct an analysis of green energy transition, with an emphasis on the economic interpretation of the “cost of choice”, and on identifying barriers that may hinder the large-scale implementation of renewable energy sources.

Findings. The methodological basis is a discounted expected cost model that accounts for direct investment, probabilistic estimates of energy shocks, and related macroeconomic losses. The analytical horizon was 10 years, with a 5% discount rate. The cumulative discounted “opportunity cost” of the active green transition scenario in Ukraine is USD 28.12 billion, while the status quo scenario reaches USD 75.06 billion. The total costs, adjusted for energy shocks, under the green transition scenario are estimated at USD 1.7 billion, compared to USD 9.2 billion under the status quo scenario. The risk of disruption in the energy sector under the green transition scenario is estimated at approximately 15%. However, the current energy balance relies heavily on traditional energy sources, significantly increasing risks and raising the probability of system failure to 40%. The cumulative costs of inaction are projected to reach a staggering USD 47 billion over the next decade of planning. Consequently, the initial capital outlays required for green initiatives are effectively offset by the mitigation of these long-term financial liabilities.

Implications. Delaying the green transition leads to a non-linear increase in macroeconomic losses, with the “cost of inaction” significantly exceeding the costs of active transformation. In this context, accelerating decarbonisation is crucial not only as a goal to combat climate change but also as a key strategy to reduce systemic risks and enhance the resilience of the energy sector. Furthermore, the opportunity cost methodology proposed in this paper represents an effective tool for addressing the challenges of modern energy management and strategic planning.