I may not always agree with Janet Yellen, but she normally strikes me as a sane sort of person, so it was a surprise to read this in Politico over the weekend:

U.S. Treasury Secretary Janet Yellen on Saturday said that $3 trillion in new capital is required each year to combat climate change, and deemed the global transition to a low-carbon economy “the single greatest opportunity of the 21st century.”

Speaking in Belém, Brazil, after meeting with G20 finance ministers to discuss economic development this week, Yellen emphasized the need for stronger climate finance policies through 2050 to address the “existential threat” to communities and economic strain posed by climate change.

Three trillion dollars, eh? I wonder where that is supposed to come from, especially the money Yellen would expect to be invested in less-developed countries? As, apparently, it is “the single greatest opportunity of the 21st century,” investors will be fighting to get a slice of the green pie and will need no encouragement from governments before putting this money to work across the globe.

Well, maybe not.

Politico:

The initiative is also part of a shift pushed by Yellen at global development banks to take on multicountry projects. The World Bank and its regional counterparts have traditionally concentrated on single-country development efforts.

These are funded both in the international capital markets and by contributions from member countries, which is to say the taxpayers of the world’s wealthier nations.

More broadly, much of this $3 trillion a year will presumably be invested (if investors can be found) in accordance with net-zero dogma, with billions going into suboptimal (or not-ready-for-prime-time) technologies such as wind power. It remains to be seen what sort of return such investments will generate. There is also a difference between investing in capital projects designed to improve on what was there before and putting money into, say, new technologies that merely match or try to match what was already in place, but with fewer greenhouse-gas emissions. Put another way, and as I have mentioned before, this type of investment is little more than glorified (and not particularly effective) repair work.

Spending $3 trillion a year “combating” climate change will, by sucking up such a large amount of money, increase the cost of capital for other projects, making it less likely that they will be developed, and therefore deprive economies of potentially better growth drivers. And to the extent that this $3 trillion drain increases interest rates, that will have negative consequences both for economic growth and, of course, will increase the cost to the world’s more heavily indebted governments of servicing their debt. Those governments may well try to cover those increased costs with higher tax rates, and that too will slow growth.

But the heaviest opportunity cost will be direct rather than indirect. Some, at least, of the $3 trillion invested in combating climate change will consume money that could have generated a higher return elsewhere.

History shows that economic growth is the best way to ensure that we can deal with whatever the climate may throw at us. The more the economy grows, the more that there will be to spend on adaptation, mitigation, technological innovation, and clean (nuclear) energy sources that have already shown that they work well. While some of Yellen’s $3 trillion a year would doubtless be money well spent, the negative effects of investing the rest of it to fit in with the ground rules of the reckless “race” to net zero could leave us less well, rather than better, equipped to cope with the climate. And that would be folly on a truly colossal scale.

But central planning is what it is.