A Brief Thought About How Decarbonization Efforts Must Address the Principal-Agent Problem

There are many entities, in both the public and private sectors, pressing for decarbonization goals to address global warming. However, these groups, pushing for change through the creation and adoption of innovative technologies, operating systems, education, etc., must balance that against the current inertia of other activities. This creates the Principal-Agent Problem, where differences in priorities may influence the development of these technologies and timelines for adoption and deployment.

The principal-agent problem assumes the following: The principal, or the person responsible for paying an agent, will want the agent to achieve a specific goal or outcome at the lowest cost to himself. While working to achieve that goal, the agent may act in a rent-seeking manner that may not be in the principal’s best interest.  For example, the principal pays a sales agent, but the sales agent may seek payment for additional expenses.  Decarbonization goals, while laudable, require firms to examine their operations. However, they have to do so through the following categories:

  • Existing assets/systems that are internal to the agent.  These projects, already constructed, require maintenance, etc., but also budgetary commitments to remain viable.
  • Currently developed projects undertaken by the agent.  These projects may have funding or preengineer work performed, but are actively in development.  These  projects also can tie up short term capital.
  • Planning Process to support the agent’s long-term goals  These are often of a longer term manner, and must operate within the current permitting/regulatory activities.


The role of decarbonization does not necessarily fit into these internal processes, but firms will seek to engage in this effort through the use of their existing organizational structure.
As such, planners who are conformable with the “status quo” may not be willing to learn new tasks to meet decarbonization goals. Construction teams will build to the contract, and in some cases, these plans cannot adopt these innovative technologies. Finally, there remains the ongoing asset management needs to service existing programs.

As new funds and programs are proposed, there could be disincentives between principals and the agents responsible for adopting the innovation.  The question becomes, “can we manage our expectations without pointing the finger at others”?