I once owned a car that my family had driven almost 400,000 km. The engine was becoming unreliable, down on power while dripping and burning oil. We enjoyed the car and didn’t want to replace it so I had the engine rebuilt at a cost more than $2,000.
A short while later, an inspection revealed the front suspension and steering components were badly worn and needed replacement. Reluctantly, I spent more money.
Within a few weeks, the engine began stalling frequently. Turned out the engine control module (the car’s computer) was failing intermittently and had to be replaced. Then, the alternator stopped charging and a wheel bearing rumbled loudly.
Having already put out around $3,000, I felt compelled to continue making repairs so that my expenditures were not lost.
I came to my senses and replaced the car and thereby avoided being a victim of the sunk cost fallacy, which is described at behavioraleconomics.com:
Individuals commit the sunk cost fallacy when they continue a behavior or endeavor as a result of previously invested resources (time, money or effort) (Arkes & Blumer, 1985). This fallacy, which is related to status quo bias, can also be viewed as bias resulting from an ongoing commitment. For example, individuals sometimes order too much food and then over-eat ‘just to get their money’s worth’. Similarly, a person may have a $20 ticket to a concert and then drive for hours through a blizzard, just because s/he feels that s/he has to attend due to having made the initial investment. If the costs outweigh the benefits, the extra costs incurred (inconvenience, time or even money) are held in a different mental account than the one associated with the ticket transaction (Thaler, 1999).
Regrettably, Premier John Horgan’s cabinet, concerned about the $2+ billion already spent on Site C, appears not to understand the concept. They have “status quo bias.”
Having made the wrong decision, no doubt influenced by Liberal holdovers in the civil service and BC Hydro management, it is not too late for NDP ministers to correct the chosen course.
There are many reasons to cancel Site C:
- With the estimated cost of the project having advanced from $6 billion to $10.7 billion since 2010 (a $1.9 billion rise in last year alone), there is much uncertainty about Site C’s final cost, particularly since BC Hydro is now changing its design;
- The Site C reservoir will increase production of green house gases;
- Flooding more of the Peace River valley will accelerate decline of the province’s high quality farmland;
- The project impacts First Nations people negatively, which is contrary to principles of the United Nations Declaration on the Rights of Indigenous Peoples, implementation of which Government claimed to be a priority;
- PowerBC, a campaign to reduce demand for electricity, was an NDP election promise and it remains viable;
- Per capita use of electricity has declined sharply in the past dozen years, largely through technical efficiencies of lighting and small motors, a trend certain to continue, particularly as the cost of BC Hydro power rises;
- Prices of alternative energy production has fallen dramatically, as noted by the American Wind Energy Association.
By the way, all those people supposing that Site C power, which will cost between $100 and $125 per MWh, can be exported profitably should remember that Alberta’s latest tender for private power came in at $37 per MWh. This is a chart of the market price in the northwest USA. (The price spike was during illegal price manipulation by Enron and others.) With low-cost solar and wind power now a reality, there will be no worthwhile markets for BC’s newly produced, and high-cost, surplus electricity.