The global transition to a net zero economy will cost about $3.5 trillion a year more than the world was planning until 2022. The number was revealed in a McKinsey study earlier this year, amid more than 130 countries that have pledged net zero emissions by 2050.
“Capital spending on physical assets for energy and land-use systems in the net-zero transition between 2021 and 2050 would amount to about $275 trillion, or $9.2 trillion per year on average, an annual increase of $3.5 trillion from today,” the report shows.
The study highlights, however, that this is an urgent transformation that may affect all countries and all sectors of the economy, either directly or indirectly. It means changes in demand, capital spending, costs, and jobs, to 2050, for sectors that produce about 85% of overall emissions and economic shifts for 69 countries. And all of this must be faced not merely as a cost, but as an investment for future generations, much of which is already cost-effective and comes with a return.
The analysis suggests that under the NGFS Net Zero 2050 scenario, changes in policies, technologies, and consumer and investor preferences would lead to considerable shifts in demand for various goods and services. By 2050, oil and gas production volumes would be 55% and 70% lower, respectively, than they are today. Coal production for energy use would nearly end by 2050.
“While the scale of the capital that would need to be deployed in a net-zero transition is substantial, it is important to put it in context. First and foremost, the economic adjustments involved in reaching net zero in a coordinated and orderly manner would prevent the further buildup of physical risks and the additional costs arising from a more disorderly transition. Second, in the long run, the up-front capital expenditures for a net-zero transition could result in operating savings for some sectors through reduced fuel consumption, improved material and energy efficiency, and lower maintenance costs”, said the authors.