The price tag for a net zero transition: $3.5 trillion a year
Dozens of countries and thousands of companies have committed to eventually reaching net zero emissions, meaning that they’ll reduce their pollution, and their remaining emissions will be balanced by nature and technology that can suck up CO2. But for the world to actually meet the goal of net zero emissions by 2050—a crucial step to avoid some of the worst climate impacts—progress has to happen at a much larger scale. (The plans also have to be credible, not just marketing lingo.) The entire economy, from how we grow food to how we power planes, has to transform.
In a new report, McKinsey & Company takes a look at how that massive transition could impact the economy and society, and why it’s important that it happens strategically. “We talk about the net zero transition, and then we forget that it’s a transition,” says Mekala Krishnan, a partner at the McKinsey Global Institute. “And so the goal of this research was really to understand the nature and magnitude of those shifts. Because without doing that, there is a risk that we will either not put in place sufficient action, or embark on what is a more disorderly journey toward net zero.”
When the analysts looked at one scenario for the world to reach net zero, and dove into the details across sectors in 69 countries, they calculated that capital spending on energy and land use assets could add up to $275 trillion between 2021 and 2050, or an average of $9.2 trillion per year. That’s $3.5 trillion more a year than current capital spending in those areas.
Money is already beginning to flow to lower-emissions infrastructure, but “it’s about the pipes and market to get the money to the right places and at the right speed,” says Dickon Pinner, global leader of McKinsey’s sustainability practice. (The actual cost will vary depending on different factors, including how quickly the transition happens and whether some technological breakthroughs enable lower costs; it’s also worth noting that the impacts of climate change will cost the global economy far more each year if the problem isn’t reined in.)
As old, polluting infrastructure is phased out, new low-emissions assets have to ramp up at the right speed or there will be risks of supply shortages and price increases, Krishnan says. If it isn’t well managed, energy prices could be destabilized, and the lowest-income consumers could be hardest hit. If governments and companies also don’t invest at the right time in training workers from polluting industries in new skills, workers will be displaced. That would also have disproportionate impacts in some areas—in the U.S., for example, there are around 45 counties where at least 10% of workers are currently in sectors that will be most impacted by the transition. Overall, the report estimates that the net zero transition will create around 200 million direct and indirect jobs globally by 2050, but 185 million jobs will also be lost; those workers will need help finding new jobs.
“If we don’t put in place the right mechanisms to aid some of the adjustments that we’re describing, there is a risk that certain communities, certain groups of workers are left behind,” says Krishnan. “And so I think there’s also the imperative to think about even under an orderly transition, how do we actually manage some of the adjustments that we’ve been talking about?”
The pace of the change also matters: Right now, we’re not moving quickly enough globally to reach the goal, and the longer that we wait, the more abrupt later changes will have to be. All of society, from government, to businesses, to financial institutions, to individuals, will need to collaborate to make the transition successful. For companies, that means making agile plans to decarbonize and integrating climate into decision-making. But it also often means doing more. “You need to, in some cases, try and re-steer the ship of your industry or your region, because this can’t all be done alone,” says Pinner.
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