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The transition to net zero is an investment, not a cost, McKinsey says

January 26, 2022, 10:28 AM UTC

According to a seminal report from McKinsey, released yesterday, the global transition to a net zero economy will cost a lot more than we’re currently planning for. About $3.5 trillion a year more, in fact.

“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 authors said.

The report—written by a phalanx of McKinsey analysts—attempts to pick apart the social, political, and economic requisites for the world to limit global warming to a 1.5C increase on pre-industrial temperature. There are a number of heavy lifts.

Besides the staggering capital spending increase—equivalent to half of global corporate profits in 2020—the path to net zero will also spark an increase in household costs, particularly if electricity prices continue to spike during the transition period. Consumers will also bear the cost of upgrading big-ticket items, like cars or central heating systems, from outdated fossil fuel models.

Naturally these costs—at both a consumer and a government level—will prove a higher burden for people in poorer regions than those living in developed economies. And McKinsey doesn’t pontificate on who should foot the bill; whether its government subsidies, corporate taxes, or consumer wallets.

But the transition isn’t all about costs, as McKinsey fleshes out. There are gains, too.

The transition to net-zero should create an additional 200 million jobs worldwide, the report says, as new industries flourish around new tech. There will be job losses too—roughly 185 million—but interestingly, McKinsey notes, trends like automation will cause more unemployment than the transition to net zero.

Even the burdensome capital costs of $9.2 trillion per year, McKinsey says, “should not be seen merely as costs” since the return on investment will also be substantial. McKinsey says the required spending will be “front loaded,” too, peaking at an equivalent to 8.8% of global GDP by 2030 and declining from there.

Of course, the biggest return on investment from a net zero transition will be that our planet remains habitable. The cost of doing nothing will be infinitely higher than the cost of changing.

More below.

Eamon Barrett
– eamon.barrett@fortune.com
@eamonbarrett49

CARBON COPY

Cloudy outlook

Demand for solar is surging in the U.S., but the uptick in orders may soon clash with a downturn in supply. According to consultancy Wood Mackenizie, supply chain disruption, caused by COVID as well as U.S. sanctions on China’s polysilicon-producing Xinjiang province will hobble solar expansion in the U.S. this year. The consultancy slashed its outlook for capacity growth by a third for 2022. FT

Caught

The Quest hydrogen production plant in Alberta runs a carbon capture system that is supposed to be a “thriving example” of how carbon capture and storage (CCS) can be deployed to reduce greenhouse gas (GHG) emissions. But a report from watchdog Global Witness says the CC project is a failure, and that the Shell-owned Quest plant continues to emit far more GHG than it captures. Shell says the report is “simply wrong” and that the CCS installation is only designed to capture one third of total emissions anyway—in which case, it’s a success. CNBC

Renewable bubble

Investors piled into green stocks last year and some market trackers, like Switzerland’s Financial Crisis Observatory, are warning the climate-friendly cash vehicles have entered bubble territory. Exhibit A are Tesla shares, which have dropped 20% since setting a record high in November. But many investors, like BlackRock’s Larry Fink, remain bullish on long term green growth—even if there’s a correction from last year. In his annual letter to CEO’s this month, Fink said the shift to green invest had only just begun. WSJ

Mini nukes

British engine maker Rolls-Royce has asked the councils of several regions in the U.K. to put forward bids to become the production site of the company’s first nuclear reactor plant. That might be a tough sell, considering local residents often oppose wind turbine installations, never mind nuclear ones. But Rolls-Royce says the factory—which will be an assembly site for the company’s new line of “small” nuclear power plants—will create 200 jobs and bring in $270 million in investment. FT

IN CASE YOU MISSED IT

Companies say they’re serious about corporate purpose, but investors aren’t convinced by Robet Eccles, Colin Mayer and Judith Stroehle

Green hydrogen has long been hyped as a replacement for fossil fuels. Now, one of the industry’s biggest players is preparing its IPO by Christiaan Hetzner

Europe is suffering its worst energy crisis since the 1970s. Here’s 6 ways war in Ukraine could make it worse by Bloomberg

NYSE’s new leader on the three core beliefs that are guiding her by Lynn Martin

CLOSING NUMBER

$0 to $324

Analysis from British Gas—one of the U.K.’s largest domestic energy suppliers—found that the cost of fully charging an electric vehicle in Britain ranges anywhere from £0 to £240 ($0 to $324) depending largely on where the driver lives. Thankfully, most drivers in England will be on the low end of that scale, since 21 of England’s 23 county councils provide free charging for EVs. But in the remaining districts, public charging comes at a premium and home charging isn’t much cheaper. The U.K. is in the grips of an energy crisis and electricity prices are soaring.

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