The transition to net zero is an investment, not a cost, McKinsey says
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 Consumers will also bear the cost of upgrading big-ticket items, like cars or central heating systems, from outdated fossil fuel models.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.
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