World leaders are confronting the challenge of turning ambitious climate commitments into action. They are naturally focused on the essential objective of reducing global emissions quickly. However, the vital work of ensuring a successful net-zero transition will require us to take into account three additional objectives: affordability, reliability, and industrial competitiveness.
Why? Because consumers and companies may be less willing to embrace emissions reduction if energy becomes less affordable, and they may not want to switch to low-emissions products if they are more expensive. Similarly, it will be hard to sustain momentum toward net zero if the secure supply of energy, the vibrancy of domestic industry, or the availability of local jobs are at risk.
Start with affordability. If battery costs don’t decline sufficiently, or if electric grids aren’t designed thoughtfully, the delivered cost of electricity could rise. Decarbonizing the production of steel and cement could increase production costs by about 15% or more by 2050.
The transition would also be at risk if the world can’t maintain a reliable supply of energy. An obvious example is that solar and wind power are intermittent; without enough backup capability, customers could suffer blackouts. Poor execution could also compromise the reliable supply of inputs needed for the transition itself, such as minerals, clean manufacturing capacity, infrastructure, land, and worker skills. Shortages of many minerals at the amounts needed for the transition could begin by 2030 or sooner because of the long time it takes to bring new mines online. Approving and building nuclear plants can take many years; the same is true of electrical transmission and distribution projects.
The third objective, industrial competitiveness, is also key. During the net zero transition, as is the case during any major transition, some legacy industries and natural endowments will lose relevance, and others could see rising production costs. Managing those impacts will take careful planning. And without such planning, workers may find it hard to build new skills and move to new jobs.
Counterintuitively, then, delivering on the climate agenda means doing more than just addressing climate change directly.
Affordability
First, we must address affordability by deploying lower-cost climate solutions now and working to drive down the costs and increase the maturity of more expensive ones. Many solutions that cost less than $20 per metric ton of emissions abated are not getting the investment and attention they need. Among the biggest opportunities to consider, where beneficial and feasible: making the use of energy and materials more efficient; reducing methane emissions in fossil fuel extraction; executing so-called transition solutions, such as a shift from coal to gas power; and implementing solutions, such as stopping deforestation, that both reduce emissions and positively impact nature in other ways. All told, lower-cost solutions could abate about 20 gigatons of greenhouse gases per year. (The world currently emits more than 55 gigatons annually.)
In parallel, the world must redouble its commitment to approaches that can unleash the power of the private sector to innovate and dramatically scale up new technologies: investment in research and development, venture funding, early market stimulation, and sending the right demand signals, among others. Only about 10 to 20% of the emissions reductions needed by 2050 are expected to come from technologies that are currently fully commercially mature.
Together, those measures could have a material impact on affordability. As one example, consider that trillions of dollars will have to be spent each year to build low-emissions assets for the transition, potentially increasing pressure on public spending and raising challenges, especially for developing countries. We estimate that if the world dramatically accelerated the deployment of lower-cost solutions today and doubled the expected rate of cost reduction of more expensive ones, the capital spending needed to limit global warming to the levels envisioned by the 2015 Paris Agreement could potentially be lower, by a third or more, than it would be otherwise.
Reliability
Additionally, the world must redesign today’s physical and financial systems to safeguard affordability and reliability and deliver tomorrow’s net-zero economy. A starting point is anticipating and systematically addressing bottlenecks in the key inputs needed for the transition. Electricity systems will need to be reconceived to reduce permitting and construction times, build and operate backup power capability, expand transmission and distribution capacity, and improve resilience for a net-zero world that runs on electricity. And financial systems will need to be crafted to reallocate capital to new climate technologies and drive capital to developing countries. In the near term, the world will also need to plan how to run two energy systems in parallel, smoothly ramping down the old, fossil fuels–based one while scaling up the new.
Industrial competitiveness
The climate agenda must include not just environmental policy but also labor and industrial policy. Many countries and companies are exploring the opportunities provided by the transition: building wind and solar farms, manufacturing electric vehicles, extracting and refining new materials, and so on. As they do so, they should carefully consider their comparative advantage. For example, countries with outsize access to sunshine or wind would presumably be the best candidates to produce green hydrogen, which relies on access to low-cost renewable power.
The time is ripe for policymakers and CEOs to lead in developing a path to net zero that’s also affordable, reliable, and competitive. This is the way to build on the progress forged so far. Through human commitment, ingenuity, and collaboration, we can navigate a way out of the fix we have created and deliver better outcomes for all.
Mekala Krishnan is a partner at the McKinsey Global Institute. Daniel Pacthod is a senior partner at McKinsey and Global Co-Leader McKinsey Sustainability. Sven Smit is a McKinsey senior partner and chair of the McKinsey Global Institute.
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