The price to pay for a net zero transition: 3.5 trillion dollars per year

Dozens of countries and thousands of companies have pledged to eventually achieve net zero emissions, which means they will reduce their pollution, and their remaining emissions will be balanced by nature and technology that can suck CO2. But for the world to truly reach net zero emissions by 2050 – a crucial step in avoiding some of the worst climate impacts – progress needs to happen on a much larger scale. (Plans also need to be believable, not just marketing jargon.) The whole economy, from how we grow food to how we power airplanes, needs to transform.

in a new report, McKinsey & Company examines how this massive transition could impact the economy and society, and why it is important that it happens strategically. “We talk about the net zero transition and then we forget it’s a transition,” says McKinsey Global Institute partner Mekala Krishnan. “And so the goal of this research was really to understand the nature and extent of these changes. Because without that, we risk either not putting enough actions in place or we risk embarking on what is a messier journey to net zero.

When analysts looked at a scenario for the world to reach net zero and delved into the details of all sectors across 69 countries, they calculated that capital spending on energy and land-use assets could total $275 trillion between 2021 and 2050, an average of $9.2 trillion per year. That’s $3.5 trillion more per year than current capital spending in these areas.

Money is already starting to flow into low-emission infrastructure, but “it’s about the pipes and the market to get money to the right places and at the right speed,” says Dickon Pinner, global practice lead McKinsey sustainability. (The actual cost will vary depending on different factors, including the speed of the transition and whether certain technological breakthroughs reduce costs; it should also be noted that the impacts of climate change will cost the global economy. much more every year if the problem is not controlled.)

As old polluting infrastructure is removed, new low-emission assets need to ramp up at the right speed or there will be risks of supply shortages and price increases, Krishnan says. If not managed well, energy prices could be destabilized and the lowest income consumers could be hit the hardest. If governments and companies also don’t invest in training workers in polluting industries in new skills at the right time, workers will be displaced. It would also have disproportionate impacts in some regions – in the United States, for example, there are about 45 counties where at least 10% of workers currently work in the sectors that will be most affected by the transition. Overall, the report estimates that the net zero transition will create around 200 million direct and indirect jobs worldwide by 2050, but 185 million jobs will also be lost; these workers will need help finding new jobs.

“If we don’t put the right mechanisms in place to facilitate some of the adjustments we’re describing, there’s a risk that some communities, some groups of workers will be left behind,” Krishnan says. “And so I think it’s also imperative to think about, even in an orderly transition, how do we actually handle some of the adjustments that we’ve talked about?”

The pace of change also matters: at the moment, we are not moving fast enough globally to achieve the goal, and the longer we wait, the more abrupt subsequent changes will have to be. All of society, from government and businesses to financial institutions and individuals, will need to work together to make the transition successful. For companies, this means developing agile plans to decarbonize and integrating climate into decision-making. But it also often means doing more. “In some cases, you have to try to steer the ship of your industry or region again, because all of this can’t be done alone,” says Pinner.

Richard L. Militello