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How Much Will It Cost to Reach Net-Zero by 2050?

How Much Will It Cost to Reach Net-Zero by 2050?
How Much Will It Cost to Reach Net-Zero by 2050?

A new McKinsey & Co study estimates that the global economy needs to invest $9.2 trillion dollars annually to curb emissions and reach net-zero by 2050. That’s at least $3.5 trillion more annually than is currently being invested in low-carbon and fossil fuel infrastructure. 

The McKinsey report was looking to quantify the decarbonization investments necessary, and behavioral changes needed, to curb the impact of greenhouse gas pollution to zero by 2050 in alignment with the Paris Agreement. These findings suggest that nations and corporations will need to ramp up decarbonization efforts fast. 

The Clean Energy Transition

Decarbonizing the power sector is a central pillar of the transition to a net-zero carbon economy. In order to reach net-zero, the McKinsey report estimates that coal will need to be virtually eliminated globally by 2050, and oil and gas production will need to drop by 55% and 70%, respectively. Additionally, we will need to create 200 million jobs to replace the 185 million workers formerly employed by coal, oil and gas industries. 

This will require switching to alternative sources of energy such as solar, wind or nuclear, as well as some targeted deployment of carbon, capture and storage (CCS) for new and existing power plants. Complementary investments will also be needed in new grid management and storage solutions to ensure continued reliability. 

While decarbonizing the power sector may result in transition risks to the economy (higher emissions costs and changes in business and consumer preferences), physical risks of climate change would be minimized. The McKinsey report estimates that investments in low-carbon and fossil fuel infrastructure would raise electricity prices by a quarter until 2040 and would likely remain 20% higher than today through 2050. However, the tradeoff of doing nothing is the increased likelihood of physical risks from climate change to the economy that could result from disruption to ecosystems, health, infrastructure and supply chains.

Will We Achieve Net-Zero by 2050?

The United Nations launched a roadmap for the clean energy transition during the COP26 climate change conference earlier this month. The SDG7 Global Roadmap outlines how the world can move to clean energy by 2030, as part of the journey to reducing greenhouse gas emissions to net zero by 2050. However, the road towards sustainability appears tougher for developing countries, as they’ll need to spend the most on new infrastructure as a share of their GDP (for example: 10.8% of GDP in sub-Saharan Africa and India, versus 6.4% in the US). That being said, this is truly a global problem that will require a global solution and will require a level of cooperation between nations, corporations and individual consumers that is beyond what has been seen in the past.

While many countries have started to introduce climate policies, they are not yet sufficient to achieve official commitments and targets. If no further measures are introduced 3 °C or more of warming could occur by 2100. However, one critical outcome of the recent Glasgow Climate Pact is an agreement to “revisit and strengthen” 2030 climate plans by the end of 2022; an accelerated timeline in comparison to the previous agreement to submit new national climate plans by 2025. 

The accelerated timeline reflects urgent efforts to keep the 1.5°C Paris Agreement target achievable. However, as previously outlined in our article Is The Paris Agreement Enough, current policies in place around the world are projected to result in about 2.7°C warming above pre-industrial levels. Even under an optimistic scenario, the Climate Action Tracker’s median warming estimate is projected at 1.8°C above pre-industrial levels.

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