Global net-zero transition to cost $9trn each year

Delivering net-zero emissions across the global economy by 2050 will require approximately $9trn (£5.7trn) of capital spending on physical assets for energy and land-use systems every year, which is around 60% more than is being spent today.

That is according to a new report by McKinsey, which outlines how demand, investment, costs, and jobs could change under the Net Zero 2050 scenario from the Network for Greening the Financial System (NGFS).

The analysis suggests that $275trn in cumulative spending will be required over the next three decades, with annual expenditure rising to $9.2trn, which is $3.5trn more than is being spent today.

This increase is equivalent, in 2020, to around half of global corporate profits, one-quarter of total tax revenue, and 7% of household spending.

Other research to date has largely focused on estimating required energy investment. However, the latest analysis includes additional spending categories, such as assets that use energy, including the full cost of passenger cars and heat pumps.

“As a result, our estimates exceed to a meaningful degree the $3trn to $4.5trn of annual spending for the net-zero transition that others have estimated,” the report explains.

Under the NGFS scenario, the report suggests that, by 2050, oil and gas production volumes would be 55% and 70% lower, respectively, than they are today, while coal production for energy use would nearly end.

Moreover, demand for internal combustion engine cars would eventually cease as sales of battery-electric and fuel cell-electric cars increase from 5% of new-car sales in 2020 to virtually 100% by 2050.

How the net-zero transition impacts households would depend on the composition of consumers’ spending baskets and whether companies pass on costs, among other factors.

“Consumers may face higher prices and up-front capital costs in the near term and may need to adjust their spending patterns if significant emissions reductions are to be achieved,” the report states. “Low-income households are particularly at risk.”

Looking at jobs, the analysis suggests that net zero will lead to a reallocation of labour, with about 200 million direct and indirect jobs gained, and 185 million lost, by 2050.

Job gains would be largely associated with the transition to low-emissions forms of production, for example. to renewable-power production, while the losses particularly affect workers in emissions-intensive sectors

The report adds: “More broadly, in considering the economic and societal adjustments necessary for achieving net-zero emissions, it is important not to lose sight of the bigger context: the longer-term risks from increased warming and the further build-up of physical climate risks.”