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Source: Equans

Scale of investment required to hit Net Zero targets is staggering

Recent research from consulting firm McKinsey, has found that $9.2 trillion- the equivalent of just under twice the GDP of Japan ($5 trillion in 2020), would be needed each year to see a global transition to Net Zero by 2050. The research used the Net Zero 2050 scenario from the Network for Greening the Financial System (NGFS), aiming to model what it may take to fulfil the ambition set by many governments and businesses to reach Net Zero by 2050. The research focussed 69 countries, and on specific sectors which are in total accountable for 85% of all emissions:

“Our analysis of the NGFS Net Zero 2050 scenario suggests that about $275 trillion in cumulative spending on physical assets, or approximately $9.2 trillion per year, would be needed between 2021 and 2050 across the sectors that we studied.”[i] – McKinsey

Annual Spending on physical Assets for Energy and Land-Use Systems In a Net Zero Scenario, Average 2021-2050 ($ Trillion)

Source: McKinsey

Further, the report found that an additional $1 trillion on today’s annual spending would also need to be relocated from high-emitting sectors to new low-carbon assets. McKinsey notes that this increase is equivalent to half of the recorded profits from corporates globally in 2020.

A difficult road to Net Zero

Significantly, spending would need to be front-loaded to deliver drastic levels of decarbonisation: “The required spending would be front-loaded, rising from about 6.8 percent of GDP today to about 9 percent of GDP between 2026 and 2030 before falling. In dollar terms, the increase in annual spending is about $3.5 trillion per year, or 60 percent, more than is being spent today.”[ii]

The report also highlighted the more specific challenges faced. For example, the research found that a concerted effort to reallocate spending and job opportunities from high-emitting sectors to low-carbon markets will be required to reduce cost. It found that high-emission products and operations currently generate around 20% of global GDP. Such a transition could lead to a “gain of about 200 million and a loss of about 185 million direct and indirect jobs globally by 2050. Further, on the issue of energy production, McKinsey highlighted that costs associated with electricity production would likely increase in the near-term, before falling as capacity for renewables increasedl. The research found that the cost of electricity could increase by 25% up to 2040.

References

[i] A net-zero economy: The impact of decarbonization | McKinsey

[ii] Ibid

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