McKinsey: Energy transition to cost the world $275 trillion
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Achieving world-wide carbon neutrality by 2050 will require about $275 trillion in spending by the world economy.

That is the assessment conducted by analysts from McKinsey, who analysed the potential expenditure on decarbonisation of key economic sectors: power generation, industry and transport, sectors responsible for 79% of world-wide CO2 emissions. The analysis also incorporates expenditure for the housing sector (6 %), agriculture (4 %) and forestry (14 %).

    McKinsey’s calculations take into account expenditure linked to reducing methane and nitrogen dioxide (NO2) emissions. In the first instance, the biggest emitters are industry (33 %), agriculture (30 %) and waste disposal (23 %). In the second, it is agriculture (79 %) and the very same industry (8 %). The authors of the study did not take it upon themselves to asses how realistic it would be to achieve carbon neutrality by 2050 – their aim was to calculate the costs associated with an energy transition taking place over 30 years.

    Ensuring that emissions decline is impossible without restructuring demand for energy, McKinsey concludes. 

    That will require capital investment in energy infrastructure. McKinsey estimates that the current value of expenditure is about at $5.7 trillion per year – $3.7 trillion would go towards carbon-intensive sectors, like extraction of fossil fuels, power generation from oil products, gas and coal or the continued use of cars with internal combustion engines. The remaining $2 trillion would go to construction and development of low-carbon infrastructure, meaning wind turbines, solar panels or nuclear power stations.

    According to McKinsey’s assessment, to achieve net zero emissions will mean that of the $3.7 trillion in annual expenditures for the carbon-intensive sectors, it will be necessary to redirect $1 trillion to low-carbon energy by increasing financing for it with an additional $3.5 trillion per year.

    That will mean that combined expenditure on energy infrastructure will be increased to $9.2 trillion per year, of which $7.2 trillion would apply to low-carbon sectors and $2 trillion to carbon-intensive sectors. Average annual total expenditure in such a scenario will amount to 7.5 % of world-wide GDP – but expenditure will vary widely depending on the group of countries concerned.

   In Europe, this indicator will stand at 5.0 % of GDP (thanks to measures already undertaken in terms of decarbonisation). In India, one of the remaining locomotives of demand for fossil fuels, it will stand at 9.8 % of GDP and in Russia and the Commonwealth of Independent States, it will be 18 % of GDP.

     Similar discrepancies apply when considering the effect of the energy transition on employment – by 2050, the number of jobs, with due account for the creation of new jobs and elimination of old jobs, will increase in the electricity sector by 16 million units and in the hydrogen production sector by 5 million. In contrast, the number of jobs in the automobile industry will decline by 16 million.

    On the whole McKinsey’s assessment is more conservative in comparison with forecasts by other agencies like the International Energy Agency or the Network for Greening the Financial System (NGFS), whose forecasts of expenditure on the energy transition total no more than $4.5 trillion per year.

    One of the reasons behind the discrepancy is the manner in calculating infrastructure expenses, which cover not only suppliers but also energy users, including in forestry and in agriculture.

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