Mark John

(Reuters) – The additional amount that the world needs to spend annually to establish a net-zero emissions economy equals half of all current profits generated globally by businesses, McKinsey estimates in a report about the energy transition.

Although it acknowledged that its calculations were higher than other economists’ estimates, the company stressed that such investments can be profitable and would have greater long-term consequences if they didn’t do enough to combat climate change.

It concluded that “we believe the transition would have universal, significant and front-loaded effects, with uneven results on sectors, geoographies and communities, as well as creating growth opportunities.”

Even though time is short, achieving net-zero carbon emissions by 2050 will give the world the chance to limit temperature rises to 1.5 degrees Celsius higher than preindustrial levels. This would prevent the worst effects of climate change.

This would mean spending approximately $275 trillion annually on land-use and energy assets. That’s $9.2 trillion per annum on average. It is an increase of $3.5 trillion in current spending.

The study calculated that “the increase in global corporate profits is roughly equal to half the total tax revenue for 2020 and one quarter of household spending”

This amount of cumulative expenditure would represent about 7.5% global output over 2021-2050. That’s far greater than what climate economists polled at Reuters 2021 calculated was required each year.

McKinsey put the difference down to the fact that it was including a broad view of spending by households, businesses, agriculture and forestry as well as some continued spend on high-emissions assets like fossil fuel–based vehicles.

It said that while these expenditure requirements are high and funding has not yet been established, many investments have positive return profiles and should be considered as costs.

Gernot Wagner of New York University, an economist specializing in climate, supported the effort to present a complete view on the investment opportunities.

Wagner said that climate policy involves massive investment and a huge rejigging market forces, from the existing high-carbon path and low efficiency one to a low carbon and high-efficiency alternative.

“We have just spent trillions due to COVID relief. It seems possible. Yes. But would it require major changes? Yes, it would. From where is this money? “Ratepayers, taxpayers and shareholders”

McKinsey reported that there were many uncertainties about how the transition would unfold and that particular populations or sectors could be most at risk, especially those in poorer countries.

The document added that a delay or abrupt transition could lead to asset-stranding and worker displacements as well as a backlash, which would slow down the transition.