At this point, the world more or less agrees that we need to hit net-zero emissions by 2050 if we have any chance of meeting our global warming goals and keeping temperature rise below 2C above pre-industrial levels. What is far from agreed upon is how to get there and who bears the costs of the consequences if we do not.
A new report from consulting powerhouse McKinsey broke down the costs, economic, and societal shifts that we will see in this net zero transition, and they really point to the complexities and challenges of getting there. Is their model perfect? Of course not, and they call out many variables that are really hard to calculate and predict that can alter the course. However the big takeaways on what it will take to get there hold a lot of merit and need to start being tackled right away.
Let’s first breakdown the key summaries from the report on what these shifts are, why we feel they are going to be difficult to absorb and how we can do so since we have absolutely no choice but to get this done.
THE ECONOMIC AND SOCIAL PILLARS OF THE NET-ZERO TRANSITION
It Won’t be Cheap
The report estimates that it will take roughly $275 trillion to build the new technology and systems to get to net-zero. Understand that in energy alone we need to build more renewable facilities and more infrastructure like transmission lines and battery storage. However we also need to reinvent our construction and building industries, refrigeration, agriculture, transportation and more.
Between now and 2050, this works out to $9.2 trillion per year. We are already spending ~$5.7 trillion per year in existing capital and investment in cleaning up these industries, so it will take $3.5 trillion per year more. That’s a big number – representing 50% of all corporate profits across the world as a comparison.
There is no way to get there without spending the capital. And this will be a challenge especially in populist run countries where they want to shrink government spending and involvement. Corporations can’t do this alone, nor do we want them to because the allocation and benefits of that expenditure will be more much more uniquely distributed if it’s only corporate led.
While it is a big number, there is no way to properly predict and calculate the enormous increase we’ll see in climate change related damages Coe 15-30 years from now if we don’t take this action. We’re going to spend the money either way. Either we can proactively invest in solutions or reactively invest in damage control.
Above all else, as the report indicates, it’s important to remind ourselves this capital expenditure is an investment, not a cost center, and should be viewed as such.
The Spending Needs to be Front Loaded
More money needs to be spent in the next 5-10 years vs. 2040-2050. As much as 8% of global GDP needs to be shelled out in the short term. This is because these technology and infrastructure investments take time to get established and pay back dividends. We can’t tip toe or slow burn our way into making these changes.
This is also tough as we need current leadership, administrations, and cultures investing more right now while accepting future generations may reap the majority of the direct benefits. Humans have long had a challenge of investing now for benefits in the future. Both at the individual and societal levels.
But again we remind you, the economic costs of NOT taking these actions over the next few decades will not only likely outpace the costs of doing them now, but also result in massive death and displacement.
As many as 100 million people could be displaced and 30% of our major coastal cities will be completely underwater by 2050 if we don’t keep temperatures below 2C.
The Shift Must Be Universal
These changes have to be global in effort.
A handful of countries investing in this shift will not even come close to getting to global net-zero, even if that short list includes the US & China. Quickly developing nations like India and Indonesia, home to a combined nearly 1.5 billion people need to be on board as well. Something we saw difficulty with in Glasgow last November when India refused to agree to phase out coal production at the last minute, for example.
If we can’t work together on this and move past the nationalism sentiment dividing our planet right now, we’re shit out of luck.
The Short & Long Term Outcomes will be Unevenly Distributed
This is perhaps the single greatest challenge we face, far more than a willingness to spend the money.
Not only will some countries and cultures bear more challenges than others, but there will be uneven outcomes within countries and cultures as well.
Let’s take the agricultural shift needed. First, a reminder that yes, agriculture only accounts for ~1% of global CO2 emissions. So you might say well why do we need to shift this industry? Well, it also accounts for 38% of methane emissions, which traps heat at a rate 80x that of CO2, but more importantly, our soils and forests serve as critical carbon sinks. Nearly all of these net-zero models assume our natural world at the very least continues to sequester the greenhouse gases it traps today on an ongoing basis. Throw this out and damage our soil and natural ecosystems any further, and we may never be able to get to net zero no matter how much we invest.
This will mean shifting away from the most pollutant of agricultural practices, such as large scale industrial beef and lamb farming (another reminder, small scale, rotational grazing of livestock can be quite good). Some countries depend on this both as a source of food and export income more than others.
Conflict will arise within countries as well. Globally, roughly 200 million jobs will be created by this transition and 185 million lost per this report. That’s a net gain of 15 million jobs. However, they are not evenly distributed. Within the US, states like West Virginia where there are more coal and gas jobs will see a hit, and states like say Wyoming where there is huge potential for more wind farming will see an increase. The problem comes when a single state representative can kill a bill, such as Joe Manchin did with the Clean Electricity Program last year, in the name of protecting their voters.
We must subsidize displaced workers. We must pay to retrain them and build the new skills to thrive in this transition. If we just leave people behind, as we unfortunately did when shutting down the Keystone XL pipeline last January, we will see more and more resistance to this transition.
We Have to Accept Short-Term Risks
There are going to be short term challenges that come with transitioning to a net-zero global economy,
A great example is electricity prices. The models in this report predict that electricity prices could rise 20-40% in the short term as we move off the super cheap but highly problematic fossil fuels and then level back off thereafter. Eventually actually getting cheaper, since the per Kilowatt/Hr of wind is already below gas for example, and other renewables will get cheaper as they scale.
The problem is selling citizens on accepting short term price hikes. We are seeing that play out right now, where certain conservative news outlets and politicians that are not supportive of taking climate change seriously are pointing to some price hikes in things like gas as examples of why people should not support the net-zero transition. The irony here being this currently particularly hike has nothing to do with the transition – it’s due to the costs of us pausing and then starting up a lot of our energy creation from the pandemic – but it goes to show you how easy it is to spin things like price hikes against the long-term benefits of what they may be leading too.
We need science and facts to prevail, not hyperbolic spin. But we will also need the government to help subsidize these rising costs for the average family. For that we will need more government revenue, which can likely only come from increasing corporate tax and creating a true wealth tax. Something rich people on both aisles of the political spectrum of course denounce.
OUR TAKE
Overall this is a great, comprehensive study about the level of effort it will take to make this transition and the trade-offs we must accept in doing so.
There are of course possible technology breakthroughs that could make this more efficient and cheaper – for example getting to scale with nuclear fusion energy or mega efficiency breakthroughs in battery technology – but there is no concrete timetable for those things so they should not be factored into the transition we need to invest in right now.
More concerning are the number of factors that could make this transition even more expensive or challenging socially or politically than even this model predicts
- Continued erosion of our natural carbon sinks (forests, oceans, grasslands) that make net-zero even more challenging to reach
- Scarcity of the natural resources needed to aid the transition – such as cobalt and nickel for batteries
- More and more extreme weather reeking havoc and requiring budget to aid in relief that takes away from investing in the transition
- Climate displacement leading to hundreds of millions of migrants that drive political conflict and breakdown our ability to work together as one planet
- Anti-transition world leaders such as Donald Trump coming into power and setting back the progress by leaps and bounds (a reminder he rolled back a record 174 environmental protection laws during his time and a majority of them were in the name of increasing fossil fuel production)
All that said, there is also good reason to believe. We are not meandering around trying to figure out how to do this. We know exactly how. We just need to actually get it done.
We recently stumbled upon this video of icon Carl Sagan testifying to Congress way back in 1985 about the climate crisis and greenhouse effect our human systems are building. This is nearly 40 years ago when this topic was on nobody’s radar and there was little to zero public by in and sentiment, outside of the concerns about the ozone layer. Looking back, while we certainly have improved and increased public support and sentiment for addressing the climate crisis, we’ve done absolutely nothing to actually mitigate it. Look at the expressions of these Congressional officials as they listen to Mr. Sagan, clearly with their minds elsewhere. Some 40 years later, Carl Sagan is still able to break down and explain the issue better than anyone we have today despite all of the advanced science, data and insights we have compared to 1985. We have reached a point of almost too much noise on the climate front, too many signals, too many divergent opinions that make it challenging for people to follow. Leaving so many to either a state of hopelessness because they are concerned but can’t wrap their arms around where to start, or a state of complacency because they can’t separate out the science from the noise. Both states of mind lead to inaction. We miss you Carl Sagan. We thank you for the clear warning shot and on behalf of everyone, we apologize that too few took your words and warnings to heart with the sense of urgency they warranted.
