The transition to net-zero could cost $9.2 trillion a year

With the drive towards a net-zero world well underway, a new McKinsey report suggests it will cost $9.2 trillion a year to achieve that goal, an increase of $3.5 trillion from today.

Capital spending on physical assets for energy and land-use systems in the net-zero transition between 2021 and 2050 would amount to about $275 trillion, according to the McKinsey Net-Zero Transition report.

The $3.5 trillion figure is approximately equivalent, in 2020, to half of global corporate profits, one-quarter of total tax revenue, and 7 percent of household spending, the authors explain.

This transition could bring about 200 million new jobs but 185 million jobs would be lost in the process by 2050.

The report authors explain, “This includes demand for jobs in operations and in construction of physical assets. Demand for jobs in the fossil fuel extraction and production and fossil-based power sectors could be reduced by about nine million and four million direct jobs, respectively, as a result of the transition, while demand for about eight million direct jobs would be created in renewable power, hydrogen, and biofuels by 2050.”

According to the McKinsey report, the global average delivered cost of electricity would increase in the near term but then fall back from that peak, although this would vary across regions.

Unsurprisingly, those industries with high-emissions products or operations that generate 20 percent of global GDP, who face substantial effects on demand, production costs and employment.

According to the net-zero predictions from McKinsey, coal production for energy use would nearly end by 2050, and oil and gas production volumes would be about 55 percent and 70 percent lower, respectively, than today.

“Process changes would increase production costs in other sectors, with steel and cement facing increases by 2050 of about 30 and 45 percent, respectively, in the scenario modelled here. Conversely, some markets for low-carbon products and support services would expand. For example, demand for electricity in 2050 could more than double from today,” the authors said.

Read the full report here.