Counting the huge cost of net zero - and who's going to pay it
When it comes to cutting emissions, it will cost an awful lot to make a little.
The global effort to hit net zero by 2050 will cost $275 trillion in spending on physical assets, ranging from wind farms to electric cars and better-built houses, according to global consultancy McKinsey.
It works out at an average of around $9.2 trillion annually - an increase of about $3.5 trillion compared with today. That is equivalent to around a century’s worth of global military spending (at 2020 rates), and fifteen times the GDP of the United States.
In Europe, countries will need to spend around 6.5pc of GDP on average over the next three decades to reach the target.
Despite the costs, it may be the only good option. “The rewards of the net-zero transition would far exceed the mere avoidance of the substantial, and possibly catastrophic, dislocations that would result from unabated climate change,” McKinsey’s report warns.
There are less than thirty years to hit the net zero targets. The first half might prove the toughest, and most crucial: requiring the quickest adoption and the development of technology, and posing the greatest risks. According to McKinsey, spending is likely to peak at 8.8pc of global GDP in 2026-2030, before slowly falling until 2050.
Mekala Krishnan, one of the report’s authors, says the next decade will be “decisive”.
“Some of the building blocks [that are needed] are starting to come together, but I think there are still large questions that remain,” she says.
Once the teething pains are passed, the subsequent decade and a half should be easier, with more reliable sources of renewable power established and less investment required.
It can’t be done alone, however: McKinsey’s report emphasises that achieving net zero is not the sole reserve of most industrialised nations.
“What is clear is that the transition will require collective and global action, particularly as the burdens of the transition would not be evenly felt,” it says. “The prevailing notion of enlightened self-interest alone is unlikely to be sufficient to help achieve net zero, and the transition would challenge traditional orthodoxies and require unity, resolve, and ingenuity from leaders.”
That means buy-in from countries such as Russia, which as a fossil fuel-producing nation faces one some of the highest spending of any country. That’s if it even tries: Vladimir Putin made his contempt for COP26 clear, and in recent months has shown Moscow sees fossil fuel control as a weapon – one it is unlikely to throw away.
Boris Johnson has tried to make himself and Britain a leader in this worldwide push, but he will need to ward off threats to his green agenda.
Johnson faces a small but potent threat on his party’s right wing, particularly from the Net Zero Scrutiny Group, formed of around 40 Conservative MPs. One of its key organisers is Steve Baker, who rose to prominence for his entrenched opposition to Theresa May’s attempts at securing a deal with the EU. Earlier this week, Baker warned the issue of net zero costs could end up being “bigger than the poll tax, certainly bigger than Brexit”.
But the arithmetic of the current parliament limits their power. Johnson, for all his past scepticism on climate change, has tied himself to the cause of reducing emissions, and he wields the healthy majority May didn’t have during the Brexit years. There are around 120 MPs in the Conservative Environment Network which supports the net zero goal, including recent additions such as former health secretary Matt Hancock.
If the rebellious voices grow, the PM may have to leverage strong support for environmentalist policies across other parties to push through his agenda.
“I think there's kind of a lot of MPs who are absolutely signed up for tackling climate change,” says Eamonn Ives, head of energy and environment at the Centre for Policy Studies, a free-market think tank. “But they need to be kept on board.”
Mike Foster, chief executive of the Energy and Utilities Alliance, a trade body, supports the drive for net zero but says the Government needs to be more open about the costs and more practical in its approach.
“Where we have our concerns is over the cost of achieving net zero in the UK, and how those costs are going to be shared amongst the population,” he says. “We don't think there has been that discussion with the public about who's going to pay what basically, and how they're going to pay it.”
Businesses seem ready, with industry groups saying there has been a sea of change in recent years in how bosses think about net zero and climate change. Make UK says four in five of its members have set out plans for net zero, or are preparing to.
Brigitte Amoruso, the manufacturing trade body’s energy and climate change specialist, says: “The pandemic has helped, in a way, in the sense that many businesses have had to completely review their business anyway.”
According to the CBI’s Tom Thackray, businesses might have dragged their feet under Britain’s old target, which called for an 80pc reduction in emissions.
“One of the good things for the net zero target is that it's all- consuming – all sectors, all sizes of businesses – and that's focused minds.”
Ives agrees, adding that the new targets are not just a small, green cause anymore but “the logical economic option.”
There’s little doubt, however, that the road to net zero will mean incredible disruption to the world of work. McKinsey projects the transition will create 200m jobs and destroy another 185m, with automotive production and agriculture predicted to experience the greatest churn. In some instances, workers will be able to change skills and swap jobs, but some are bound to fall through the cracks.
And it isn’t even the biggest looming disruption. McKinsey notes: “While important, the scale of workforce reallocation may be smaller than that from other trends including automation.”
As the globe gets on track to achieve net zero, figuring out what to do with those left-behinds could be another of the greatest puzzles in the coming decades.