Financed Emissions Threaten Climate Stability
Poorer countries and those reliant on fossil fuels are most exposed to the shifts in a net-zero transition, although they have growth prospects as well; the key issue is whether the world (governments, multilateral institutions & companies) can muster the requisite boldness and resolve to broaden its response during the upcoming decade, which will, in all likelihood, decide the nature of the transition.
McKinsey Global Institute has published a scenario-based analysis for decision makers to refine their understanding of the nature and the magnitude of the changes the net-zero transition would entail and the scale of response needed to manage it. “The world can learn a lot from the Dutch about combating climate change,” said Bloomberg in December 2021 article. “Much of Holland was under water until the Dutch, starting in the 15th century, built dikes to hold back the North Sea. In the 20th century, they constructed more dikes, dams and causeways and pumped out the huge shallow bay, the Zuiderzee (southern sea in Dutch), to use it for agriculture and housing, renaming it IJsselmeer (IJssel Lake) after the river that drains into it.”
McKinsey in its executive summary of net-zero transition report (published in January, 2022) writes that:
More than 10,000 years of continuous and accelerating progress have brought human civilization to the point of threatening the very condition that made that progress possible: the stability of the earth’s climate. The physical manifestations of a changing climate are increasingly visible across the globe, as are their socioeconomic impacts. Both will continue to grow, most likely in a nonlinear way, until the world transitions to a net-zero economy, and unless it adapts to a changing climate in the meantime. It says an ever-greater number of governments and companies are committing to accelerate climate action.
…While the transition would create opportunities, sectors with high emissions products or operations—which generate about 20 percent of global GDP—would face substantial effects on demand, production costs, and employment. In the NGFS Net Zero 2050 scenario, 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 modeled 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.
…Poorer countries and those reliant on fossil fuels are most exposed to the shifts in a net-zero transition, although they have growth prospects as well. These countries are more susceptible to changes in output, capital stock, and employment because exposed sectors make up relatively large parts of their economies. Exposed geographies including in sub-Saharan Africa and India (sub-continent) would need to invest 1.5 times or more than advanced economies as a share of GDP today to support economic development and build low-carbon infrastructure. The effects within developed economies could be uneven, too; for instance, more than 10 percent of jobs in 44 US counties are in fossil fuel extraction and refining, fossil fuel–based power, and automotive manufacturing. At the same time, all countries will have growth prospects, from endowments of natural capital such as sunshine and forests, and through their technological and human resources.
…The economic transformation required to achieve net-zero emissions by 2050 will be massive in scale and complex in execution. The transition would bring substantial shifts in demand, capital allocation, costs, and jobs, which will be challenging to a wide range of stakeholders, not least because they will be distributed unevenly. Yet the costs and dislocations that would result from a more disorderly transition to net-zero emissions would likely be far greater, and the transition would prevent the further buildup of physical risks. The findings of this research serve as a clear call for more thoughtful and decisive action, taken with the utmost urgency, to secure a more orderly transition to net zero by 2050. It is important not to view the transition as only onerous; the required economic transformation will not only create immediate economic opportunities but also open up the prospect of a fundamentally transformed global economy with lower energy costs, and numerous other benefits—for example, improved health outcomes and enhanced conservation of natural capital. Actions by individual companies and governments, along with coordinated action to support more vulnerable sectors, geographies, and communities, could help support the needed economic and societal adjustments. Moreover, the level of global cooperation that such a transition will ultimately require could serve as both a model and a basis for solving a broader array of global challenges. Daunting as the task may seem, it is fair to assume that human ingenuity would ultimately rise to the challenge of achieving net zero, just as it has solved other seemingly intractable problems over the past 10,000 years. The key issue is whether the world can muster the requisite boldness and resolve to broaden its response during the upcoming decade, which will, in all likelihood, decide the nature of the transition. More here > | Download executive summary >