The longer we wait, the faster the global-warming bill accumulates
If you’ve ever carried a credit-card balance, you know the pain of watching interest charges accumulate, turning what was once a high but manageable expense into an express ticket to bankruptcy. The clean-energy transition is kind of like this: The longer we delay paying for it, the more crushing the cost will become.
BloombergNEF’s latest New Energy Outlook, a 250-page State of the Transition address, estimates the world must invest $215 trillion by 2050 to zero out carbon emissions and limit global heating to a merely disastrous 1.75 degrees Celsius above preindustrial averages. That amount is what economists call "a lot.”
But readers with long memories might recall that, just a year ago, BNEF suggested this cost would be $196 trillion. This year’s estimate represents a nearly 10% increase. I know what you’re probably thinking: "Thanks a lot, Joe Biden’s inflation.” But the real issue is that the $1.8 trillion the world invested in the transition in 2023 was well behind the pace necessary to achieve net zero.
That investment needs to average $4.8 trillion a year through 2030 if we’re to have any hope of reaching our stretch goal of keeping the planet mostly livable, BNEF has estimated. Like making the minimum monthly payment on a huge credit-card balance, falling short of that necessary investment means we keep falling into an even deeper hole of greenhouse-gas emissions, raising the amount we need to invest to climb out of it, not unlike compounding interest.
And as mind-numbingly big as $215 trillion may be, it’s actually a bargain compared with the potential economic destruction of unabated climate change. Every 1 C of heating cuts global gross domestic product by 12%, according to a new National Bureau of Economic Research paper by economists at Harvard and Northwestern. That’s roughly six times larger than previous estimates, a difference the authors chalk up to chronic underestimation of the impact of rising temperatures and weather extremes on economies.
The world has already warmed by 1.3 C and the NBER authors suggest global GDP per capita would be 37% higher right now had we listened to the scientists in the 1970s and avoided that warming. By 2100, the permanent loss from additional warming under a "business as usual” scenario would rise to 52%, representing trillions of dollars in economic destruction.
"These magnitudes are comparable to the economic damage caused by fighting a war domestically and permanently,” the authors wrote.
Almost as important, $215 trillion in spending is only 19% more than it would be in what BNEF calls an "economic transition scenario,” a sort of blah middle ground in which the inherent desirability of clean energy gradually wins out without any government nudging. It’s the path we’re already on, as inadequate as that is. In that scenario, the planet heats by 2.6 C, unleashing ever-more destructive natural disasters, rendering swaths of the globe uninhabitable and wreaking havoc with our food supply, to name a few economically undesirable results. Avoiding that is well worth a mere 19% bump in investment.
In fact, as complex an undertaking as it is to rewire the globe’s energy system, rewiring is the operative — and simplifying — word. Greg Jackson, founder and chief executive officer of Octopus Energy, had it right in a recent interview with Carbon Brief when he said: "The reality is that it just boils down to electrification.”
BNEF’s New Energy Outlook contains whole sections on relative exotica like hydrogen, clean shipping and such, of course. But the main plot line revolves around power. Of BNEF’s nine "technology pillars” for a net-zero world, six relate to how power is generated, transmitted and used in everything from vehicles to heat pumps. In terms of cutting projected emissions of about 50 gigatons of carbon dioxide to zero in 2050 under a "no transition” scenario, fully 69% relates to greening the grid and using its power to do more things.
Electrification lets us cut out thermal energy usually derived from fossil fuels, such as natural gas in a boiler or gasoline in an internal combustion engine. The resulting efficiencies, by cutting out the energy wasted as heat, are an important element in mitigating the cost of transition.
Luckily for us, things like zero-emission power, electric vehicles and heat pumps are among the more mature transition technologies available (along with building power grids, of course). Costs must still be reduced and nontechnology factors such as, for example, burgeoning green trade wars can still present formidable obstacles to deployment. Nonetheless, if you had to distill BNEF’s 250-odd pages of transition treatise into a motto, it would be: Plug it in. Given the report’s other message — tick tock, essentially — the bulk of the world’s efforts should be focused here.
JT