Governments and companies worldwide are pledging to achieve net-zero emissions of greenhouse gases. What would it take to fulfill that ambition? In a new report, McKinsey looks at the economic transformation that a transition to net-zero emissions would entail—a transformation that would affect all countries and all sectors of the economy, either directly or indirectly. McKinsey estimates the changes in demand, capital spending, costs, and jobs, to 2050, for sectors that produce about 85 percent of overall emissions and assess economic shifts for 69 countries.
Achieving net zero would mean a fundamental transformation of the world economy, as it would require significant changes to the seven energy and land-use systems that produce the world’s emissions: power, industry, mobility, buildings, agriculture, forestry and other land use, and waste. To bring about these changes, nine key requirements (encompassing physical building blocks, economic and societal adjustments, and governance, institutions, and commitment) would need to be fulfilled against the backdrop of many economic and political challenges.
This means addressing dozens of complex questions, including: what is the appropriate mix of technologies that need to be deployed to achieve emissions reductions while staying within a carbon budget, limiting costs, and delivering required standards of performance? Where are supply chain and infrastructure bottlenecks most likely to occur? Where might physical constraints, whether related to the availability of natural resources or the scale-up of production capacity, limit the pace of the transition? What levels of spending on physical assets would the transition require? Who would pay for the transition? How would the transition affect companies’ markets and operations? What would it spell for workers and consumers? What opportunities and risks would it create for companies and countries? And how could consumers be encouraged to make changes to consumption and spending habits that will be necessary to ensure the transition?
In this report, McKinsey attempts to answer some of these questions, namely, those pertaining to the economic and societal adjustments. McKinsey provides estimates of the economic changes that would take place in a net-zero transition consistent with 1.5°C of warming. McKinsey seeks to build and expand upon the vast external literature on the net-zero transition, in order to offer a more detailed and granular view of the nature and magnitude of the economic changes that it would entail. As a result, our estimates of the annual spending on physical assets for a net-zero transition exceed to a meaningful degree the $3 trillion–$4.5 trillion total spending estimates that previous analyses have produced.
The full report, The net-zero transition: What it would cost, what it could bring, as well as a PDF summary, can be downloaded for free here.