The Energy Transition Will Be Expensive, But Not Catastrophically So
To hit the net-zero targets to which 91% of the world economy is now committed, many transformations are necessary.
The world is continuously replacing boilers, cars and power plants regardless of any energy transition. Incremental spending to replace them with green alternatives is much lower than the gross cost would be. The McKinsey Global Institute estimates that an annual average of 9.2% of GDP must be spent on physical assets to achieve net zero by 2050, but reckons this is an increase of only 0.9% of GDP over current plans.
The second reason is that the private sector will pick up much of the tab. Households, for example, usually buy their own boilers and cars, and in the rich world private firms are responsible for about 90% of all energy investment. The obr’s central scenario assumes that the British government will pay about a quarter of the total cost of the transition.