To meet the 2050 net-zero commitment by the nations across the world, at least $9.2 trillion investment would be required annually, a new report by McKinsey and Company, has estimated.
The company stated that in all, the transition required for the world to reach net-zero emissions by 2050, would need spending of $275 trillion on physical assets between now and the projected period.
This annual average, it stated included investment in the energy, mobility, industry, buildings, agriculture, and forestry and other land-use sectors. The estimated spending on all those need to be $3.5 trillion per year more than today if the world was to achieve net-zero by 2050, according to the firm.
To put the global funding requirement in context, McKinsey stated that the increase was equivalent to half of global corporate profits and one-quarter of total tax revenue in 2020.
According to the report, the impact of the energy transition would be uneven across countries and sectors.
“Many of these sectors would also incur cost increases as they decarbonise. For example, steel and cement production costs would rise by about 30 per cent and 45 per cent, respectively, by 2050, compared with today, in the scenario we analyse,” McKinsey said.
It added that spending on the net-zero economy would also be unevenly distributed around the world, stating that developing countries and producers of fossil fuels will have to spend more as a share of their GDP than other countries.
In the case of sub-Saharan Africa, Latin America, India, and other Asian nations, the spending would be about 1.5 times as much as advanced economies, or more, according to McKinsey.
It noted that the developing countries in South-east Asia and Africa, those that cannot afford to splash trillions of US dollars on anything, are also those most exposed to the effects of climate change.
“One of the most immediate risks is that of a disorderly energy transition, if the ramp up of low-emissions activities does not take place fast enough to fill gaps left by the ramping down of high-emissions activities,” McKinsey said.
It explained that soaring energy prices could create a backlash that delays the transition, noting the importance of the careful management of the transition to spare the world more shocks in energy supply and prices.
“As reliance on renewables grows and investment in fossil fuel-based power generation declines, tight supply for raw material inputs for technologies like solar panels and batteries may compound energy price volatility given long lead times in the capital-intensive mining sector,” McKinsey pointed out.
At the COP26 summit in Glasgow in November last year, President Muhammadu Buhari had pledged that Nigeria would cut its carbon emissions and reach net-zero by 2060, underlining the key role of gas in the country’s energy transition roadmap.
While nations such as the UK, the United States, and the European Union have set targets to achieve net-zero by 2050, Nigeria opted to join Saudi Arabia and Russia in vowing to reach net-zero by 2060.
Emmanuel Addeh in Abuja
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