10 February 2022   Leave a comment

Mekala Krishnan is my niece and she works for the McKinsey Global Institute. She is the lead author of a new study entitled “The net-zero transition: What it would cost, what it could bring?” The questions are critically important because we know that burning fossil fuels for energy is no longer a viable option for the future, yet there are no current alternatives which could satisfy the energy demands of the global economy. The policies in place today, including the Paris Agreement, lead to nothing more than a dead-end:

“At present, though, the net-zero equation remains unsolved: greenhouse gas emissions
continue unabated and are not counterbalanced by removals, nor is the world prepared
to complete the net-zero transition. Indeed, even if all net-zero commitments and national
climate pledges were fulfilled, research suggests that warming would not be held to 1.5°C
above preindustrial levels, increasing the odds of initiating the most catastrophic impacts
of climate change, including the risk of biotic feedback loops. Moreover, most of these
commitments have yet to be backed by detailed plans or executed. Nor would execution be
easy: solving the net-zero equation cannot be divorced from pursuing economic development
and inclusive growth. It would require a careful balancing of the shorter-term risks of poorly
prepared or uncoordinated action with the longer-term risks of insufficient or delayed action.
Indeed, a more disorderly transition could impair energy supply and affect energy access and
affordability, especially for lower-income households and regions. It could also have knock-on
impacts on the economy more broadly, potentially creating a backlash that would slow down
the transition.”

The best solution to his impending disaster is to substantially reduce the consumption of so many products but that solution is probably politically impossible (although it may be forced upon us). There is plenty of evidence that renewable energy sources can ultimately substitute for most fossil fuels, but that horizon remains distant for most countries in the world. Thus, the real problem is managing a transition with minimal disruption to the global economy.

The report does not downplay the costs of the transition:

“Capital spending on physical assets for energy and land-use systems in the net-zero transition between 2021 and 2050 would amount to about $275 trillion, or $9.2 trillion per year on average, an annual increase of as much as $3.5 trillion from today. To put this increase in comparative terms, the $3.5 trillion is approximately equivalent, in 2020, to half of global corporate profits, one-quarter of total tax revenue, and 7 percent of household spending. An additional $1 trillion of today’s annual spend would, moreover, need to be reallocated from high-emissions to low-emissions assets. Accounting for expected increases in spending, as incomes and populations grow, as well as for currently legislated transition policies, the required increase in spending would be lower, but still about $1 trillion.”

The proper way to think about this spending, however, is to think about the money as an investment, not as a cost. It is not as if there is much choice in the matter, at least for our grandchildren.

The report outlines all the opportunities for jobs in a net-zero world and there is no question in my mind that those jobs will more than compensate for the jobs lost in eliminating the fossil fuel industry. The difficulty arises from the asymmetry between the skills associated with each energy approach. Those who profit from the dependence on fossil fuels are not likely to be the same people who will benefit from a net-zero carbon emission energy economy. Societies should focus their attention on how to manage the disparities in benefits.

The report is very detailed and I highly recommend it for careful study. It is well-documented and clearly written. It also manages to maintain a dispassionate tone while bringing an urgent message home.

Posted February 10, 2022 by vferraro1971 in World Politics

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