What is the cost for the global economy in decarbonization and the transition to clean energy? One of the reports from the Bank of America has probed into the degree of climate change and the cost behind such effort, and estimates that the attainment of zero emission within 30 years would require an expenditure of US$5 trillion each year.
The particular report gets straight into the consequences of climate change, which include the possibility of water scarcity for a population of 1.8 billion, poverty among a population of 100 million, and elevated sea surface that will impact a population of 800 million, by 2025. The ramifications of extreme weather may result in a climate migration population of 143 million for emerging markets. The report emphasizes that the next decade will be the last opportunity in executing relevant actions, and the mitigation measures for climate change that have been implemented in certain regions of the world must be amplified considerably. A comprehensive global decarbonization must be in full throttle within the next several decades in order to achieve major changes.
The report also did a calculation on the transition to clean energy for carbon emission industries. The total investment will arrive at US$150 trillion for the next 30 years, which equals US$5 trillion each year. US$150 trillion is almost twice the total global GDP from 2019, while an annual expenditure of US$5 trillion is the equivalent to the entire tax base of the US.
Power generation technology still lacks maturity despite increasingly affordable clean energy. As pointed out by the report, one of the lessons learned from the existing energy crisis is that the capacity of renewable energy is not synced with energy storage in terms of development, where developers are sustaining higher production cost from the difficulties encountered in energy storage when generating wind or solar power.
Where will the annual expenditure of US$5 trillion go to? Apart from the increasingly affordable clean energy, the report that US$3 from every US$10 that enters global stocks goes to the environment, social, and governance (ESG) investment, which will support climate-friendly investment, and further subsidize new investment required decarbonization, such as green mining, green hydrogen, or carbon capture. In addition, a green economy will also create 42 million job opportunities.
Also mentioned in the report is the power consumption from Bitcoin. The report claims that a single bitcoin has 270 tons of carbon footprint, which equals the emission of 60 cars. Most of Bitcoin mining activities have been shifted to the US after China’s prohibition policy in May, and roughly 17% of the current mining is seen in the US. The research from the University of Cambridge in 2021 finds that China’s ban in mining may reduce the country’s carbon footprint.
A more concrete recommendation in lowering carbon emission is the unification of carbon prices. Carbon price is essentially a figure, and the sum payable depends on the level of emission. The Bank of America’s report points out that it is essential in seeing whether national leaders around the world are going to reach a consensus regarding the implementation and calculation of carbon prices at the COP26 that will begin at the end of the month.
The report believes that although the migration to green technology imposes exorbitant prices, it will be more affordable compared to a continuous dependence on fossil fuels, though the action of decarbonization will not completely replace fossil energy but add diversity in energy instead. In addition, the report also claims that the Federal Reserve Bank will be adding an US$50 billion financing each year, and the decarbonization implementation may result in an annual inflation of 3% for the entire world.
However, doing nothing may yield a more severe consequence at more than 3% of loss in annual GDP by 2030, before losing US$69 trillion by 2100. The International Energy Agency (IEA) commented from the World Energy Outlook that the investment in clean energy must increase twofold in the next decade in order to attain the target of net zero emission for this century.
(Cover photo source: Flickr/Jason CC BY 2.0)
