Shifting to a net-zero economy could boost the global economy by more than five percent, according to new findings for a gain of more than $10 trillion by 2050.
Climate change isn’t just better for the planet — it may be better for our bank accounts, too. That’s according to the new report from Oxford Economics and Arup.
“Fear is a compelling reason to act on climate change, but we believe human ambition can be another critical driver of environmental action,” Brice Richard, global strategy skills leader at Arup, wrote in the report. “This report shows the green transition is not a burden on the global economy, but a substantial opportunity to bring about a greater and more inclusive prosperity.”
Shifting away from fossil fuels
According to the report, increasing efforts in clean energy and other green industries that help usher in the shift away from fossil fuels is essential, regardless of the financial gains.
“As economists, we have to be honest about the fact that mitigating climate change will be expensive,” Oxford Economics CEO Adrian Cooper said in a statement. “But the transition to a carbon-neutral global economy also presents compelling opportunities.”
The report says a rapid shift away from fossil fuels — something the world’s leading climate scientists and think tanks have been advocating for — may finally start to be seen as financially lucrative.
The researchers say there are three key factors that could see green energy drive value: new areas of competition, the emergence of green markets, and higher productivity versus inaction on mitigating climate change.
Without immediate and significant efforts to reduce global warming, experts say the earth will surpass the 1.5°C threshold above pre-industrial temperatures, which will lead to catastrophic weather events, some of which are already being felt around the world.
‘A new competitive landscape will emerge’
Despite the warnings, governments and industries are failing to move swiftly on climate targets. Just 16 percent of climate investment needs are being met, says the Rockefeller Foundation. But that $10 trillion only comes if the planet achieves net zero by 2050, the researchers say.
It’s going to take “hundreds of trillions” of dollars in public and private funding to meet net zero targets, however, the researchers say.
“The transition will be costly and painful for certain enterprises, industries, and economies,” the authors wrote. “But in a transition to a net zero emissions environment by 2050, under a rapid transition away from carbon-intensive activities, a new competitive landscape will emerge. In many sectors, this requires a fundamental shift to consuming renewable fuels and energy. In others, new green equipment and technology will be needed in production. All sectors will experience short-term costs but the chance of earning large rewards over the medium- and long-term horizons.”
The researchers say the emergence of new markets could help fuel the sector’s growth, pointing to renewable electricity production, which will be worth at least $5.3 trillion by midcentury, and electric vehicles and their supply chains will add more than $3 trillion to the economy. But trillions more will come from other industries too including sustainable food tech and e-bikes, for example.
“There will be fortunes made, crudely, solving these problems,” Will Day, fellow at the Cambridge Institute for Sustainability Leadership, wrote. “There will be fortunes lost by those who don’t understand the context and don’t invest wisely or stay too late.”
Inclusion and climate resilience
Late last year, Harvard Law School Forum on Corporate Governance published Roadmap for Inclusive Green Finance Implementation – Building Blocks to Implement IGF Initiatives and Policies.
It details what central banks and financial regulators can do to cultivate financial inclusion and climate change resilience in “developed” economies — a key consideration as the world’s poorest countries are most at risk for the impact of climate change.
The researchers say “much can be learned” from the early approaches to sustainable finance regulation worldwide.
“While the U.S. approach focuses on sustainability risks, the European Union is working on a fully-fledged revamp of financial regulation based on ‘double materiality’, an approach that factors in both sustainability risks and the impact of financial activities on sustainability factors,” the researchers wrote.
“It is too early to assess whether these ambitious reforms will lead to fundamental changes in economic activity. The E.U.’s approach has focused, to date, on large companies where cost concerns are less important. By contrast, costs in emerging and developing economies deserve particular attention since most will end up being paid by poorer members of society, with clear exclusionary risks.”
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