The Energy Transition Commission (ETC) has estimated that the required additional investment for achieving net zero carbon economy by 2050– while significant in absolute dollar terms – will amount to no more than 1-1.5 per cent of global GDP ($1-2 trillion annually), and is easily affordable given current global savings and investments, particularly in the prevailing macroeconomic context of sustained low interest rates.
“The scale of required investment is small compared with the massive public spending and fiscal deficits now being dedicated to stimulating the economy after the Covid-19 crisis, providing an opportunity – if well designed – to accelerate the energy transition,” ETC said in a report released on Wednesday. ETC is a coalition of global leaders from across the energy landscape: energy producers, energy-intensive industries, equipment providers, finance players and environmental NGOs.
The largest element of expenditure would be to build a global power system that can deliver 100,000 TWh per year, including new renewable electricity capacity, transmission and distribution networks, battery storage for diurnal flexibility, and additional technology deployment to supply inter-day and seasonal flexibility.
This would represent a total additional annual investment of around $1-1.5 trillion annually. The ramp-up of hydrogen production, transport and storage will also require massive investments, either in electrolysis equipment, or in the capital equipment for steam methane reforming, or auto thermal reforming combined with CCS. This investment could amount to around $3.7 trillion over 30 years, or $130 billion annually.
The upfront capital cost of light-duty electric vehicles (EVs) is likely to fall below those for internal combustion engine (ICE) vehicles by the mid-2020s. For medium and heavy-duty vehicles, decarbonisation will likely entail either battery-based electrification or use of hydrogen in fuel cell EVs, with the former dominating for shorter-distance intra-city applications and the latter dominating above some distance.
The report said transportation is likely to become electric, in either battery or hydrogen fuel cell form, well before 2050 and much faster than many projections suggest, due to the inherent energy efficiency advantage of electric engines.
ETC works out scenarios to limit global warming to below 2°C and as close as possible to 1.5°C. For this, the world needs to achieve net-zero GHG emissions by around mid-century. It said battery-based electrification and hydrogen will also play a significant role in short-distance journeys. But the limited energy density of batteries and the low volumetric density of hydrogen may make the use of liquid fuels necessary for long distances for the foreseeable future. These fuels could come from either a low-carbon, sustainable bio-feedstock (eg, alcohols, biofuels) or from a power-to-liquid production route (ammonia in the case of shipping and synfuels in the case of aviation).
The report said the impact of achieving a zero-carbon-emission economy on human welfare in 2050 will be hugely positive. It claimed it is technically and economically possible to have a carbon-free economy by around mid-century at a total cost of less than 0.5% of global GDP. Under a high-cost scenario and with limited energy productivity improvement, the additional costs could amount to 0.49 per cent of projected global GDP ($1.6 trillion), under a low-cost scenario and a maximum energy productivity scenario, the cost could be 0.17 per cent of global GDP per annum ($600 billion) and in both scenarios, the costs are dominated by three specific sectors, cement (and thus building costs), aviation and shipping.
Most other sectors of the economy can be decarbonised at very low, nil or even negative cost. These costs contrast with the potential adverse consequences of unmitigated climate change. “Recent research estimates that since 2000, warming has already cost both the US and European Union at least $4 trillion in lost output, and tropical countries are 5 per cent poorer than they would have been without warming,” said the report. In addition, achieving a zero-carbon economy will improve local air quality, saving health costs.