This is the second of three articles detailing the findings from the first report ever published jointly by the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA). The first article deals with the report’s findings on emission reductions, this article deals with the predicted economic benefits of the energy transition, while the third article deals with the potential trillions of dollars worth of stranded assets.
The global transition to a decarbonized energy sector is likely to not only help us prevent global warming from rising past 2°C but is also likely to yield economic benefits up to $10 trillion every year by 2050 and a boost to the world GDP of $19 trillion.
These are among the leading findings from the first ever report published jointly by the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA) this week. The report, Perspectives for the Energy Transition: Investment Needs for a Low-Carbon Energy Transition, focused on the global potential for decarbonization of the energy sector in an effort to determine the investment needs and potential over the next decades.
The report not only highlighted the many obvious and sought-after benefits — such as needing to reduce emission intensity by 85% in 35 years (by 2050) — but also forecast the economic benefits that many may not have been expecting from the necessary energy transition.
The need to transition to a low-carbon, renewable energy-dominant energy system has been widely known and publicized for a while now, but only in recent years has the economic argument been made. Dramatic price decreases for solar and wind has made the transition more than an environmental necessity and built it into an economically viable and beneficial choice. Investors and companies around the world are seeing the economic potential of the transition.
“Critically, the economic case for the energy transition has never been stronger,” said IRENA Director-General Adnan Z. Amin. “Today around the world, new renewable power plants are being built that will generate electricity for less cost than fossil-fuel power plants. And through 2050, the decarbonisation can fuel sustainable economic growth and create more new jobs in renewables.”
The report highlighted the economic benefits that such a transition would have — both the boost to the global GDP, and more nuanced benefits.
The equation is a two-part one: a deep transformation of the energy sector will require “a rapid escalation in low-carbon demand-side investments” that works out to around $3.5 trillion in energy sector investments on average each year between 2016 and 2050, compared to only $1.8 trillion invested in 2015. More accurately, the Reference Case presented in the study predicts $116 trillion of investments over the period in question, meaning that an additional cumulative addition of $29 trillion is required to meet decarbonization targets. Incremental system costs would amount to around $1.8 trillion annually in 2050.
However, and here is the other part of that two-part equation — “reducing human health damages (a fundamental driver for energy policy in key G20 countries) and CO2 emissions from fossil fuels would save between two- and six-times more than the costs of decarbonisation.” These reduced “externalities” would work out, in absolute terms, to be about $10 trillion in economic benefits annually by 2050. One of these externalities, outdoor air pollution, would account for about two-thirds of this total.
Global GDP impacts of the REmap energy transition: additional and absolute GDP values, 2015- 2050
On a larger scale, the report concludes that the “energy transition can fuel economic growth and create new employment opportunities.” Specifically, global GDP (Gross Domestic Product) would be boosted by around 0.8% in 2050, or around $1.6 trillion, while the cumulative gain increased through GDP from now to 2050 would amount to $19 trillion.
In terms of the jobs that this transition would create, the report forecasts up to six million additional jobs by 2050, including jobs in the energy efficiency sector. Yes, there would be job losses in the fossil fuel sector — and we can’t just assume that every one of those lost employees would be in a position to pick up one of the newly-created jobs — but the offset is well in favor of jobs added. Further, “The overall GDP improvement will induce further job creation in other economic sectors.”
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