Reaction To The McKinsey Climate Change Report

Yesterday we reported about the new report from McKinsey consulting group, which claims the cost of addressing climate change will require the nations of the world to invest $9.2 trillion a year for many years to transition to a low carbon economy that runs on 100% renewable energy.

In other words, it said precisely what we have been saying here at CleanTechnica for years — we must stop extracting fossil fuels, transporting them to refineries, and distributing them to customers so they can be burned or turned into plastics. That means making all our buildings more energy efficient, decarbonizing steel and cement manufacturing, stopping the cutting down of forests, transforming agriculture, and doing a thousand other things to prevent more climate-killing emissions from entering the Earth’s already overloaded atmosphere.

Image credit: McKinsey

That figure of $9.2 trillion is not quite as dire as it may seem at first glance. McKinsey estimates spending on energy, mobility, industry, buildings, agriculture, forestry, and other land use investments at $5.7 trillion a year. The net result is spending on things in those categories needs to increase by $3.5 trillion a year — not an impossible proposition, according to lead author Jonathan Woetzel of the McKinsey Global Institute, the consultancy’s in-house think tank.

He tells The Guardian, “$9.2 trillion is a very big number — big enough for anybody to pay attention to — but it’s not an impossible number. It’s not like we haven’t [made transformations] before in other ways.” The economic transformation he envisions is from an economy that does not include the costs of environmental and social damage done by economic activity, to one that does. In other words, it is one that eliminates all the “untaxed externalities” that have allowed the fossil fuel companies to profit at the expense of humanity.

“There will only be a sustainable economy, we won’t have any other kind,” he says. The Guardian suggests the transition from an agrarian economy to one based on urban living is an example of one such very expensive change that has occurred in the recent past.

To those who wring their hands and wail that the world can’t afford such massive spending, the simple answer is the world can’t afford not to make these investments, not if the human race is to survive after the wealthiest of the wealthy decamp to Mars. The report says reaching net zero is vital if we as a civilization are to avoid the most catastrophic impacts of global heating which would harm billions of people. Furthermore, low carbon investments are opportunities for economic growth and would lead to a lower cost, more efficient economy.

The report also says the transformation becomes more expensive the longer action is delayed. We can thank the oil companies for lying to us for decades for putting us in this situation. Had the world taken action to decarbonizing the economy when the scientists for those companies began telling their bosses about the harm carbon emissions would cause, the cost of limiting climate change would have been minuscule in comparison to what it will be today.

Upfront Costs Will Be Great

No one is pretending there won’t be social as well as economic costs associated with the transition to a low carbon economy. The McKinsey scenario suggests electricity costs could rise 25% by 2040 before falling below today’s levels after 2050, once the lower operating costs of renewable energy take effect. Steel and cement face cost increases of about 30% and 45% respectively, it says.

Those are some of the costs, but there are also rewards, with survival as a species being one. Bob Ward, a policy director at the Grantham Research Institute on Climate Change at the London School of Economics, UK, tells The Guardian, “The McKinsey investment figures are not the net costs of reaching net zero globally, but instead the upfront annual costs without taking into account the benefits. Investments in clean infrastructure will generate jobs, growth, and huge savings, particularly by eliminating the need to buy ruinously expensive fossil fuels, and [will] yield much bigger returns when taking into account the avoided loss of lives and livelihoods from air pollution and climate change.”

The cost of doing something will also be far less than doing nothing. The insurance firm Swiss Re recently estimated the damage caused by a 2.6°C rise in global temperature by 2050 — which many climate scientists believe is likely to happen — would reduce global GDP by 14%. In October, the climate economist Nicholas Stern said, “The move to net zero can be the great driver of a new form of growth — the growth story of the 21st century.”

“While the immediate tasks ahead may seem daunting, human ingenuity can ultimately solve the net zero equation, just as it has solved other seemingly intractable problems over the past 10,000 years,” the McKinsey report says. “The key issue is whether the world can muster the requisite boldness and resolve.”

If it does, the rewards will far exceed the costs of climate impacts. Nations would have to learn how to work together and would be better positioned to address other “age-old” geopolitical issues. “That is a hopeful message, we believe, for people to realize that there’s a need — and a capacity — to create greater global collaboration,” Woetzel said.

Mark Jacobson’s Wind, Water, Solar Model

Mark Jacobson, professor of civil and environmental engineering at Stanford and director of that school’s Atmosphere/Energy Program, told CleanTechnica in an email this week that his latest paper on this topic — A Solution to Global Warming, Air Pollution, and Energy Insecurity for 145 Countries — is in general agreement with the McKinsey study. (Please see Michael Barnard’s analysis of Jacobson’s plans here, here, and here.)

The solutions he proposes are “28% lower than the $9.2 trillion estimate by McKinsey. However, it is in the same ballpark. We find that, if we do not transition, we will be paying far more in direct energy costs — $17.8 trillion per year — so transitioning reduces annual energy costs by 63.%. What is more, transitioning eliminates health and climate costs, which together with energy costs, will cost the world $83 trillion per year in 2050. As such, transitioning reduces energy plus health plus climate costs by 92%.”

The Takeaway On Climate Change

The is a huge difference between an expense and an investment. Buying a 72-inch TV is an expense. Putting a new roof on you home is an investment. Buying an oil filter for you car is not an expense, it is an investment.

There are those who see any money spent on mitigating climate change as money down the rat hole. Nothing could be further from the truth. Putting aside the obvious costs of an overheating planet, the crud that gets pumped into the air when fossil fuels are burned kills 5 million or more people a year, shortens our lives, burdens our children with cognitive difficulties, and wastes enormous amounts of money on healthcare.

The problem is much bigger than money. To solve this, humans must learn how to live together in a collaborative society which values the contributions of everyone — even the least among us. That has never happened before. If it doesn’t happen now — while Russia is massing troops along its border with Ukraine and the Chinese and American navies are playing chicken in the South China Sea — it may never happen.

A failure to cooperate will seal humanity’s doom here on Planet Earth. Sharks and cockroaches and rats will survive, but homo sapiens will become extinct and we will have no one but ourselves to thank for our demise. As Walt Kelly once said in his comic strip Pogo, “We have met the enemy and they are us.”