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Climate neutrality will affect 20% of world GDP

Climate neutrality will affect 20% of world GDP

Ground Report | New Delhi: Climate affect world GDP; The transition to a global economy that does not emit greenhouse gases implies a transformation that will affect all countries and all sectors of the economy, either directly or indirectly.

Climate affect world GDP

However, there are certain areas that will be much more exposed to these changes, especially those that carry out their activity through high-emission products or operations, such as energy, industry, agriculture or mobility. These sectors, which currently represent close to 20% of world GDP, should be treated as priorities to prevent the search for climate neutrality from turning into an all-out game that leaves the most vulnerable behind.

That is the main conclusion of the study Zero Net Emissions: what it would cost, what it could contribute, published this week by the consulting firm McKinsey & Company. According to his calculations, the transformation of the global economy required to achieve net-zero emissions by 2050 would be “universal and significant,” requiring up to $9.2 trillion in average annual spending on physical assets, or 3.5 billion more than today. That is a drastic increase in spending that is however only equivalent to half of the global corporate profits and a quarter of total tax revenue in 2020.

Of course, according to the consultant, most of the spending will be concentrated in the coming years, since the next decade will be decisive, although the impact would be uneven between countries and sectors. Thus, spending would rise to 8.8% of GDP between 2026 and 2030, from the current 6.8%, before falling, and electricity production costs would rise in the short term, but then fall from their peak.

In fact, in addition to the enormous transformations that key sectors already mentioned such as industry or agriculture will have to face, economic areas whose supply chains have high missions, such as construction, will also have to be a priority.

labour market will undergo

In any case, the transition is exposed to risks, especially that of the volatility of the energy supply, but, at the same time, “it is rich in opportunities”, according to McKinsey. And it is that the search for climate neutrality would not only prevent the accumulation of physical climate risks and reduce the chances of initiating the most catastrophic impacts of climate change but would also bring opportunities for growth since decarbonization creates “important efficiencies and opens markets for new low-emission products and services.

In addition, at the level of employment, climate neutrality would show a positive balance. The report forecasts that the labour market will undergo changes due to a reallocation of the workforce, with some 200 million direct and indirect jobs gained and 185 million lost until 2050.

Households with less income, more affected

Of course, McKinsey analysts are clear that this climate neutrality will have significant externalities, especially among the most vulnerable. In fact, the document states that, in this transition period, low-income households around the world could be the most affected “by the higher cost of electricity in the short term and by the costs they may have to incur to purchase low-emission products, such as new heaters or electric cars.

In this sense, countries with lower incomes and large resources of fossil fuels, such as Bangladesh, India, Kenya or Nigeria, would be greatly affected by the transformation towards net-zero emissions. On the other hand, countries such as Spain, France or Great Britain would be less exposed to the necessary changes, since they have a high GDP per capita and an economy based on the service sector.

Despite the “costs and risks” involved in the transition, the consultancy concludes that the results “would be much worse if no action were taken”, according to McKinsey experts. “A well-coordinated transition would pay dividends, including the potential for long-term lower energy costs, improved health outcomes, and conservation of natural capital,” the report highlights.

In this sense, the significant adjustments required by the transition to zero net emissions can be better supported, according to the consultant “through the coordinated action of governments, companies and enabling institutions”. In other words, alliances are “absolutely decisive” to achieve not only that the search for climate neutrality is done urgently, but also to ensure that this transition is orderly and successful.

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  • Wahid Bhat

    Wahid Bhat is an environmental journalist with a passion for covering climate change and environmental issues. He holds a degree in English Journalism (EJ) from the Indian Institute of Mass Communication and has received Media Fellow for NFI India (National Foundation for India) and Thomson Reuters Foundation. Wahid's reporting has been published in a range of respected outlets including Earth Journalism, Global Village Space, The Quint, Youth Ki Awaaz, and Devdiscourse