Bank of America: Achieving zero emissions could cost more than 150 trillion euros

Climate action requires an unprecedented shift towards clean technologies at scale, but it will be costly, slow and uneven.

CO2 emissions to the atmosphere.

The International Energy Agency It estimates that achieving zero emissions will cost € 130 trillion over the next 30 years, or more than € 4 trillion annually. But the analyzes of BloombergNEF (BNEF) they raise the figure to 150 trillion euros or 5 trillion a year, that is, about three times the current investment received by the energy system. A figure that is more in line with BofA (Bank of America) calculations.

Most of this item will go to the electrification of various human activities and the electrical system (between 3 and 5 billion a year until 2030), while hydrogen will gain ground until 2040/50 (0.5 billion annually).

Decarbonizing non-energy emissions such as agriculture and land use will require even more capital. This will require job mobility between sectors, which can be challenging given the requirements to retrain employees and short-term labor supply challenges, which can lengthen the transition.

Influence of COP26

Before COP26, Bank of America published a guide to Net Zero and economic implications concluding that it is feasible but will be costly, time consuming and uneven.

“We will have to hope that the objectives, policies and national financial plans to reduce emissions that are announced in the coming weeks will have an impact on the markets,” says the financial institution.

Announcements from governments and businesses are already increasing in the coming weeks around three key focus areas:

1) Net Zero targets or equivalent national emission reduction plans (so far ~ 70% of global emissions are covered),

2) Specific policies and milestones on how net zero can be achieved (for example, phase out of coal, increase renewables and electric vehicles), and

3) Climate finance proposals, particularly for emerging markets.

It can be done, but everyone will have to contribute: governments, central banks, capital markets, ESG, private sectors and consumers.

‘Climanomics’: who will pay the bill?

The 5 trillion annual investments could boost GDP and employment. However, the chief economist Ethan Harris de Bank of America believes that although the demand side to mitigate climate change poses theoretical opportunities (up to an additional GDP potential of 0.4% per year through 2030), this could be limited by a lack of productive capacity, a shortage of manpower of work and inflation.

This, in return, may be above the 1% -3% inflation estimated by the IEA. Carbon taxes can create a more natural transition, but they are a political challenge.

In the long term, climate mitigation has opportunities, for example ecological protection, the creation of sustainable industries, the jobs of the future and higher productivity. But accelerating the transition to a low-carbon economy too quickly could hurt growth, shutting down sectors at the expense of others, and competing for resources when the economy is close to full employment.

The race for the superiority of clean technologies is key, “technological advances give us hope, but the geopolitics of the energy transition poses risks.”

The deceleration of the costs of clean technologies in the last decade continues: wind (-45%), solar (-85%) and batteries (-89%) in particular.

However, to decarbonize our planet we will need 9x, 14x and 88x more wind, solar and battery capacity by 2050, and even then that may only cover half of the emissions reduction.

The solutions to decarbonise sectors that are difficult to abate such as shipping, aviation and steel are in earlier stages of development, which requires rapid development and cost reductions in green hydrogen, sustainable fuels and carbon capture, for example.

Climate wars could be one of the bottlenecks. The global race for cleantech is underway, by China, the US and the EU, posing the risk of limited knowledge, an exchange of funds and a competition for resources.