Global Price Tag for Net-Zero Transition By 2050 Will Be $275T

McKinsey Global Institute has issued a new report on the global cost of transitioning to net-zero carbon emissions by 2050 that says the world will need to spend $275 trillion, or an average of $9.2 trillion per year in new capital spending to transition physical assets for energy and land use in order to achieve the goal.

McKinsey’s Net-Zero Transition Report says its new “order-of-magnitude” cost estimate for a worldwide economic transition to net-zero is “front-loaded,” with spending rising from 6.8 percent of global GDP to as much as 8.8 percent of GDP between 2026 and 2030 before falling.

MGI says its estimate is based on the “simulation” of a “relatively orderly transition” that will be “universal” in scope but which will have uneven effects on sectors, geographies and communities as it creates growth opportunities.

“While these spending requirements are large and financing has yet to be established, many investments have a positive return profile (even independent of their role in avoiding rising physical risks) and should not be seen as merely costs. Technical innovation could reduce capital costs for net-zero technologies faster than expected,” the report says.

McKinsey warns that the economic and societal costs of a delayed or abrupt transition to net-zero would “raise the risk of asset stranding, worker dislocations and a backlash that delays the transition.”

MGI identifies buildings as one of seven energy and land-use systems that must transition to net-zero. Last year, MGI acquired Vivid Economics, which has estimated that it will take $5.2 trillion over the next decade alone to decarbonize what it calls “the built environment.”

To hold global warming below the critical threshold of 1.5 degrees Celsius that has been established by the scientific community as a tipping point for a catastrophic climate change feedback loop, Vivid said buildings, including CRE and housing, must aim to cut emissions by 50 percent by 2030 and be net zero carbon by 2050 at the latest.

“Those waiting to lean into these structural changes will be too late and could well have to play significant catch-up in years to come. In some cases, the decisions to act could be taken out of their hands with access to lending increasingly depending on a net-zero plan,” Vivid said.