Is the cost of the clean energy transition less than expected?

That’s what research group RMI’s newly published report claims. The company believes higher estimates are flawed because they fail to consider offsetting costs such as a decrease in fossil fuel spending.

Note that the IEA disputes RMI’s assertions. According to the IEA’s chief energy economist Tim Gould, the IEA “clearly accounts for declines in fossil fuel capital spending.

The IEA believes capital spending on energy was $2.8 trillion in 2023.  In a net zero emissions scenario it expects that figure to rise to over $4 trillion in 2030.  

McKinsey & Company’s 2022 report pegged spending on energy and land-use systems to execute the net-zero transition at $9.2 trillion annually between the years 2021 and 2050. That makes the total price tag around $276 trillion.  According to McKinsey, spending levels are currently $3.5 below what they believe is required.

The RMI report actually uses the IEA spending estimates as the foundation for its findings. The difference is that RMI believes it is properly adjusting for the decline in fossil fuel spending. That puts RMI’s spending estimates for 2030 at about $2.5 trillion which is only a 2% per annum increase from the 2023 global capital spending level of $2.2 trillion.

Who’s right?

Probably none of them.

The only thing that is certain is that the required investment is massive. There are simply too many moving parts to accurately predict the actual costs. For one thing, the transition will not occur uniformly in all areas of the globe. For another, no one can accurately predict how long the transition will take, and that will have a significant impact on the eventual price tag.

I do agree with RMI’s assertion that it is critical to consider the cost reductions achieved from the transition. However, that doesn’t just include reduced fossil fuel spending. That’s a relatively easy variable to estimate. Factoring in the savings from mitigating major weather events is much trickier to calculate. It includes such expense variables as crop yields and insurance and medical costs to name a few.

Here’s the bottom line: making the transition is going to be expensive, but the longer it takes the more expensive it’s going to get.  And the cost of doing nothing could very well be an uninhabitable planet.

#rmi #mckinsey #iea #netzero #climatecrisis