📉 The economics of decarbonisation

COP26 is just around the corner, and we broadly know what to expect: statements, targets, pledges. But what does the reality of decarbonising the planet actually look like – and how much will it cost?

This week’s guest on my podcast, Michele Della Vigna, has spent years working that out. Michele runs the Carbonomics research programme at Goldman Sachs, and has an absolute wealth of knowledge about the practical steps needed to wean the world off fossil fuels. The team uses a cost curve which helps in visualising the price of various emissions-reducing strategies. (Readers will recognise this as a version of the GHG abatement curve pioneered by McKinsey back for the 2007 Kyoto meeting.)

Talking to Michele was fascinating. We discussed everything from carbon capture and the future of Big Oil to nuclear fusion, and why a rigorous, international carbon market is essential to keeping global temperature rises to below 2°C (or even 1.5°C…).

🎧📚 Our full conversation and the transcript are available here.

💬 Comments are open for members of Exponential View.

The Big Idea

Michele’s research is all about making the intangible tangible. Take infrastructure investment. Michele and his team think that $56tn of global infrastructure investment will be necessary if we’re to achieve net-zero carbon emissions by 2050. That’s hard to understand in the abstract – but makes more sense if you think of it in terms of global GDP. In a scenario where average worldwide temperatures rise no more than 1.5°C, they think investment in decarbonisation will have to peak at about 2.3% of global GDP by the mid-2030s.

By 2036, in that scenario, worldwide spending on decarbonisation infrastructure would have to be about $1.9tn a year. But for that to happen, Michele says, regulation has to be clearer:

When I look at four carbon-intensive global sectors with uncertain future regulation, energy, shipping, materials and mining, we are seeing those industries reinvesting today 40% less than they've done in the last decade. This is a missed opportunity to mobilise profitably this capex towards that fifty-six trillion dollars opportunity. But the reason why it's not happening is that these companies don't know what the regulation will be for the future… They could try to go for a net-zero solution, but that's not profitable today and may not be profitable for many years to come. In doubt, they delay the investment.

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