14.3 Investments to reach carbon-neutrality


Many studies have sought to determine whether or how energy transitions can generate economic opportunities (Kuzemko et al., 2020), lead to unsustainable debt levels (Kempa et al., 2021) or hinder economic growth (Court et al., 2018). One macroeconomic analysis suggested that energy transitions could grow global GDP and total employment by 2050 (Garcia-Casals et al., 2019). Another study concluded that energy transitions might be the only way to ensure GDP growth in the future (Nieto et al., 2020). Low-cost electricity could be a feasible way to address global energy demand, with infrastructure costs to produce and distribute renewable energy constituting the largest share of energy expenditures in a net-zero future (Bogdanov et al., 2021). Substantial energy infrastructure costs could also result in investment-to-GDP ratios reaching historical levels akin to wartime spending (Režný and Bureš, 2019).

For instance, achieving the decarbonization of the EU-27 economy by 2050 is estimated to require a total of EUR28 trillion invested over the next three decades (D’Aprile et al., 2020). This would comprise EUR23 trillion (EUR800 billion annually) of funds that would otherwise be invested in incumbent technologies and EUR5.4 trillion (EUR180 billion annually) of additional capital. Reaching net-zero would thus require the equivalent of 1% of the European Union’s GDP when considering a range of 600 emissions-reduction initiatives, including emerging technologies that are not yet commercially available (D’Aprile et al., 2020). In the U.S., the Energy PATHWAYS model concluded that a successful net-zero transition could be accomplished with annual spending on energy comparable or lower to what the country currently spends annually on energy as a percentage of the GDP (Larson et al., 2020). The study provided five different technologically and economically plausible energy system pathways and suggested that unprecedented rates of technology and infrastructure deployment will be needed to achieve the lowest-cost outcomes in the country.

Another approach has been proposed to calculate the costs of decarbonizing the electricity sector in the U.S. (Heal, 2020). The costs of transitioning all the electricity production from fossil fuel to solar and wind generation between 2020 and 2050 in the U.S. were estimated at roughly US$6.1 billion annually (Heal, 2020). These estimates suggest that the net costs of the transition to renewable energy in the U.S. are much lower than generally believed due to decreasing capital costs of renewable energy over the last decade (IEA, 2020a). Removing fossil fuels from electricity generation would thus be feasible at a cost that is less than current national expenditure on energy capital equipment. However, these values  can only be interpreted as rough estimates of the net cost for decarbonizing the electricity sector in the country.

In Germany, more optimistic assessments have indicated higher economic growth due to early adoption of renewable energy (Blazejczak et al., 2014), although these benefits arguably come at a cost. For example, the country’s feed-in tariff system for renewable energy has contributed to the highest increase in electricity rates since 2010 amongst OECD countries (Andor et al., 2017). This increase in the cost of living is despite the 0.8% of GDP invested in renewable energy annually, as Germany started its transition when the costs of renewable energy technology were at their highest. However, the results would be markedly different for a country starting the same transition later. The same decarbonization efforts were projected to cost around only 0.15% of the country’s GDP if the transition had occurred between 2017 and 2030 (Unnerstall, 2017), suggesting that technology maturity and rapidly changing costs of power capacity can lead to a substantial cost difference.

Other country-specific studies have also indicated similar results. In Canada, achieving complete decarbonization of electricity production by 2025 could cost $8.2–$12.6 billion annually. These estimates vary in function of new transmission lines built across the country, whereas costs could increase by $16 billion if no new inter-provincial transmission connections are built. This means that the availability of new transmission could reduce decarbonization costs by $4.2 billion (Dolter and Rivers, 2018). Turkey’s energy transition is projected to be costly in the beginning, followed by a reduction of fuel imports and lower electricity production costs by 2050 (Kilickaplan et al., 2017), whereas in Portugal capital costs for a transition may not be higher than expenditures in the oil and gas sector (Fortes et al., 2019).