G20: the decarbonisation prize

Analysis from Cambridge Econometrics (CE) shows that a full-scale transition to a low carbon energy sector could result in a 0.8% net increase in global GDP in 2050.

Decarbonisation of the energy sector could boost global GDP

Representatives of the world’s richest nations met yesterday in Berlin for the G20 Sustainability Working Group. Their discussions were informed by a report published this week by the International Renewable Energy Agency (IRENA) and the International Energy Agency (IEA), including analysis from Cambridge Econometrics (CE) which shows that a full-scale transition to a low carbon energy sector could result in a 0.8% net increase in global GDP in 2050.

Global energy-related carbon dioxide (CO2) emissions can be reduced by 70% by 2050 and completely phased-out by 2060 with a net positive economic impact, according to the report:

Perspectives for the Energy Transition: Investment Needs for a Low-Carbon Energy Transition

It sets out two possible transitions away from fossil fuel dependency that are consistent with a 66% probability of limiting global climate change to 2°C, based upon shifts to low carbon technologies (primarily renewables) and energy efficiency measures.

Hector Pollitt, CE director adds:

“Our analysis clearly illustrates the potential economic benefits of an energy sector transition, boosting jobs and wealth whilst mitigating climate change. With this report G20 representatives meeting in Berlin had the evidence at their disposal to inform their policy positions on climate change and energy, which is of long-term global significance.”

CE provided the macroeconomic analysis which suggests that investment in the decarbonisation of the energy sector, whilst costly (an additional investment of USD 29 trillion to 2050), would act as a stimulus which could boost global GDP by 0.8% in 2050.

Our approach

CE assessed the macroeconomic effects on GDP growth and employment, feeding IRENA’s REmap energy mix scenario into our global macro-econometric model, the E3ME model, that links the energy and economic systems.

This allows changes in the energy mix to impact upon the real economy, through additional investment requirements, the different labour intensities of alternative generation technologies and the revenues collected from carbon taxes and changes in trade between countries reflecting altered demand for fuels, all within a single and consistent quantitative framework.

For more information about CE’s energy, climate change and circular economy work see here.

To speak to someone about the IRENA study specifically, please contact Project Manager, Jon Stenning.