The transition to clean energy required to prevent temperatures from rising swiftly could shave 2% off global GDP by 2050 but is likely recoverable before the end of the century, a report by natural resources consultancy Wood Mackenzie said on Jan. 20.
While investments in technologies like solar and wind farms, advanced batteries will generate jobs, the transition will also likely cause a loss of jobs and tax revenues in fossil fuel production, said the report called "No Pain, No Gain: The economic consequences of accelerating the energy transition".
"It's by no means a way to say that we shouldn't pursue transition or slow it down," Peter Martin, WoodMac's chief economist, said. "This pain in the short-term will pay off in the long-term."
Benefits from limiting the rise in temperatures to 1.5 degrees Celsius, as called for by the United Nations, could boost global GDP, on aggregate by 1.6% in 2050, the report said. But actions required to spur the transition to keep temperatures from going above that level could cut 3.6% from GDP in 2050, resulting in the 2% hit, the report said.
The impacts will not be felt evenly. China will feel about 27% of a cumulative $75 trillion economic hit to global GDP by 2050, while the United States will see about 12%, Europe will experience 11% and India about 7%.
Economies such as Iraq that do not have financial reserves to invest in non-fossil fuel sectors could suffer the biggest losses in economic output, it said.
Wealthy economies with deep capital markets that already have big investments in energy transition technologies, or a propensity to invest in new technologies, will be better positioned. France and Switzerland, for example, will likely enjoy a modest boost to economic growth.
The economic benefits of the energy transition should start to show after 2035 and lost economic output would be eventually recouped before the century's end, the report said.
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