BlackRock Investment Institute

Macro insights

Feb 07, 2022

Net-zero transition = net economic gain

The popular notion that tackling climate change comes at a net economic cost is wrong, in our view. Sure, economic outcomes would be even better if there were no climate change. But that’s the wrong starting point for comparisons because climate change is real.

A gradual and orderly transition to net-zero emissions by 2050 will help mitigate pressure points that could disrupt economic activity and drive up inflation, in our view. This will allow time to make the necessary investments, phase out carbon-intensive activities, redeploy workers, and develop new technologies to power the net-zero economy.

Better growth outcome

Chart showing the cumulative GDP impact of climate transition, the largest gains come from climate damage avoided.

Forward looking estimates may not come to pass. Sources: BlackRock Investment Institute, Banque de France, International Energy Agency, OECD, Feb 1, 2022. Notes: The bars show the overall estimated impact of three factors – avoidance of climate damages (positive), green infrastructure spending (positive) and costs associated with the transition (negative). The black line shows the estimated net impact. Our estimates of the impact under a climate-aware scenario are based on expected changes in energy consumption including composition, relative carbon and renewables pricing and on potential losses due to global warming. Energy consumption is estimated as a function of GDP and the relative price of energy per the Banque de France's working paper no. 759 titled the Long-term growth impact of climate change and policies. GDP losses from global warming are calibrated on analysis of Impact Assessment Models per W. Nordhaus and A.Moffat (2017). We assume green infrastructure spending programs of 1% of GDP gradually phased out over the next 10 years.

No climate action or a disruptive transition would be worse for inflation and growth, in our view. All in all, we estimate an orderly transition results in a 25% cumulative gain in global growth over the next 20 years. The chart shows how we believe the positive effects of avoiding climate damages (yellow bars) and green infrastructure spending (green bars) would far offset the cost of the transition itself (red bars). Read more in Managing the net-zero transition.

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Elga Bartsch
Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Nicholas Fawcett
Macro Research

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