Energy transition may shave 2% off global GDP by 2050: WoodMac

Energy transition may shave 2% off global GDP by 2050: WoodMac

Countries with higher carbon dependent economies will face more severe economic consequences of energy transition, report says

By Sibel Morrow

ANKARA (AA) - The energy transition required to reach the goal of capping global warming to the 1.5 degrees Celsius limit as agreed in the Paris climate accord may shave 2% off gross domestic product (GDP) by 2050, according to recent research by consultancy Wood Mackenzie.

A rapid energy transition will have substantial economic consequences, and global economic output will likely decline until 2050 before recovering by the end of the century, WoodMac said in its report, No Pain, No Gain: The Economic Consequences of Accelerating the Energy Transition.

"While preventing more extreme warming is likely to have a positive economic impact over the next 30 years, the action required to deliver it could have an offsetting negative effect. We estimate that keeping warming to 1.5°C would shave 2.0% off our base-case gross domestic product (GDP) forecast for 2050," said Peter Martin, Wood Mackenzie’s chief economist.

According to Martin, some economies will be affected more than others, with less developed and low-income economies bearing a disproportionately large burden throughout the transition.

The report revealed that economies that are already near to net zero targets would have a reduced economic impact from now through 2050.

For a select few, the shift may not necessitate any financial loss, Martin added. "Those that are better positioned – typically wealthier economies with a strong propensity to invest in new technologies – may even benefit by 2050."

The consultancy agency forecast in their base-case outlook that the global economy will double in size in real terms ‒ from $85.6 trillion to $169 trillion ‒ by 2050, which will inevitably be altered by accelerating energy transition efforts.

"In our 1.5°C scenario, annual global GDP hits $165 trillion in 2050. The cumulative loss of $75 trillion over 2022 to 2050, while material, amounts to just 2.1% of total economic output over the period," Martin said.


- Iraq is most vulnerable with its carbon-intensive economy

According to the research, economies with high renewables penetration in power generation and advanced power grids are well placed for a low-carbon future, while hydrocarbon-exporting and carbon-intensive economies will incur the biggest losses of economic output.

The agency said some countries, like Saudi Arabia, have the potential to minimize the economic shock of the energy transition by diversifying their economic activity. However, others like Iraq, do not have enough substantial financial reserves to invest in non-hydrocarbon sectors.

“Iraq is the country most vulnerable to the energy transition, with hydrocarbon revenues accounting for 95% of all government revenue and the oil sector making up 36% of GDP. An accelerated energy transition would slash Iraq’s GDP by 10% in 2050 versus our base-case outlook,” Martin said.

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