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Morgan Stanley: Two percent of global GDP towards climate investments
Around 50 trillion US dollars will need to be invested in the energy sector by 2050 in order to meet two-degree global climate target

New legislation and government subsidies are the current modus operandi when it comes to cutting greenhouse gas emissions in many countries. And it is the private sector which bears the brunt of these measures. However, moving forward, this undertaking will not be possible without targeted government aid, according to Morgan Stanley’s report titled Decarbonisation: The Race to Net Zero. More than 50 economists from the US investment bank have come together to identify the necessary climate investments and the resulting opportunities. Their conclusion in summary: The possibilities for the world of business are immense.

Two percent of global GDP necessary

By 2050, 50 trillion US dollars (USD) will have to be spent worldwide – just on restructuring the energy sector. Only then will it be possible to reach net zero by the middle of the century, i.e. prevent the amount of greenhouse gas in the atmosphere from rising.

Based on World Bank data, the final sum of USD 50 trillion equates to 58 percent of global value added – or, in other words, roughly the sum of the gross domestic products (GDP) of the US, China, the eurozone and the UK combined in 2018. On the other hand: Spread over the course of 30 years, it would only amount to two percent of the world’s GDP.

Analysts at Morgan Stanley see the fight against climate change as being an investment mega trend: “The economic costs to decarbonise are substantial. But clear opportunities to reduce emissions exist and the benefit to choosing the right path could also mean significant returns on investment,” says Jessica Alsford, Head of Sustainability Research at Morgan Stanley. Pre tax and interest, profits between three and ten trillion USD are possible.

“The economic costs to decarbonize are substantial. But clear opportunities to reduce emissions exist and the benefit to choosing the right path could also mean significant returns on investment,” says Jessica Alsford, Head of Sustainability Research for Morgan Stanley. Pre tax and interest, profits between three and ten trillion USD are possible.

 

Energy-related Emissions Account for approx. 60 % of Global Carbon Emissions

(2017 Global CO2 Emissions)

Energy-related emissions account for around 60 percent of greenhouse gases

Of course, agriculture and forestry, industrial processes and waste management also play their part when it comes to carbon emissions. However, according to the models used by Morgan Stanley’s team of analysts, around 60 percent of global emissions are emitted from consuming energy, transport included. Accordingly, these areas harbour the greatest potential for savings and investments. The focus must be firmly placed on five key areas of the energy sector: renewables, electric vehicles, hydrogen, carbon capture and storage (CCS), and biofuels.

The analysts estimate that ROIs could range between five and 25 percent, depending on the technology. When it comes to fuels generated using biomass – such as ethanol and methane – they have identified a potential return of a whopping 27 to 39 percent.

Necessary investments by sector

(Source: Morgan Stanley)

What is more, around USD 20 trillion would have to be invested in order to expand the use of hydrogen. Many experts hail gas as being the most important chemical energy storage medium. It can be generated carbon-neutrally and boasts a plethora of possible areas of application, such as transport, heating and weather-independent electricity generation.

This desperate need for investments is thus coupled with considerable potential for profit. But this is not the only reason for decisive action: If the 2 degree Celsius target fails, then the consequences could prove to be costly. In 2100 it could reduce global BIP by ten to 20 trillion USD – “with the costs to humanity even higher”.

Photo credit: Jenson, shutterstock.com

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