Less developed economies and those most dependent on fossil fuels are set to feel most impact from a $75 trillion global GDP hit under an accelerated energy transition – with Iraq named the nation at highest risk of all – said research group Wood Mackenzie as it presented an uneven “no pain, no gain” scenario of limiting global warming to a 1.5°C rise.
Wood Mackenzie in a new report estimated that sum to be the cumulative loss to the world economy by 2050 of actions to meet the most ambitious Paris Agreement goal. The GDP fall against Wood Mackenzie’s base case reflects what its analysts estimate will be a bigger impact over the next three decades from climate mitigation measures than initial economic upside from the prevention of extreme warning.
Although the $75trn represents just 2.2% of global economic output over the whole 2022-50 period, the research group says the impact will be far from evenly felt, even though by the end of the century the downsides should have disappeared across the board.
Wood Mackenzie chief economist Peter Martin said: “For a fortunate few, the transition need not result in economic loss at all. Those that are better positioned – typically wealthier economies with a strong propensity to invest in new technologies – may even benefit by 2050.”
On the other hand, Martin said: “What is not in doubt is that the economic impact of energy transition will not be felt evenly,” with poorer nations and those heavily dependent on using and exporting hydrocarbons set to shoulder the burden.
China alone is set to absorb 27% of the $75trn of GDP downside by 2050, Wood Mackenzie reckons.
Oil-dependent Middle East nations without the resources of those such as Saudi Arabia, which can invest in alternatives, are most exposed.
“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,” said Martin, who warned that current commitments by developed nations would not offset the impact.
“A truly fair and just transition will require actions to exceed our current expectations.”
The report predicts that over the longer term the economic downsides of a 1.5°C energy transition will disappear for the entire global economy, with GDP losses wiped out by the end of the century – quite apart from the aversion of a global ecological and humanitarian catastrophe.
Martin said: “An accelerated transition could pay off in the end, in economic terms. It is likely to lead to stronger economic growth rates for some economies beyond 2030, enabling losses to be recouped before the end of the century. That is the essence of transition economics – short-term pain for long-term gain.”