The cost of fighting climate change is too great

Myth:

It will cost way too much to decarbonise the global economy. We would be better off just adapting to climate change.

Fact:

It’s not true that decarbonising the global economy is excessively expensive – at least not if it’s done over a 25-year period.

The International Energy Agency estimates that reaching net zero by 2050 would require investment of $5 trillion a year. Bloomberg New Energy Finance puts the annual figure at $7 trillion. Both these amounts sound ridiculously high, but they are actually quite misleading.

First of all, the world already invests $3.4 trillion a year in the energy sector – $2.3 trillion of it in renewables and $1.1 trillion in fossil fuels. That $2.3 trillion is included in figures mentioned above. The $1.1 trillion would also be included if it were devoted to renewables rather than fossil fuels. This would then bring the total amount already being invested to half that required by Bloomberg and two thirds that required by the IEA.

Then there is the fact that most of the remaining amount will need to be spent anyway, even if we were not trying to reach net zero. An example is home energy investment. All homes in modern economies have a hot water system, and that system needs to be replaced at least once every 25 years. So if governments insist that the replacement system be an electric heat pump, then the net the cost of decarbonising the hot water system is actually zero. [In fact, it will be less than zero, as heat pumps are much cheaper than gas hot water systems.] It’s the same with cars. In the United States, the average car has a lifespan of 15.8 years, so if every replacement vehicle is fully electric, then the entire fleet will be decarbonised in less than 20 years. Bloomberg estimates that 47 percent of all investment necessary to reach net zero is in transportation – and all of this will need to be spent anyway. So again, the net cost is actually zero.

Hence, the extra cost of getting to net zero is very low indeed. In Australia, the acclaimed economist Ross Garnaut estimates it to be somewhere between 0.67 and 1 percentage point of GDP growth per year. That’s not 1 percent of GDP, but of GDP growth. In the long term, Garnaut believes Australia will actually save money by decarbonising its economy.

But putting all this aside, even if the energy transition were expensive, it would still be less the $9 trillion cost of dealing with COVID in 2020. And it would certainly be less than what was spent by the major combatants during World War Two. By 1945, the US was devoting 37 percent of its GDP to the military, without destroying its economy. Australia was devoting 40 percent of its GDP without collapsing, while for Britain and Germany the figures were 52 percent and 70 percent respectively. Yet it was not this spending that destroyed the German economy; it was bombing by the Allies.

Messerschmitts on the assembly line in World War II. Germany devoted 70 percent of its GDP to the war effort, and it didn’t break the economy. [Source: Wikimedia Commons].

Sources:

“$215 trillion to save the planet is a bargain,” BNEF. https://www.bloomberg.com/opinion/articles/2024-05-22/climate-change-215-trillion-to-save-the-planet-is-a-bargain

Ross Garnaut, Superpower: Australia’s low-carbon opportunity, La Trobe University Press, 2019

“Australia’s progress to net zero by 2050,” Net Zero Australia, 11/12/25. https://www.netzeroaustralia.net.au/wp-content/uploads/2026/02/NZAu-Topical-Report-2-Net-Zero-2050-Progress-Tracker.pdf

Giles Parkinson, “‘$300 billion, not $9 trillion’: Net zero report authors put record straight after Nationals inflate costs 30-fold,” Renew Economy, 6/11/25

“Net zero by 2050,” International Energy Agency, 18/5/21. https://www.iea.org/reports/net-zero-by-2050

“The $7 Trillion a Year Needed to Hit Net-Zero Goal,” BNEF, 27/12/22. https://about.bnef.com/insights/finance/the-7-trillion-a-year-needed-to-hit-net-zero-goal/

“World Energy Investment 2026,” International Energy Agency. https://www.iea.org/reports/world-energy-investment-2026

“Let’s get real: what action on climate change really involves,” Sydney Morning Herald, 16/1/20

Krysten Crawford, “Beyond promises: The $120 trillion path to a ‘net zero’ world,” Stanford, 9/3/23. https://siepr.stanford.edu/news/beyond-promises-120-trillion-path-net-zero-world

Bryn Battersby, Elif Ture and Raphael Lam, “Tracking the $9 Trillion Global Fiscal Support to Fight COVID-19,” IMF. https://www.imf.org/en/blogs/articles/2020/05/20/tracking-the-9-trillion-global-fiscal-support-to-fight-covid-19