The Economic Case Against Carbon


The Economic Case Against Carbon

In the long run, decarbonization will boost both businesses and the broader economy

Decarbonizing the global economy will open up opportunities and drive growth. If the world acts quickly enough to achieve net zero emissions by the middle of this century, the resulting transformation could fuel stronger economic growth by 2070.

In fact, such a transition could increase the size of the global economy by US$43 trillion in net present value terms between 2021 and 2070, according to a new Deloitte report: The Turning Point: A Global Summary

The alternative - unchecked climate change - could cost the global economy US$178 trillion in net present value terms between 2021 and 2070, not even considering various other socio-economic impacts. 

In other words, decarbonizing the global economy isn’t a luxury. It’s an economic necessity.  But most organizations have yet to implement the fundamental changes to their business models that will be required in order to decarbonize. While the ambition is there – many businesses have set quite aggressive targets for a transition to net zero emissions – actual progress is slow, and most companies are failing to recognize that efforts need to go far beyond the procurement of renewable energy.

In most cases, companies have yet to consider the strategic, financial and operational implications of decarbonization, source the necessary data, implement relevant systems, apply appropriate controls and undertake relevant risk assessments. This state of affairs reflects the fact that the key functions within a company, such as internal audit, internal controls, procurement, IT, operations and finance, aren't sufficiently involved in embedding decarbonization targets into the way that the business operates. Alarmingly, the decarbonization agenda isn’t yet on the radar of most boards. 

In essence, most organizations simply haven’t made the substantive changes that will be required to meet their decarbonization targets. Yet as our The Turning Point: A Global Summary report makes clear, time has run out. 

A mixture of carrots and sticks

Businesses in the Netherlands (and Europe as a whole) need to align their business strategies with the broader energy transition agenda. If they don’t, they risk being subject to more and more legal challenges. Following successful court action against individual oil and gas companies, Milieudefensie (Friends of the Earth Netherlands) is demanding a climate plan from 30 “major polluters” that details how they intend to reduce their CO2 emissions by at least 45% by 2030.

At the same time, there may be opportunities for individual businesses to drive the broader energy shift and ultimately profit from that. If Rotterdam can fulfill its ambitions to become a hub for green hydrogen, for example, that could give rise to a vibrant new energy ecosystem in northern Europe. Similarly, Europe’s leadership in wind power is helping to build a deep pool of expertise in this key generation technology. 

Most governments are providing incentives to businesses to decarbonize. In the Netherlands, the Dutch government has set up The Renewable Energy Grant Scheme (SDE+) for large energy projects using geothermal heat and solar parks. The government also provides renewable energy grants for technologies that combine production and storage or contribute to smart grids, as well as tax credits and investment grants for heat pumps, solar water heating systems, biomass boilers etc.

As decarbonization will create widespread opportunities and growth, businesses that act early will be at the forefront of a new industrial revolution. By Deloitte’s estimations,  between 2025 and 2040, interconnected low carbon systems will underpin a clean economy that will grow faster than its carbon-intensive alternative. In the next phase, between 2040 and 2050, the world will see a turning point as it begins to realize the dividend from the investment in new infrastructure. In the final phase, between 2050 and 2070, the economic benefits of the transition will really kick in.

To conclude, the time for watching and waiting is over. Businesses in Europe (and elsewhere) now need to make the in-depth changes required to decarbonize as quickly as possible.

Did you find this useful?