Consensus is growing daily on the need to take adaptation and mitigation measures against climate change. There are many reasons for this, although environmental reasons continue to prevail over others. While the environmental aspect is almost beyond debate, the economic dimension of ecological transition and its consequences for countries and citizens remains a frequent source of controversy. We must be aware that the ecological transition is not without costs and difficulties, and overlooking these, far from helping to achieve social consensus, could have the opposite effect.
Let’s put some figures on the table. A recent report from the French asset management company Carmignac, as covered by Cinco Días, estimates that measures to combat climate change will “substantially” increase inflationary costs and could add 1.6% more to inflation over the next decade. Some reasons cited in the report for this increase include rising prices of “green” metals such as nickel, zinc, and copper, as well as higher oil prices due to reduced production. However, the report notes that “the alternative,” i.e., not transitioning, “is much more costly.”
As for the cost of inaction, it is more challenging to quantify, as it would depend on the total increase in global temperatures and its consequences, some predictable but others less so (extreme weather events, increased zoonotic diseases, etc.). Nevertheless, we have some forecasts. ECB data suggests that unmitigated climate change effects could add between 1% and 3% to inflation in the next decade. Meanwhile, reinsurer Swiss Re estimates a global GDP loss of up to 18% by 2050, while the Potsdam Institute for Climate Impact Research (PIK) forecasts a 19% reduction in the global economy by 2050.
Decarbonise or Exit the Market
Beyond these macroeconomic consequences, the negative effects on companies of not decarbonizing are evident. As various experts have pointed out at meetings organized by Foro Industria y Energía, the cost of inaction is so high that it effectively means many companies and industries will literally exit the market. From an energy perspective, failing to decarbonize will result in higher and more fluctuating costs, with additional legal and reputational consequences for not complying with European environmental regulations, as well as loss of competitiveness.
Just as no one talks about a ‘flat’ TV to differentiate it from the old models we all had a few decades ago, in the medium term, the term ‘sustainable‘ will no longer be an adjective used to describe companies, as all those that survive in the next two decades will be sustainable, . The alternative to not bearing the costs of decarbonization is simply to disappear. Not investing in decarbonization does not mean saving money for the industry but risks exiting the market, with the associated economic and employment consequences.