The cost of inaction over climate change could lead to the loss of 3 per cent of gross domestic product every year by 2030, ballooning to $69 trillion by the end of this century, Bank of America said in a report.
“Around 5 per cent [approximately $2.3tn] of global equity stock market value could be wiped out permanently by climate policy re-pricing, with a potentially extreme hit to corporate earnings for certain sectors,” the bank said.
The warning comes ahead of a meeting of global policymakers at Cop26 in Glasgow, Scotland at the end of this month. Under the Paris Accord, countries around the world are being urged to become climate neutral to contain rising emissions. The international agreement calls for countries to cap the warming of the planet at 1.5°C above pre-industrial levels, while at the same time reaching net-zero emissions by 2050.
To meet these goals, around $5tn will have to be invested annually over the next 30 years, an amount that is more than the US tax base, BofA said in its report.
“That's $150tn in total or three times the Covid-19 stimulus bill this decade,” the bank noted.
Decarbonisation is also set to push up global inflation by up to 3 per cent annually, as central bank balance sheet funding rises by $500 billion a year.
The pricing of carbon also needs to grow in tandem to near $200 per tonne if investments of $5tn should flow from now to 2050, BofA added.
“The need for energy transition investment to rise to over $5tn per year will create opportunities. This is net positive for enablers like utilities, industrials, renewables, industrial gases and batteries deployed at scale, such as green hydrogen, green mining and carbon capture,” according to BofA.
Last week, the International Energy Agency said in its World Energy Outlook that investments in clean energy would need to triple over the next decade to reach net-zero goals by mid-century.
The IEA's call to increase spending on clean energy comes amid a worldwide shortage of energy supplies, including oil and gas.
Oil prices are trading above $80 per barrel for the first time in three years, prompting organisations such as Opec to cite a rally fuelled by “energy transition” as a key reason.