Fighting climate change is a $150 trillion battle: Bank of America report

A recent Bank of America (BAC) Global Research Report found that, within a 30-year period, global carbon emissions could reach zero at a cost of $5 trillion per year.

The study explores the extent to which climate change can be battled and what the costs of such efforts would look like.

The consequences of climate change, the report said, will be dire and extreme. “This is the last decade to act,” the authors wrote. “Absolute water scarcity is likely for 1.8 billion people, 100 million face poverty, and 800 million are at risk from rising sea levels by 2025. Climate migration could reach 143 million from emerging markets, driven by extreme weather.”

Climate change mitigation measures, which have already been implemented in some parts of the world, will need to be drastically increased, the researchers found. In order to make significant changes, they contend, a complete global decarbonization must begin to take place within the next few decades.

“$5 trillion is [the amount of investment required to] fully decarbonize the world,” Global Strategist and Managing Director of Research at Bank of America Merrill Lynch Haim Israel said in an interview with Yahoo Finance. “It’s the annual number that will have to be the average for the next 30 years. Total investment is $150 trillion over the next 30 years, a massive number.”

Even in global terms and over a 30-year span, $150 trillion is a gargantuan amount. The latter number is almost twice the total global GDP in 2019, whereas the $5 trillion yearly figure would be equivalent to the entire U.S. tax base.

Israel, who was a co-author of the report, noted that while the $150 trillion cost is daunting, it's necessary to reduce carbon emissions to zero and mitigate damage related to climate change.

“It's the transition from emitting industries into cleaner industries [which creates this cost],” Israel said. “I think one of the lessons that we're learning today during this whole crisis that we're seeing with oil and gas prices is that the renewable energy capacity that was rolled out was not going hand in hand with storage.”

Producers which have been able to create enough wind or solar energy have encountered difficulties storing it, which has led to a more costly production process.

United Nations Climate Change Conference

The 2021 United Nations Climate Change Conference, or COP26, is set to begin on October 31 and last until November 12.

“We are expecting to see a global decarbonization plan [at COP26],” Israel said. “The last accord that was put in motion was, of course, the Paris Agreement, but it has to be updated.”

One of the specific proposals garnering interest is the unified carbon price. A carbon price is essentially a number which identifies the cost of greenhouse gas emissions to the public. Such a figure could prove useful in providing the foundations for calculations of climate change costs to use in policy measures. Israel noted that he would be watching carefully to see if world leaders could agree on a carbon price, and if so, what that price would be.

A power-generating windmill turbine is seen in front of the Arc de Triomphe on the Champs Elysees avenue in Paris ahead of the COP21 World Climate Summit, France, November 25, 2015. The upcoming conference of the 2015 United Nations Framework Convention on Climate Change (COP21) will start on November 30, 2015 at Le Bourget near the French capital.   REUTERS/Christian Hartmann  TPX IMAGES OF THE DAY

What would $5 trillion a year be spent on?

The $5 trillion yearly figure accounts for the replacement of carbon-emitting technologies and industries with more environmentally-friendly substitutes over time.

Green energy has gotten significantly cheaper over the past decades, the authors noted.

“Exponential cost reductions in wind, solar and batteries technologies have made renewables the cheapest form of energy in areas producing >90% of global electricity,” they said. “Market appetite is chipping in too. Labelled bonds and loans jumped to > $3 trillion this year, with $3 in every $10 of flows into global equities going into ESG, which will support climate-friendly investments, as well as funding new ones needed to further decarbonize our planet like green mining, green hydrogen or carbon capture. Finally, we see central and commercial bank balance sheets funding rising by c. $500 billion.”

Converting to green technology, while costly, would be cheaper than continuing to rely on fossil fuels in the long run, Israel said.

"It's also that today renewable energy is cheaper, which we spoke about, there's an economic incentive to renewable energy, we believe that the green economy will create 42 million jobs. That's huge. And I don't think it's going to come at the expense of oil and gas all together; we are still gonna be with fossil fuel industry for a very long time. It's just going to be to diversify our energy sources."

Bitcoin: Far from a ‘green’ currency

One of the more interesting tidbits in the report, especially for crypto enthusiasts, was that a single bitcoin has a carbon footprint of 270 tons, the equivalent of 60 internal combustion engine cars. “Bitcoin today is consuming more and more electricity because bitcoin right now is so widely used and mined, it’s just generating and consuming more and more electricity,” Israel said.

The mining process for bitcoin has been a source of controversy in the past, due to the intense computing power it requires. After China banned bitcoin mining back in May, much of the activity moved to the United States. Some 17% of mining now occurs in the US. Some of the geographical features of Bitcoin mining which have changed as a result of China's ban may reduce its carbon footprint, a 2021 Cambridge University study found.

In recent years, Israel said, the discussion surrounding decarbonization has moved from debating "if" we need to decarbonize the planet to debating "how" the process should occur, what exactly the needs are, and how much money ought to be allocated. “We are hoping to get one unified global plan, eventually,” Israel said.

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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