The Energy Transition, Part 3: Implications for Economies and Markets

Executive summary:

  • There is broad agreement that economic damages will increase with warming, but there is substantial disagreement on the magnitude of these damages.
  • An energy transition would increase investment demand globally, raising long-term equilibrium interest rates by an estimated 20-30 bps. It would also trigger higher inflation rates.
  • Private capital markets are likely to play a vital role in financing a green energy transition.

This final article in our three-part series looks at the economic and market implications of a shift away from fossil fuels toward more sustainable and renewable energy sources.

This is a complex topic, as there is broad agreement that warming the planet will harm economies and markets, but there is also broad disagreement about the likely scale of that damage.

Physical damages

The first article in this series examined the economic and social risks of our reliance on fossil fuels and possible interventions to curb those impacts. To recap, a warming planet could cause physical damage that would affect economies and markets in several ways. For instance:

  • A changing climate could threaten agricultural production and food security, with low-income and emerging economies more at risk than developed markets.

Global Food Security Index