Warning: You are using an outdated Browser, Please switch to a more modern browser such as Chrome, Firefox or Microsoft Edge.

The cost of survival

Since 1889, the Eiffel Tower – what the French affectionately call La tour Eiffel – has stood tall as the identity of Paris. The 324-meter monument commemorates the centennial of the French Revolution.

Modern-day Paris too has a revolution to its name. Four years ago, governments of 196 countries came together here to pledge a consolidated response to the threat of climate change. The Paris Agreement may borrow its name from the formidable city, but its nature is global.

The agreement’s long-term target is to keep the increase in global average temperatures to well below 2°C above pre-industrial levels and try to limit the rise to 1.5°C.

But even with the best intentions, measures initiated so far seem insufficient in reaching this goal. Rightly, a sense of urgency is building as a climate emergency brews. Mindful of the need, governments across the board are working on measures to reduce emissions. The European Commission, for example, is giving serious thought to raising national emission reductions to 50-55 percent by 2030 from 40 percent during 2020.

Given that inaction is not an option, what will this transition cost industries overall? According to Allianz economists, roughly $2.5 trillion over the next decade. 

It’s no surprise that every industry will have to adopt more sustainable approaches for its operations if the larger targets are to be met. Some, however, will feel the teething troubles more than the others.

A quick look at the industries that will be the most affected...

Energy

The energy industry has been in the eye of the climate storm for a while now. Justifiably so. According to the Environmental Protection Agency, the burning of coal, natural gas and oil for electricity and heat accounts for a quarter of the global greenhouse gas emissions.

The cost of painting the industry green? $900 billion.

From fuel-specific targets over energy efficiency standards to penalties, taxes and levies, much will change for this industry going forward.

The renewables sector, however, will be a beneficiary of the transition. The EU is targeting 20 percent of energy consumption from renewables next year, 32 percent by 2030 and 50 percent by 2050. China aims at 20 percent by 2030 and India 40 percent.

Although the United States has pulled out of the Paris Agreement, U.S. states are soldiering on. California is targeting 50 percent renewables by 2025 and 60 percent by 2050, while New York is aiming at 70 percent by 2030. 

Metals and mining

An energy-intensive industry, steel will have to foot a $300-billion bill to become environment-friendly. However, climate change efforts are a double-edged sword for miners. On the one hand, they will face pressure to meet environmental regulations. On the other, they could see greater demand for performance metals, in particular, from the renewables sector.

Fuel efficiency standards too will increase the use of aluminum in cars.

Airlines

If your company hasn’t already clamped down on unnecessary business travel, it soon will. And the airline industry will feel the pinch.

In Europe, greater taxes and levies on air travel are being considered and there is a growing push for incentivizing rail travel.

To become more sustainable, the industry adopted the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) three years ago. Under CORSIA, worldwide aviation is targeting carbon-neutral growth from 2020, which means offsetting carbon dioxide emissions of around 2.5 billion tons between 2020 and 2035. The effort will cost the industry between $16 billion and $42 billion. 

Shipping

The waters are turning choppy for shippers. From 2020, ships will be subject to stricter sulfur emission limits. To meet the requirements, shippers can either switch to expensive low-sulfur fuels or install scrubbers. If all commercial ships currently in operation opt for scrubbers, the expense could total $700 million. Notably, the sector has already spent $4 billion on retrofitting until mid-2019, according to the International Maritime Organization (IMO).

Under the new IMO rules, the industry has to halve emissions by 2050. Speed limit reductions are being proposed, which could also increase expenses through reduced load factors and greater working capital requirements. 

Automotive

If the road wasn’t bumpy enough, there are more potholes ahead for the automotive industry. Although fuel efficiency will have a positive effect on the reduction of emissions, the modification of fleets won’t be painless. Driving restrictions, electric vehicle regulations and other measures could follow.

Measures such as incentives for ‘green’ cars, restricted access for vehicles with internal combustion engines in some urban areas and changes in taxes on diesel and gasoline fuel could depress demand, while rules related to emission reductions and improved testing procedures and transparency could impact supply.

Europe has taken the lead with steps such as limits on carbon dioxide emissions, mandatory sales targets for zero and low emission vehicles, new testing procedures as well as reporting of measured and declared carbon dioxide values and fuel consumption by carmakers.

For new passenger cars, the objective is to reduce the average emission by 15 percent by 2025 and by 37.5 percent by 2030, on top of the 20 percent reduction target set for 2021. Compliance might increase the average cost of cars by 7 percent by the end of 2020 and by 15 percent by 2025.

Non-compliance will be expensive too. Based on 2018 data for new car registrations and emissions, the cost of inaction is estimated at 30 billion euros total for the main global carmakers in the European market. 

Agrifood

The food industry is facing increasing scrutiny over its sustainability practices. Few know that the industry accounts for a fifth of global emissions, mainly because of its livestock sector. The industry might have to tweak its operations to satisfy new policies on deforestation and feedstock production. 

Chemicals

Seven percent of the global greenhouse emissions are attributed to the chemicals industry. Notwithstanding technological improvements, direct emissions could increase by 36 percent by 2050, according to the EU Science Hub. Emissions trading alone could cost the industry $484 billion.

Tighter pollution control and industrial emissions standards are around the corner. Estimates peg the annual investment needed for the sector to become carbon-neutral between $13 billion and $19 billion. However, such investments could eventually lead to operating cost savings.

Pulp and paper

Goodbye, Christmas cards. Hello, digital greetings.

Pulp and paper accounts for 2 percent of global direct industrial emissions, with the industry being highly energy-intensive. So both aspects of energy consumption and deforestation need attention.

In Europe, the sector could see a negative impact of $400 million if carbon prices increase. It needs to reduce emissions by 75 percent by 2050. The cost of certification and raw materials could also rise if and when forestry regulations become stricter. 

This list is not exhaustive – from consumer durables to retail to even technology will have to contribute to a sustainable world. For a detailed rundown on the impact of climate change efforts on different industries, click here to read the Allianz Research Global ESG Report

The Allianz Group is one of the world's leading insurers and asset managers with more than 100 million* private and corporate customers in more than 70 countries. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing around 785 billion euros on behalf of its insurance customers. Furthermore, our asset managers PIMCO and Allianz Global Investors manage 1.8 trillion euros of third-party assets. Thanks to our systematic integration of ecological and social criteria in our business processes and investment decisions, we are amongst the leaders in the insurance industry in the Dow Jones Sustainability Index. In 2020, over 150,000 employees achieved total revenues of 140 billion euros and an operating profit of 10.8 billion euros for the group.

These assessments are, as always, subject to the disclaimer provided below.

*Including non-consolidated entities with Allianz customers.

Press contacts

Lorenz Weimann
Allianz SE
As with all content published on this site, these statements are subject to our cautionary note regarding forward-looking statements:

Further information

Allianz: Shipping losses remain at historic lows, but Covid, mega-ship, supply chain and climate challenges loom large

The international shipping industry continued its long-term positive safety trend over the past year but has to master Covid challenges, apply the learnings from the Ever Given Suez Canal incident and prepare for cyber and climate change challenges ahead. The number of large vessels lost remained at record low levels in 2020, while reported incidents declined year-on-year, according to AGCS Safety & Shipping Review 2021.

How Covid changed our sense of security

A sense of safety and security plays an important part in our lives since it provides stability. With the onset of the pandemic, our sense of safety and security has come into question. A recent survey commissioned by Allianz explores how the pandemic changed that feeling in Germany, France, UK, Italy, and Spain.

Allianz: 9 trends to watch as aviation readies for post Covid-19 takeoff

The sudden halt imposed on the aviation industry by the Covid-19 crisis hit the sector hard. In April 2020, two-thirds of the global commercial aviation fleet sat idle on the tarmac, while passenger traffic was down 90 percent year-on-year. Today, the aviation industry is slowly rebounding, led by domestic travel.