Globalization Will Work Better for Planet Earth Than Its Alternatives

But research from the McKinsey Global Institute suggests the opposite is true. The materials, innovation and capital needed to reach net-zero emissions are not equally distributed and, as a result, must be shared around the world. Without cross-border flows of goods, services, financing and intangible goods, limiting global warming would be very challenging, if not impossible. The World Trade Organization (WTO) reached a similar conclusion in its most recent annual report, which outlines how trade can play an essential role in helping countries reduce emissions and build climate resilience.

For starters, no economy is self-sufficient. Our research shows that every major world region imports more than 25% (in value-added terms) of at least one important type of resource or manufactured good. At the country level, and for the inputs needed to achieve net-zero change, this number can be much higher. Furthermore, products that are produced only in a few places are in every region and region. For example, today, more than 75% of the global supply of lithium, a key component of electric-vehicle (EV) batteries, is sourced from Australia and Chile.

Decarbonising the sectors that produce the majority of GHG emissions, including electricity, transport and heavy industry, will require investing in low-emission technologies and supporting infrastructure. The construction and operation of these assets will in turn depend on three critical inputs: new mineral resources, new fuels and large-scale complex construction. An international network of interconnected supply chains is critical to the production of all of these.

Consider minerals including copper, lithium and rare earth metals. Given their importance to the production of electric vehicles, renewable energy and widespread electrification, all are critical to achieving net-zero emissions. Yet, to reach that goal, supply will need to be ramped up—up to eightfold in some cases; However the use of recycled materials, or innovation to reduce or completely replace the need for certain minerals, can change exactly how much new supply is needed.

In the case of entirely new supply, sourcing many of these minerals would require global flows, as extraction and refining are geographically dispersed. About 70% of the world’s cobalt is mined in the Democratic Republic of the Congo, and about one-third of the world’s nickel is extracted in Indonesia, which is home to the world’s largest proven reserves. China processes many of the most important minerals, including lithium, cobalt and graphite, but also relies on other countries for key steps or technologies. For example, Japan and South Korea specialize in coating spherical pure graphite.

As the new fuel needed for the net-zero transition, hydrogen and its derivatives offer many potential use cases, notably for long-distance freight transport and steelmaking. Here, too, a geographic mismatch between sources of supply and demand means that global trade is likely to be significant. The International Energy Agency estimates that around 12 million tons of low-emission hydrogen could be exported annually by 2030 if projects currently under development are completed as planned.

Finally, the deployment of manufactured goods such as solar panels and electric vehicles also depends on global supply chains. Broader participation of countries in trade flows can encourage innovation, increase efficiency and help reduce the cost of these technologies.

The imperative of globalization extends beyond just the flow of goods. Ensuring a sustainable future would require massive investments, and developing countries would need to spend more on a net-zero transition as a share of GDP than developed countries. With constrained fiscal space to invest in climate solutions, many of these economies will need better access to cross-border financial flows.

Innovation is equally important in the development and deployment of innovative climate technologies, and that, too, depends on cross-border flows, however intangible, such as intellectual property and data, and skilled workers; Both can spur innovation, reduce costs and increase access. These flows of knowledge and information have transformed trade in manufactured goods into the driving force of global integration.

All these types of flows are interrelated. If economies implement strategies to localize or diversify supply chains – either to reduce trade-related emissions or to build resilience – then there will be a greater need for capital and intangibles. For example, it could cost billions of dollars to build a domestic plant to make batteries for EVs.

Even in a highly connected world, cross-border flows will need to increase significantly to deliver a reliable, secure and affordable net-zero transition. New sources of production must be developed, new supplier relationships must be forged, and new forms of global integration pursued.

Rising geopolitical tensions around the world will make this task even more complex and challenging. But the alternative – giving up on globalization – will only make the effects of climate change more punishing. ©2023/Project Syndicate

Olivia White and Mekala Krishnan are, respectively, a senior partner in the San Francisco office of McKinsey & Company and director of the McKinsey Global Institute; and a partner in the McKinsey Global Institute