Growth, inclusion, and sustainability are connected, often complementing one another but sometimes pulling in different directions. This research explores how growth can contribute to higher living standards and a greener world, building on the tremendous progress of the past half century. Specifically, it looks at the economics of addressing both poverty and climate change in a decisive way—as well as the trade-offs involved.
We focus on established global aspirations without imposing constraints on the ambitions. On the sustainability side, the Paris Agreement laid out a framework to limit temperature rise to well below 2.0°C (and preferably to 1.5°C) relative to preindustrial levels. In response, many countries have committed to reaching net-zero emissions. On inclusion, while the world has made historic strides against extreme poverty, development experts and economists have discussed setting a higher bar for living standards. The UN Sustainable Development Goals (SDGs) propose achieving adequate nutrition, health, education, clean water, energy, and living conditions for all. The concept of economic empowerment used in this research captures these aspirations. For each country, we estimate the point at which individuals can meet their essential needs and begin to have some security. This does not undermine the goal of eliminating extreme poverty; it explores how to move further toward a world in which people realize more of their own potential.
The actions taken (or not) in this decade will determine what kind of world the next generation will inherit. This research therefore considers how much progress could be feasible by 2030. The time frame is intentional. At today’s level of emissions, the world’s carbon budget for holding to a 1.5°C path is expected to run out around the end of the decade. In addition, 2030 is the target for the SDGs. Without faster progress on empowerment, the next generation could enter adulthood ill-equipped for the jobs of the future, putting many at risk of falling further behind.
Since these are urgent, simultaneous challenges, we bring them together to offer a more holistic view, considering the interactions between growth, economic inclusion, and the net-zero transition (Exhibit 1). Productivity-driven growth lifts incomes and raises living standards while unlocking the financing capacity needed for a low-emissions future. Meanwhile, innovation that goes hand in hand with growth can bring down the costs of low-emissions technologies. This could lower the spending needed for the transition and reduce the risk of households facing higher costs as a result.
Yet tensions exist in the system. Global economic empowerment implies billions of people with growing demand for energy, while a disorderly net-zero transition could create challenges of affordability. Some may view investment in the transition as a project that crowds out prospects for their lives to improve—but since the poorest populations are most exposed to the physical risks of climate change, reducing those risks is part of ensuring general well-being.
This research sizes the empowerment and net-zero gaps and explores scenarios of how they could theoretically be closed. The empowerment gap is the cumulative boost in consumption needed to meet everyone’s essential needs by 2030, while the net-zero investment gap is the cumulative spending on low-emissions technologies needed over the decade, above what is happening at present. Since neither could be addressed instantaneously, we assume steadily upward progress over the decade. This hypothetical would require the equivalent of 8 percent of global GDP annually, with significant variations by region.
This is obviously a massive sum, and its scale leads us to explore how much market forces could deliver. We find that accelerated growth and business innovation could take the world halfway to closing the combined gaps. Companies can make major contributions and benefit from new opportunities, even under current policy frameworks.
Beyond this point, the remaining economic gaps leave societies with choices about whether to address both challenges in full, in part, or not at all. Countries might prioritize one of these transformations over the other, or leave both unaddressed beyond what market forces can do. They might also attempt to make partial progress on both fronts. Closing the gaps would require protecting baseline growth against headwinds, boosting productivity and innovation to maximum levels, and potentially making societal commitments equivalent to 2 percent of global GDP, as an annual average, over the decade ($20 trillion cumulatively). Importantly, societal commitments would activate more innovation and investment by private actors. But actions on this scale would also take economies into uncharted territory, demanding more attention to maintaining economic growth and stability.
We frame the empowerment line as the level at which people can meet their essential needs and realize more of their potential. It has a global floor of $12 per day in PPP (versus the extreme poverty line of $2.15 PPP).
Societies are already spending on the twin priorities. In 2020, some 90 percent of the $1.4 trillion of global net-zero spending was either made by the public sector or subsidized in some way. About 20 percent of the consumption of people below the empowerment line was supported by public and social spending on in-kind transfers in 2020, by our estimates.
Are there further opportunities to close gaps without risking growth? All economies have constraints on fiscal resources. They would need to weigh those constraints against the implications of leaving urgent needs unaddressed—and against the potential longer-term payoff of an economically empowered population and a stable climate. Our research aims to provide ambition, provocation, and a fact base to inform these debates.
More than a billion people have exited extreme poverty in recent decades. Yet large populations above this line lack adequate healthcare, quality education for their children, or decent housing. The SDGs incorporate higher aspirations, while the UN Development Programme calls to “expand the sense of possibility in people’s lives.” When people have health, education, and stability, they are equipped to improve their own circumstances.
Continuing to raise the bar everywhere in the world
The World Bank’s extreme poverty line was recently updated from $1.90 to $2.15 per person per day (in purchasing power parity, or PPP, terms). But as more people exceed it, the world needs a complementary benchmark to track progress toward a higher living standard.
The concept of economic empowerment described in this research ensures that everyone has the means to access the full range of basics (Exhibit 2). Empowerment still implies living in frugal circumstances. But people can begin to build a modest buffer for weathering emergencies and can invest in themselves to become more productive.
When people rise meaningfully above poverty, many outcomes improve, including childhood mortality, life expectancy, years of schooling, and digital and financial inclusion. Life satisfaction increases when people shed the stress of not being able to make ends meet and can fulfill more of their material desires.
Image description: A circular diagram illustrates ten components of empowerment. Eight of them are characteristics of sufficiency, including food, healthcare, and education, and the other two are characteristics of security, including civic engagement and a savings buffer. End of image description.
How we quantify the higher bar
We start with consumption of $12 per person per day in PPP terms as a global floor, in line with other research (see sidebar, “Measuring economic inclusion”). For countries at higher income levels, we raise the line to account for local norms and the costs of food, housing and energy, safe water access, transportation, healthcare, education, clothing, and communication, using WageIndicator data as of 2022 and 2023. Purchasing power is consistently set to obtain that basket of goods plus a small margin for social activities and savings. The housing may be a modest apartment; the transportation could be a transit pass, a used car, or perhaps a motorbike in some contexts.
We then convert from PPP terms to 2020 US dollars. Expressed that way, the empowerment threshold ranges between $3 and $50 per capita per day across the countries in our data set. To give some examples, the line is about $3 per capita in Afghanistan and Sudan; $4 to $5 in India, Indonesia, and Nigeria; $8 to $11 in China, Mexico, South Africa, and Thailand; $15 to $45 in Australia, Denmark, Italy, Japan, and Poland; and $50 in the United States. Establishing each country’s threshold makes it possible to size its empowerment gap—the share of the population that falls short of sufficiency as well as the dollar amount that would bridge this gap.
Because we use a consumption-based metric, taxes and direct transfers are already taken into account. Cost-of-living thresholds are then adjusted for the estimated in-kind transfers provided in each country. Universal healthcare, for example, lowers out-of-pocket healthcare costs for individuals. We note, however, the challenges of accurately tracking how public services reach the targeted recipients. Indeed, one way for countries to advance empowerment is through logistical and operational improvements to ensure that social benefit programs can be accessed by their intended beneficiaries.
Finally, we note that empowerment is a per-person metric. Families that combine their resources would have better prospects for meeting their basic needs than individuals below this line living alone.
Who is not fully economically empowered?
About 4.7 billion people worldwide (approximately 60 percent of the global population) are not yet fully economically empowered by this benchmark (Exhibit 3). Some 4.4 billion of them live in low- and middle-income countries; nearly half are in sub-Saharan Africa and India. Some may live in rural villages far from the nearest medical clinic; others are in crowded urban tenements.
For many people below the empowerment line, especially in the world’s major cities, the high cost of housing eats into other priorities.
Yet more than 300 million people in high-income countries also fall into this category, including just over a quarter of the population in the United States and in the European Union and United Kingdom. While even high-income countries have some degree of homelessness and deprivation, most of the population below the empowerment line in these regions does not experience such severe poverty. Yet some of their essential needs are not sufficiently met. In many cases, the high cost of housing eats into other priorities. People may not be able to invest in better education or training for themselves or their children. Closer to the threshold, a person may rent a basic apartment with a decently equipped kitchen; he may even own a TV, a mobile phone, or a used car. But living paycheck to paycheck means there is little savings to handle emergencies, move, or retire comfortably. Someone whose family members have disabilities may have limited prospects for employment without caregiving support, for example.
The family of four squeezed into a small studio apartment in Los Angeles is not fully empowered. Neither is the street vendor in Lima nor the subsistence farmer in Laos.
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A horizontal bar chart shows the breakdown of the population by spending level in relation to the empowerment line globally and by regions. The first bar is the global bar, which shows 4.7 billion people, or 61% of the global population, live below the empowerment line. Regional breakdowns show that sub-Saharan Africa has the highest share of population below the empowerment line, at 90%, followed by India, at 77%. Japan has the lowest percentage of people below the empowerment line, 19%.
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The magnitude of lifting everyone to empowerment
Our analysis assumes that people below the line gain a bit more spending power each year through 2030. Because we adopt a common time frame for the world, this ramp-up to full empowerment would be steeper for the poorest deciles and more gradual for deciles closer to the line.
Using these parameters, achieving universal empowerment by 2030 would involve boosting the cumulative consumption of 4.7 billion people worldwide over the decade by just over $37 trillion (the empowerment gap). This boost is equivalent to 40 percent of this cohort’s continued spending at 2020 levels. We note that the gap is the product of how the threshold and the timeline are set. Lowering the threshold or allowing this trajectory to play out over a longer time frame would produce different results.
Making progress toward closing the empowerment gap matters. For billions of people, achieving minimum living standards is the foremost existential issue. Their hopes involve getting out of unsustainably high debt, securing healthcare for their children, or moving in search of a better job. Leaving so many people in vulnerable circumstances imposes limits on growth and risks destabilizing societies.
Empowerment could yield long-term benefits—and not only for the individuals whose lives improve. It would eventually create a virtuous cycle. Many more people would have the skills and agency to participate in a knowledge-intensive and digital economy. They would also become consumers, fueling future growth.
Alongside the aspiration to raise living standards, countries and companies worldwide have committed to reducing emissions to net zero, aiming to limit global warming to 1.5°C relative to preindustrial levels in the current century. This research builds on scenarios from the Network for Greening the Financial System to quantify the low-emissions spending needed to get on this pathway by 2030 (see sidebar, “Measuring the net-zero investment need”). Across seven sectors globally, our analysis finds the biggest needs in power and mobility (Exhibit 4).
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Square area charts show the low-emissions spending need and net-zero investment gap by energy and use sectors. From largest spending need to lowest, they are power, mobility, buildings, agriculture, industry, forestry, and hydrogen.
Each square is sized by each sector’s spending need, and each contains a shaded region that shows the proportion of spending need that is the net-zero investment gap. Power and buildings have the smallest gaps compared to other sectors proportionally. Globally, $55 trillion is the total for low-emissions spending need, and $41 trillion is the net-zero investment gap.
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This research looks at scenarios of baseline economic growth (2.7 percent globally) and accelerated growth (3.4 percent globally). Given the critical importance of growth to economic inclusion, we use the higher assumption for net zero, a scenario that could add an estimated 3 gigatons (Gt) of energy-related CO2 emissions in 2030 if historical relations of growth and emissions hold. This means that low-emissions spending would correspondingly need to scale up almost $5 trillion globally beyond what would be needed in a baseline scenario. In this high-growth world, getting on track for net zero would take cumulative investment and spending of $55 trillion on low-emissions assets over the decade—a step-up of $41 trillion as compared with simply extending 2020 levels. We refer to this step-up as the net-zero investment gap. At the same time, higher growth would expand the world’s financing capacity.
It is important to note that this $41 trillion figure does not reflect the world’s full energy and land-use investment; it excludes spending on high-emissions assets. Some high-emissions spending would continue, particularly in developing economies that are still expanding energy access, but overall global levels would fall. Some of the step-up in low-emissions spending could be captured as capital is reallocated away from high-emissions assets, provided that low-emissions alternatives become viable and cost competitive.
Our analysis assumes that providing incentives for low-emissions spending through subsidies would produce the same outcome as discouraging high-emissions spending through taxes. In practice, however, more policy mechanisms are needed to limit high-emissions spending. Some scholars have pointed to carbon taxes and subsidies as complements rather than a binary choice, especially at early stages of the net-zero transition.
Empowerment and the net-zero transition affect each other—and some tensions would need to be managed
As people move toward empowerment, their consumption rises. As mentioned earlier, our analysis builds in the assumption that higher economic growth increases the net-zero financing need, relying on the historical relationship of growth to the production and consumption of energy- and emissions-intensive products. Going further to achieve full empowerment by 2030 could push these needs—and therefore emissions—even higher than what is accounted for in this adjustment.
Using data from India, South Africa, the United Kingdom, and the United States, we estimate that moving everyone to the empowerment line could raise demand for energy-intensive products and services, and in turn emissions, by as much as an additional 15 percent above the effects of accelerated growth alone. However, significant uncertainties surround the effects of growth and empowerment on emissions. Historical patterns could change, for example, if consumers shift behaviors.
Just as empowerment affects the net-zero transition, the reverse is also true. If interventions such as carbon taxes increase the costs of energy and other goods for consumers, they could create a disproportionate burden for people below the empowerment line. Actions such as recycling carbon tax revenue into transfers or subsidies could protect low-income households and provide economic development for distressed communities.
The net-zero transition could redistribute jobs across industries and regions.
The net-zero transition could produce a surge of jobs in construction, certain types of manufacturing, and operations. Previous MGI research found that job gains could slightly outweigh job losses globally. However, the small net impact disguises the possibility of substantial churn as jobs are redistributed across industries and regions. In addition, the jobs being added may require different skills.
These potential impacts on households and labor markets make it crucial to manage the transition effectively and support consumers and workers in the most affected regions and sectors.
The two aspirations also have complementary aspects. Not acting to curb temperature rise could harm growth—and empowerment—substantially through effects such as impairing the ability to work outdoors, agricultural losses, and damage to capital stock. Lower-income people would become even more exposed to hazards if climate change is not convincingly addressed. And research has shown that as households become more empowered, they are more likely to be aware of the risks of climate change and, in turn, lend support to net-zero policies.
The gaps vary widely across regions
The empowerment and net-zero investment gaps vary in magnitude across different parts of the world, not only in absolute dollar terms but also relative to GDP.
In the timeline we have set to 2030, the global empowerment gap would be equivalent to about 4 percent of world GDP on average annually. However, it is only 1 percent of annual GDP in high-income regions, including Australia, Canada, the European Union and the United Kingdom, Japan, New Zealand, and the United States (Exhibit 5).
In developing regions, the starting point is harder. The total empowerment gap is the equivalent of 4 percent of GDP on average annually in the Middle East, 6 percent in Asia (not including China, India, or Japan), 7 percent in Latin America, 13 percent in India, and a daunting 45 percent in sub-Saharan Africa.
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A table of three columns shows statistics on the empowerment gap by region. In the first column, a doughnut chart for each region shows the share of the global empowerment gap that region makes up. The second column shows a bar chart for each region that visualizes the annualized % of GDP equivalent, based on 2021–30. The third column lists the empowerment gap as a percentage of continued 2020 spending of people below the empowerment line. The table shows that lower-income regions, like sub-Saharan Africa, India, and Asia excluding China, India, and Japan generally account for a higher share of the $37 trillion empowerment gap.
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The net-zero investment gap is also equivalent to about 4 percent of global GDP each year. It ranges from about 2 percent of GDP in Japan to 14 percent on average annually in India (Exhibit 6).
High-income regions have an annual net-zero investment gap on the order of about 3 percent of annual GDP on average, about four to five times higher than their 2020 levels of investment. Most developing regions have a larger net-zero investment gap relative to GDP. They face the twin challenges of replacing fossil fuel generation while substantially broadening energy access and meeting the energy needs of growing economies—and doing so in a low-emissions way.
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A table of three columns shows statistics on the net-zero investment gap by region. In the first column, a doughnut chart for each region shows the share of the net-zero investment gap that region makes up. The second column shows a bar chart for each region that visualizes the annualized % of GDP equivalent, based on 2021–30. The third column lists the increase over 2020 levels of low-emissions spending. The table shows that each region has a unique share of the $41 trillion net-zero investment gap. China, US, and EU and UK account for the largest share of the gap.
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How could populations below the empowerment line gain more spending power? Our scenario starts with growth. By our estimates, aggregate baseline growth of 2.7 percent per year globally could generate enough income to give our target population the ability to meet some $14 trillion more of their needs over ten years. This could help lift 830 million people into empowerment by 2030 and bring some 160 million people out of poverty, reducing the share of the global population in poverty from 11 to 8 percent.
On top of this, businesses can improve productivity to accelerate global growth. Farm and non-farm sectors have the potential to raise productivity, in aggregate, by at least 0.5 to 1.0 percent each year across regions, as outlined in many prior MGI research efforts. This is not only about cost-saving efficiencies; it is also about innovation and new business creation, new types of work, and products and services that address new markets. If global growth could reach 3.4 percent annually by harnessing such opportunities, more resources would also become available for public goods and social spending.
Increasing investment and technology adoption will be key to these efforts. This creates the challenge—and the opportunity—to upskill workers to use those technologies and make successful job transitions into more productive sectors and better-paying occupations. Previous MGI research has explored the scale of the skill shifts and occupational transitions that will likely be needed in the years ahead. Our analysis here suggests that roughly 10 percent of lower- and mid-skill workers could see their wages rise if they are equipped to take on higher-skill jobs by 2030 in response to technology, sector-specific growth opportunities, and other trends.
Businesses have a critical role here. About half of workers’ lifetime earnings is due to skill building through work experience and learning on the job; this dynamic is especially important for those without educational credentials who start out in low-wage work. Businesses can become more productive by accelerating this process: during the pandemic, for example, US workers moved into different occupations, including better-paying ones, at a rate 50 percent higher than in the past. But upskilling does not happen without intentional effort. It will be a heavy lift for businesses to improve this dynamic, especially where the process involves bringing people from subsistence farming into more productive work.
Faster economic growth could almost eliminate extreme poverty by 2030.
All told, higher growth combined with creating and filling more productive jobs could close an additional $10 trillion of the global empowerment gap beyond what baseline growth can deliver, by our estimates. This includes the impact of social and public transfers rising in line with higher growth. This could raise living standards and transform lives on a massive scale, lifting 2.1 billion people into empowerment and 600 million more out of poverty. In this scenario, the share of the global population below the empowerment line drops from 60 percent to 30 percent and the share in poverty shrinks to 3 percent over the decade.
Lower-income countries would take longer to achieve full empowerment. But accelerated economic growth could eliminate the most severe forms of poverty in much of the world by 2030 (although we note the unique difficulties in places where conflicts are ongoing, among other deep-rooted structural issues).
The toughest challenge is in sub-Saharan Africa. If economic growth remains at the baseline, the absolute numbers of those experiencing the most extreme deprivation might actually tick up as the population rises. But accelerated productivity-driven growth could cut that population in half, which translates to 250 million people exiting poverty. The gap remaining to fully erase poverty in this scenario amounts to $120 billion over a decade, equivalent to about 5 percent of total public spending in these countries, projected at historical rates. At the same time, living standards would continue to improve for the rest of the population. In a high-growth scenario, the population above 50 percent of the empowerment standard would rise from 260 million in 2020 to 550 million in 2030. Transforming so many lives would expand the continent’s possibilities.
Some $15 trillion of new low-emissions spending could be unlocked this decade through growth and innovation
How much low-emissions spending can be spurred by growth and innovation? And what role will private actors play? This depends on whether each low-emissions investment opportunity is “in the money”—that is, competitive in total cost of ownership relative to traditional alternatives. We have analyzed these by technology, sector, and region.
Only about 10 percent of the $1.4 trillion low-emissions investment in 2020 was fully private. Our model starts by assuming these levels continue over the decade. This would mean an additional $14 trillion coming on stream by 2030.
On top of that, an additional $15 trillion in investment could occur, even without changes to the policy frameworks that existed in 2020. Of this, $3 trillion could come from current investment simply rising in line with baseline growth (assuming that spending levels stay consistent as a share of GDP). The remaining $12 trillion could occur with accelerated economic growth and, more importantly, with technological advances on the horizon making low-emissions alternatives more cost competitive.
$10 trillion in low-emissions spending could become viable for businesses and consumers in this decade.
While some of this $15 trillion step-up would continue to be financed or subsidized by public budgets, the majority could consist of “in the money” spending by the private sector. Combined with continued spending at 2020 levels, some $10 trillion in low-emissions spending could become viable for private actors by 2030.
Where exactly are these “in the money” opportunities? The power and mobility sectors in China, Europe, India, and the United States collectively make up about 70 percent of this category—and these are precisely the areas with the biggest needs for investment. Action is already building in these areas. With new supply chains turning out batteries and a wider array of models hitting the market, electric vehicles are poised to become more affordable. Meanwhile, technology advances and continued cost reductions could create almost $700 billion of new viable investment opportunities across solar and wind generation in these regions.
Market forces—the combination of higher productivity-driven growth, business innovation, and technology advances—plus the continuation of current policies and public commitments could move the world much further on both fronts. At the global level, these forces could close roughly half of the combined empowerment and net-zero investment gaps (Exhibit 7). By our estimates, just under one extra percentage point of growth reduces the unfilled empowerment gap by more than one percentage point of GDP.
Image description: Two waterfall-style bar charts plot breakdowns of the $37 trillion inclusion spending gap and the $41 trillion sustainability gap. About two-thirds of the inclusion gap is covered by market-led opportunities and continued current policies, leaving $13 trillion unfilled. About one-third of the sustainability gap is covered, leaving $26 trillion unfilled. End of image description.
But growth and business-led innovation have uneven potential across countries (Exhibit 8).
By 2030, these two forces could fill roughly 55 to 85 percent of the empowerment gap in high-income regions. Across the rest of the world, the picture varies widely. The greatest potential lift could occur in India and China. Accelerated growth and business innovation could erase more than 90 percent of the empowerment gaps in both countries, lifting about 700 million people in India and over 730 million in China above the threshold by 2030. But these two forces may have lower impact by 2030 in many other developing countries.
For net zero, the potential impact of growth is less, as discussed previously. Growth and business-led innovation plus continued current policies could together fill about 30 to 60 percent of the gap, with economies in Asia (apart from India) at the lower end.
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Two sets of horizontal bar charts show a regional breakdown of the potential of baseline growth and business-led innovation to fill gaps. The left side shows the empowerment gap, and the right side shows the net-zero investment gap. The bars are split into three categories: baseline growth, business-led innovation, and unfilled gap. The charts show that the portion of the gap that can be filled varies by region.
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After accounting for growth, business innovation, and continued current policies, the unfilled gaps amount to $40 trillion across both empowerment and net zero. This is the global total, cumulative through the decade, with roughly $13 trillion on the empowerment side and $26 trillion for net-zero investments through 2030. Each country and region has a unique share of this residual gap, depending on its current development challenges, its growth prospects, and how carbon-intensive its economy currently is (Exhibit 9). Developing countries account for nearly two-thirds of the residual gap globally.
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Two treemap charts plot regional breakdowns of the two unfilled spending gaps over 2021–30. On the left is the $13.4 trillion empowerment gap, with the segment for Sub-Saharan Africa filling about half of the chart, with $7.2 trillion. On the right is the $26.2 trillion net-zero investment gap, with the largest segments including China at $5.8 trillion and the U.S. at $4.5 trillion.
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Different outcomes are possible depending on the extent of growth, innovation, and public-private action
The choices societies make about prioritizing these aspirations and putting resources into them can produce a broad range of outcomes.
If economic growth stays at the baseline, but innovation does not bring down the cost of low-emissions technologies as much as expected and no additional commitments are made, some 830 million people would cross the empowerment line by 2030. But some 3.9 billion would remain below it, and the world would be on a trajectory for over 3.0°C of warming in 2100.
Exhibit 10 shows the degrees of progress that could be achieved in line with higher growth, innovation, and commitments. While these are global results, the trade-offs differ across countries and regions.
- Innovation-led accelerated growth. Countries could choose to rely solely on maximizing what market forces can do. With higher economic growth and innovation delivering the anticipated productivity improvements and reductions in the price of low-emissions technologies, 2.1 billion people could move above the empowerment threshold, but the world would be on a 3.0°C warming path. This would produce much more progress, especially on the empowerment side, than the current trajectory, although it would be far from closing the gaps.
- Commitment to partially address either gap. Assuming high growth and innovation, societies could choose to address one of the residual gaps, leaving the other to be addressed by market forces alone. The exhibit illustrates societies choosing to tackle net zero completely but not empowerment. The choice is not binary, of course. Many combinations could yield partial progress on both challenges in tandem.
- Commitment to fully close both gaps. In this scenario, the global population would be fully empowered with a higher standard of living, and the world would be on track to achieve net zero by mid-century, hopefully limiting warming to 1.5°C by 2100. This would take a best-case scenario of global growth and innovation along with commitments that wholly—and effectively—address the combined $40 trillion residual gap over the decade.
The important assumption in the final two scenarios is that public commitments on such a scale would spur additional private activity and investment. However, it is possible that such extensive commitments could distort the baseline economy.
These scenarios lead us to three questions about how additional commitments could theoretically close the last-mile gaps as well as the implications for countries that lack the economic resources.
Question 1: How could societies get closer to full empowerment beyond what current market forces can do?
The options for closing the residual $13 trillion economic gap for universal empowerment involve delivering essential goods and services more affordably and effectively, improving work arrangements and pay, and injecting more direct support. As a thought experiment, we quantify some of these avenues, cautioning that the effects of intervention on this scale are not known (Exhibit 11).
Making housing, healthcare, education, and nutrition more affordable—and raising the bar for quality—can yield not only financial savings but greater well-being and human potential.
First, beyond incomes, one of the biggest factors determining empowerment is the price of essential goods and services. Multiple efficiencies could bring down these costs. Benchmarking against the productivity gains and outcome improvements that some countries have achieved in past decades, we estimate the potential to improve capacity and productivity in housing, healthcare, education, and nutrition. If these are passed on to consumers, they could yield some $3 trillion of benefits to those below the empowerment line (cumulatively through 2030). In effect, this would lower the empowerment threshold. In places where the public sector provides essential services, looking for operational efficiencies and raising the bar for quality can ensure that public funds are well spent. Beyond the financial savings, these could yield immense benefits in terms of well-being and human potential.
Image description: A waterfall-style bar chart plots a breakdown of a funding scenario that could potentially close the $37 trillion empowerment gap. It shows $20 trillion covered by private business actions under current market frameworks, $14 trillion of public support, and the rest mostly covered by public and private action to increase the affordability of essentials, including education, healthcare, housing, and food. End of image description.
For instance, we estimate that improved construction productivity could lower housing expenditures by 11 percent globally if all countries emulated their best-performing peers and these gains reached consumers. Health outcomes (expressed in healthy life expectancies) could improve by 36 percent globally, even keeping current levels of healthcare spending constant, if each country matched its best-performing peer over the next decade. Globally, we find an opportunity to improve learning outcomes (expressed as both years of schooling and test performance) by 42 percent, with the greatest potential gains in low- and middle-income countries.
Policies and incentives could spur more business attention and innovation in the affordable segments of the housing, healthcare, food, and education markets. In housing, for example, local governments can change regulations related to land use, density, and permitting to lower costs for private developers. They can also require a percentage of affordable units in larger multifamily projects or offer concessional finance to buyers and developers of affordable housing.
On a different front, more labor-friendly policies and business decisions to offer higher wages or benefits could address labor’s declining share of national incomes, particularly in high-income economies. This could occur alongside structural factors we have accounted for as part of economic growth, such as changing employment mixes.
For the remaining unfilled $10 trillion global gap, one option could be well-administered transfers to households. While better-paying jobs are the biggest driver of higher living standards, transfers can be targeted to those who do not benefit from these opportunities, especially the very poorest, those living in remote communities, children, the elderly, and people unable to work. In many places, there is room to make subsidy programs more transparent. Digital tools can spot leakages while streamlining eligibility processes and delivering benefits more efficiently. In addition, governments, philanthropies, social investors, development finance institutions, and multilateral agencies could consider increased direct funding for affordable housing, health, and quality education.
A $10 trillion incremental commitment to achieve full empowerment would be equivalent to about 3 percent of total global government budgets over the decade (assuming both accelerated growth and government spending held constant at its current share of GDP). But the regional differences are stark. The amount needed to close the gap in the United States, for example, equals about 1 percent of government spending, while in sub-Saharan Africa, it would take 1.3 times the region’s government spending. Even if the region’s gap could be closed through international transfers, uncertainties remain about the potential size and duration of such aid. Large capital flows could affect prices, labor markets, savings, and ultimately growth.
Question 2: What would it take to get on a true net-zero trajectory beyond what current market forces can do?
After accounting for market forces, technological advances, and the continuation of current policies, the residual unfilled net-zero investment gap is $26 trillion, cumulative through the decade. This is equivalent to 3 percent of global GDP annually.
Increased public commitments for net zero could activate even more private capital and create faster learning effects that bring down the costs of low-emissions technologies.
Fully addressing this unfilled economic gap would require a combined public–private effort. Higher public commitments could activate even more private capital and create even faster learning effects (that is, the lowering of costs as technologies mature and are deployed widely). For example, the vast majority of wind and solar will come on stream only if there is sufficient investment in transmission and distribution, which is largely a public-sector effort today in many parts of the world. All of this rests on the unproven assumption that these shifts do not damage the base economy.
We present a scenario illustrating how such commitments could play out if countries choose to make them. Beyond the levels of public funding suggested by growth and the continuation of current policies, we estimate that an injection of just under $10 trillion in public funding could potentially unlock almost $17 trillion in additional positive impact collectively to 2030. Public support could take the form of concessional finance (that is, lending below market rates), subsidies, and projects undertaken by state-owned enterprises and development finance institutions.
One-quarter of the total $55 trillion needed through 2030 could be private in-the-money spending (plus avoided spending), up from 10 percent in 2020. All told, some $31 trillion could potentially come from private actors (Exhibit 12), including what is expected to become cost competitive as well as what could be unlocked through additional policies and public finance. Public support alone makes up some 36 percent of the total in this scenario, down from half in 2020.
Image description: A waterfall-style bar chart plots a breakdown of the global spending needed to fill the $41 trillion net-zero investment gap. It shows $13 trillion coming from public support, $16 trillion from private sources influenced by that public support, $9 trillion from private consumer finance and commercial finance sources, and $4 trillion counted as avoided spending from accelerated learning. End of image description.
About 70 percent of crowded-in private spending could occur in the building and mobility sectors, based on our bottom-up modeling. Public support would be critical for building decarbonization, since heat pumps, a key technology, are not yet cost competitive relative to gas boilers. Similarly, there are significant opportunities in mobility, but public-sector support may still be needed, especially for heavy-duty electric vehicles, which are expected to take longer than battery electric passenger vehicles (BEVs) to become cost competitive.
Such levels of public and private action could also yield up to $4 trillion in avoided investment, thanks to additional R&D, economies of scale, and learning by doing.
As with the empowerment gap, the $10 trillion of public commitment to be on track for net zero represents about 3 percent of total global government budgets over the decade (assuming both accelerated growth and government spending remain constant as a share of GDP). This ranges from less than 1 percent of current government budgets in the European Union and United Kingdom to 14 percent in India. The consequences of scaling up public commitments and international capital flows to this extent would be uncharted territory.
Even if the residual gap for net zero is not fully addressed, pursuing everything that market forces can do would already be a tremendous ramp-up in spending and progress. At this scale, and with this additional momentum, the environment becomes more fertile for breakthroughs and societal shifts that we cannot foresee today. This argues for a continued focus on growth and innovation.
Question 3: Will societies have the capacity and willingness for higher public and private commitments?
If governments choose to address some or all of the residual gaps, they could explore making their spending more efficient, reallocating existing spending, issuing new debt, or raising taxes. Capital could also come from philanthropies, multilateral agencies, or social investors.
Carbon pricing can play a role in spurring the switch away from high-carbon assets. We model how the need for public support to achieve both empowerment and net zero would change if carbon taxes, rather than subsidies, were the primary vehicle to shift incentives toward low-emissions spending. We found that they reduce the need for additional public support to reach net zero by 0.4 percentage point of GDP. At the same time, the residual empowerment gap would rise by 0.2 percentage point of GDP (on average annually) unless this effect is mitigated by revenue recycling.
Most high-income countries theoretically have the resources to make higher commitments if they choose to, although how much debt countries can carry is the subject of ongoing debate. Yet the choice to aim for full empowerment, net zero, or both would involve difficult trade-offs with other national priorities.
Sustainability and inclusion are global projects, with ramifications that do not stop at national borders.
Achieving full empowerment and a net-zero trajectory in the current decade appears more challenging for lower- and middle-income countries. Allocating large amounts to the net-zero transition could eat into existing social welfare programs, potentially worsening the empowerment gap. India’s need for incremental public support to get on a net-zero pathway is more than 50 percent higher than the share of GDP that currently goes to social protection spending, for example. Debt, too, is problematic for the developing world: the IMF estimates that 60 percent of low-income countries are already in debt distress or approaching it.
Yet sustainability and inclusion are global projects, with ramifications that do not stop at national borders. For context, if high-income countries were to take on the combined residual gaps in the entire world, it would require an amount equivalent to about 3.5 percent of their GDP on an average annual basis (up from less than 1 percent of GDP to bridge only their own residual gaps). Even if high-income societies were willing to bear that cost, the world would need a mix of mechanisms for cross-border flows that could include international aid, cross-border debt, assistance from multilateral institutions, and debt relief (including creative debt-for-nature or debt-for-climate swaps). New financial vehicles might need to be designed.
We are reaching a fork in the road
We undertook this exercise to show what is theoretically possible and inform the debate. Regardless of whether countries decide to increase public commitments, this research leads to two important takeaways.
The importance of productivity-driven growth cannot be overstated
Faster growth propels inclusion. Almost 40 percent of the empowerment gap can be closed by baseline growth—and, as noted earlier, just under one extra percentage point of growth reduces the unfilled empowerment gap by more than one percentage point of GDP.
Additionally, growth can give governments more fiscal flexibility. The incremental GDP growth from higher productivity would allow for more than $30 trillion in additional public debt to be incurred globally without raising the 2020 global public debt–to-GDP ratio. At a global level, and specifically for high-income regions, this additional debt capacity exceeds the incremental public support needed to fill the empowerment and net-zero investment gaps. It is a question of whether or not those countries choose to assume that kind of debt, and where to allocate it.
Visionary agendas are more likely to be pursued when the pie is growing and put aside when it is shrinking. While growth can’t overcome every structural challenge, it can create space for new solutions to take root. Although growth in its current form has increased both emissions and inequality in the past, businesses, institutions, and governments can address these externalities more directly.
Higher growth and innovation could bring 600 million more people out of poverty, taking steps on a longer journey toward empowerment.
For developing economies, the prospects for more people to exit poverty are inextricably linked to their ability to grow. These countries would need to double down on productivity, skill development, and technological leapfrogging. They may also need institutional reforms, from clearer legal frameworks for property rights to stronger oversight that prevents leakages of public spending. New collaborations may be needed to integrate low-income countries more fully into global flows of trade, finance, technology, and knowledge.
The upside is compelling: higher growth and innovation could lead to some 600 million people moving out of poverty, taking significant steps on their journey toward full economic empowerment. Even in the absence of greater commitments and international transfers, growth and the actions of businesses can unlock real progress that changes lives.
Innovation at scale is critical
Relentlessly focusing on technology development is one of the keys to getting to net zero and lowering the price tag associated with doing so. The significant recent drops in the costs of wind and solar power offer reason for hope. R&D, learning by doing, and scaling up eventually drive costs down. The faster this happens, the lower the risk of households facing higher energy costs.
On the inclusion side, innovation and technology adoption generate demand for higher skills and better jobs. Innovation is also needed to tap efficiency-boosting opportunities and bring down the costs (and prices) of basic needs, from housing and food to education and healthcare.
Innovation is also needed in a broader sense. Lifting minimum living standards and containing climate change would involve sweeping transformations, requiring bold approaches in policy, finance, technology, and industry. The possibilities could include creating new multilateral financing vehicles; integrating low-income countries into global flows of capital and trade in a way that lifts local communities and small businesses; developing sustainable cities with affordable housing; strengthening education and healthcare systems worldwide; and designing effective carbon markets, including incentives for countries to preserve biodiversity and critical carbon sinks.
Progress toward empowerment and net zero would depend on private actors, governments, and NGOs and nonprofits combining their capabilities and expertise—and thinking without limits about how they can contribute to meeting this moment. Regardless of whether countries fully close the gaps, they have real opportunities to build a more stable, prosperous future.
We recognize the scope of these challenges as well as the political realities and the gravitational pull of the status quo. Financing is only one aspect of what would need to be done; achieving consensus and moving toward implementation would be incredibly complex. Countries that decide to take on these generational transformations would need an entirely different magnitude of public–private cooperation. The size of the challenge is not a reason for resignation; it is a call for everyone to roll up their sleeves on what can be done today. Every incremental step forward advances the continuum of progress.
The executive summary of this report was originally published in August 2023. This page has since been updated with the full report download.
