McKinsey 2008 Research in Review: Stabilizing at 450 ppm has a net cost near zero
The McKinsey Global Institute has done some of the most comprehensive and credible recent analyses on energy efficiency potential and carbon mitigation cost curves (see here). They have summarized their work in “2008 Research in Review,” so this is a good opportunity to create one universal link for their work.
One core MGI factoid you can use: Nearly 40 percent of the U.S. emissions reduction potential by 2030 is from energy efficiency (see here).
MGI is best known for its comprehensive cost curve for global greenhouse-gas reduction measures (click to enlarge), which concluded measures needed to stabilize emissions at 450 ppm have a net cost near zero — the same conclusion as the International Energy Agency and IPCC.
Another 2008 MGI report has its own stunning conclusion:
The macroeconomic costs of this carbon revolution are likely to be manageable, being in the order of 0.6-1.4 percent of global GDP by 2030. To put this figure in perspective, if one were to view this spending as a form of insurance against potential damage due to climate change, it might be relevant to compare it to global spending on insurance, which was 3.3 percent of GDP in 2005. Borrowing could potentially finance many of the costs, thereby effectively limiting the impact on near-term GDP growth. In fact, depending on how new low-carbon infrastructure is financed, the transition to a low-carbon economy may increase annual GDP growth in many countries.
The new analysis explains that “at a global, macroeconomic level, the costs of transitioning to a low-carbon economy are not, in an economic ‘welfare’ sense, all that daunting — even with currently known technologies.” Indeed, 70 percent of the total 2030 emissions reduction potential (below $60 a ton of CO2 equivalent) is “not dependent on new technology.”
The report notes that “we have been fairly conservative in our assumptions about technological progress in these projections.” For instance, the analysis appears to ignore the potential of concentrated solar thermal electricity entirely (see “
Concentrated solar thermal power Solar Baseload — a core climate solution“).
On U.S. efficiency potential, “McKinsey worked with leading companies, industry experts, academics, and environmental NGOs to develop a detailed, consistent fact base estimating costs and potentials of … more than 250 options, encompassing efficiency gains, shifts to lower-carbon energy sources, and expanded carbon sinks” (see “McKinsey: Fighting climate change is affordable“).
One key conclusion is well worth bearing in mind as a new Administration (hopefully) contemplates banning all new coal plants that do not capture and store most of their carbon:
“Improving energy efficiency in the buildings-and-appliances and industrial sectors, for example, could (assuming substantial barriers can be addressed) offset some 85% of the projected incremental demand for electricity in 2030, largely negating the need for the incremental coal-fired power plants assumed in the government reference case.”
Again, no breakthroughs are needed:
The United States could reduce GHG emissions in 2030 by 3.0 to 4.5 gigatons of CO2 using tested approaches and high-potential emerging technologies. These reductions would involve pursuing a wide array of abatement options with marginal costs less than $50 per ton, with the average net cost to the economy being far lower if the nation can capture sizable gains from energy efficiency. Achieving these reductions at the lowest cost to the economy, however, will require strong, coordinated, economy-wide action that begins in the near future.
Here is McKinsey’s own summary pointers to its recent work:
Using carbon and energy resources more productively …
With the global financial system in crisis and the economy in a downturn, there is a risk of ebbing momentum for investing in clean energy and tackling climate change. Some argue that action is too expensive when the economy is weak; others say it will hurt economic growth and force consumers to make unwanted changes in their lifestyle. Our joint research with McKinsey’s Climate Change Special Initiative found that we can dramatically reduce greenhouse gases and grow the global economy for less than we think. Meanwhile, our work on global energy demand trends examined the highly attractive economics of investing in energy productivity-the level of output we achieve from the energy we consume. Other research examined how Europe can further capture its energy productivity opportunity and explored energy demand trends in developing countries. We also identified areas for action to overcome today’s barriers and highlighted how companies can not only make large energy-cost savings but also create lucrative new markets in energy-efficient technologies and services. Look for an updated perspective on energy supply and demand trends and oil prices early next year.
Kudos to McKinsey Global Institute for all of this important research.