The global cost-effectiveness of reducing greenhouse gases :: McKinsey Quarterly

One of the most sensible approaches to reducing global greenhouse gases is to take a multi-faceted approach with largely existing technology (e.g., see Robert Socolow, a leading thinker in this area). However, the economic implications of such a strategy have remained unclear. A recent report from consultants at McKinsey & Co. solves this need for clarity, by modeling the global cost-effectiveness of various strategies to reduce emissions. (see article here – registration may be needed).

The authors find that for a reasonable cost, greenhouse gases can be reduced to 1990 levels by 2030 by using a multi-targeted approach. This approach would involve reducing emissions from the power and manufacturing sectors, decreasing energy demand, and decreasing detrimental behaviors in forestry and agriculture. The relative impact of these actions on abatement is estimated at 45%, 25%, and 31%.

As an FYI: examples of power and manufacturing abatement include demand reduction, carbon capture, and using new energy sources. Solutions that decrease demand include building insulation and more efficient transportation fuels; many of these are so effective, they pay for themselves after a few years. Forestry and agricultural solutions include protecting and replanting forests, avoiding practices that generate unnecessary greenhouse gas release (e.g. from soil churn), and recycling gas emissions from waste.

Sorting the abatement opportunities by geography, almost 50% of it rests in developing countries. This is because developing countries generally have a lower total cost of abatement, lower cost per capita, and larger potential for protecting forests. The authors also report that 70% of the reduction in greenhouse gases can be achieved without any major technological innovations.

In terms of cost, the authors calculate that the above global impact can be reached at a cost of up to 40 ($54) per ton of carbon (or equivalent) emissions avoided. This means an annual cost of 500 billion ($670b) to 1,100 billion ($1500b) depending on the extent to which more expensive, newer technologies are used. In others words, these abatement actions could be undertaken at a cost of 1% or less of world GDP. Clearly that is significant, but not outrageous.

The important policy conclusions from this report are that emissions solutions are going to have to be global, long-term, and stringent. This is a wakeup call for the world’s politicians to act now.

Until sluggish politicians muster the courage to do something – we can all do something now to help curb energy useage, by following these 50 tips (from the AAAS’s great page on climate change).

Questions I think I’ll write about next on this thread:

– It’s been a month or so since this article was published. How have people reacted to this? What has been the impact in political circles? (I don’t know, and hope to explore this next!)

– What factors is their model most sensitive to?

– Have there been any similar analyses on ways to “scrub” existing CO2 – e.g., Richard Branson and Al Gore’s Challenge.



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