Not sky-high: The cost of reducing greenhouse gases

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Increasing “carbon productivity” is key to tackling the double challenge of climate change and economic recession, Jeremy Oppenheim, Eric Beinhocker and Diana Farrell, researchers at consulting firm McKinsey, write in the 15 November edition of Newsweek International.

The researchers, from the McKinsey Global Institute and McKinsey’s Climate Change Special Initiative, argue that investment in the shift to a low-carbon economy will more than pay itself back. 

Estimating that the shift would require new global capital investment of nearly $570 billion per year between 2010 and 2030, much of the cost will be in long-term investments financed over time, boosting economic growth and job creation, the team believes.

Carbon productivity, measured as the amount of output produced per metric ton of greenhouse gases emitted into the atmosphere, must reach $7,300 by 2050 if we are to avoid disastrous consequences of global warming while at the same time reduce poverty in the Third World and maintain growth in developed countries, McKinsey argues. 

This would require a tenfold increase compared to today’s productivity: the kind of challenge humankind overcame in the Industrial Revolution, the paper argues, before warning that the timeframe for action is now much shorter because continued emissions at current levels would produce irreversible damage within forty years.

The researchers thus call for a “clean-energy revolution,” starting with increased energy efficiency, the “low-hanging fruit” of energy-policy transformation. They argue that investing $170 billion annually over the next thirteen years in measures to limit energy demand, leading to significantly lower energy costs, would generate savings of over $900 billion per year by 2020.

Nevertheless, McKinsey acknowledges that in addition to slowing growth in energy demand, a dramatic increase in carbon productivity will require emissions to be curbed while maintaining economic output at the same time. It estimates, however, that 70% of the technology needed to decarbonise already exists, singling out renewables as well as more controversial sources of clean energy like nuclear and carbon capture and storage as promising examples.

The authors add that the transport sector is experiencing “a race between technologies”. They say city planners are also doing a good job by designing smart cities to reduce traffic. Moreover, large communities of entrepreneurs, venture capitalists and commercial labs are working on a “plethora of innovations” to provide the necessary new technologies.

Finally, the McKinsey team states that the road to greater carbon productivity goes beyond new technologies, arguing that preserving and expanding tropical forests (which absorb carbon emissions) and changing long-standing behaviour are equally important. 

The researchers conclude that enormous progress can be made without compromising current lifestyles if businesses “start taking carbon into account in the design, packaging, supply chains and logistics of their products,” and if customers learn to make better purchase choices.