Curbing climate change and sustaining economic growth

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To tackle the current global challenge of climate change, the world must balance two crucial objectives: stabilising atmospheric greenhouse gases while maintaining economic growth, argue a group of consultants from the McKinsey Global Institute (MGI) in a June 2008 report.

MGI argues that the strong evidence already presented by scientists in the Intergovernmental Panel on Climate Change (IPCC) “has largely settled the discussion about whether the world needs to respond”. The main question now is what dimension the response should take, it says. 

MGI has found that combining the two objectives of stabilising greenhouse gases and maintaining economic growth means that what it calls “carbon productivity” – the amount of GDP produced per unit of carbon equivalents emitted (CO2e) – “must increase dramatically”. 

The report finds that carbon productivity must be raised from $740 GDP/ton CO2e today to $7,300 GDP/ton CO2e by 2050, comparing this to the massive increase of labour productivity in the Industrial Revolution. 

MGI believes that the microeconomic changes needed to boost carbon productivity to the desired levels will need the “active leadership and collaboration of governments and businesses on a global basis”. 

It calls for new policies, regulatory frameworks and institutions that would focus on four key areas: 

  • Creating market-based incentives to boost innovation; 
  • correcting market failures that do not allow for emissions reductions; 
  • resolving issues of allocation and fairness and; 
  • accelerating the progress made to meet “critical emissions targets”. 

Meeting the twin objectives will be “challenging but possible”, says the report. It says the industrial and technology revolutions have the right incentives and institutional structures to succeed. In addition, “dramatic levels of change and innovation in the economy” can boost growth, raise living standards and create further opportunities, argues MGI. 

It says that, according to research, most of the technologies needed to instigate a “carbon revolution” already exist, it is now just a matter of creating the “necessary incentives and structures on a global scale”. 

“It is a challenge we must meet,” it concludes. 

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