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How a city paved the way to a new low-carbon economy

An environmentally aware city tackles the next frontier of carbon abatement opportunities.

Challenge

A major city was working toward ambitious targets to reduce greenhouse gas emissions beyond regulatory requirements. The city had already made considerable progress in curbing emissions in its transport, power, and waste sectors by adopting alternative fuels for public transport, switching local power production to hydropower, and dramatically reducing landfill through a recycling and composting rate of more than 75 percent.

But city officials wanted to do more: to reduce greenhouse gas emissions to 80 percent below the 1990 level by 2050. Given that projections for "business as usual" emissions in 2030 were more than 50 percent above target, they recognized that current policies would not be enough to realize their ambition. They would need to seize additional opportunities for abatement by driving technological innovation and encouraging behavioral change.

To help the city identify opportunities, McKinsey used its city carbon economics tool, which outlines the potential impact and cost of a range of abatement measures. Adapted from our national and global carbon cost curves, the tool includes additional measures for triggering behavioral shifts at a city level, such as introducing variably priced parking, road congestion charges, and dedicated bicycle tracks to discourage car use. The tool also allows cities to analyze the expected feasibility of individual measures and the likely impact on local jobs.

Discovery

The McKinsey team supported the city in selecting a series of abatement measures and analyzing their expected cost, feasibility, and impact. To build engagement among local people and organizations, in-depth interviews were conducted with key stakeholders and experts, and city functions, power utilities, building management companies, and environmentally focused non-profits helped to gather data. This effort built on a substantial body of work that the city had developed in-house and generated a robust and comprehensive fact base for leaders to draw on in making strategy and policy decisions. It also sparked discussion among stakeholder groups and raised public awareness of the issues at stake.

More than 85 percent of the city's emissions came from residential and commercial buildings and vehicles, and the analysis revealed that 60 percent of further abatement opportunities could be found in the building and transport sectors. The most promising opportunities lay in retrofitting homes to improve energy efficiency, managing demand for private transport, and introducing new community-level agreements for purchasing 100 percent renewable power from outside the city to encourage a switch to slightly more costly but less carbon-intensive green power.

About half of the measures analyzed had the potential to create local jobs in the near term, mainly because of the on-site labor needed to retrofit buildings, upgrade HVAC units, and build infrastructure for transport management. In the long term, employment could also be boosted by the development of new green industries, such as energy-efficient lighting and appliance manufacturing.

Impact

The city discovered that by using a combination of behavioral and technological measures ranging from congestion pricing to building retrofits, it might be able to abate 2.5 million tons of CO2 equivalent (tCO2e) or more per year by 2030 on top of its already ambitious "business as usual" target. Individual measures varied from a net cost of $425 per tCO2e to a net saving of $1,200 per tCO2e.

Overall, the assessment of cost effectiveness, feasibility, and impact showed that the city could make a number of "no regrets" moves, including implementing building retrofits, introducing variably priced parking, and increasing recycling and composting. Other measures would require further analysis of economic and other impacts as well as benefits such as health, safety, and productivity, while some measures needed pilot projects to test their effectiveness.

As a result of this effort, the city now has an opportunity to implement a bold strategy to attain its targets, continue to influence the national and global debate on climate change, and reinforce its leadership in the field.

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