Any successful program of action on climate change must support two objectives—stabilizing
atmospheric greenhouse gases (GHGs) and maintaining economic growth. Research by the McKinsey
Global Institute and McKinsey's Climate Change Initiative finds that reconciling these two
objectives means that "carbon productivity," the amount of GDP produced per unit of carbon equivalents
(CO2e) emitted, must increase dramatically.
To meet commonly discussed abatement paths,
carbon productivity must increase from approximately $740 GDP per ton of CO2e
today to $7,300 GDP per ton of CO2e by 2050—a tenfold increase. This is
comparable in magnitude to the labor productivity increases of the Industrial
Revolution. However, the "carbon revolution" must be achieved in one-third of
the time that economic transformation took in the Industrial Revolution if we
are to maintain current growth levels while keeping CO2e levels below 500 parts
per million by volume (ppmv), a level that many experts believe is the maximum
that can be allowed without significant risks to the climate.
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.
If we do not increase our carbon productivity, the consequences will be stark,
the report suggests. Meeting commonly discussed abatement target would require a
per-person carbon budget of 6 kilograms of CO2e per day. If one had to live on such
a carbon budget with today’s low levels of carbon productivity, one would be forced
to choose between a 40 kilometer car ride, a day of air conditioning, buying two new
T-shirts (without driving to the shop), or eating two meals. So without a major boost
in carbon productivity, stabilizing greenhouse-gas emissions would require a major drop
in lifestyle for developed countries and would hinder economic development in low income countries.
The microeconomic changes needed to increase carbon productivity at the levels required
will not occur without the active leadership and collaboration of governments and businesses
globally. We need new policies, regulatory frameworks, and institutions focused on four areas:
creating market-based incentives to innovate and raise carbon productivity; addressing market
failures that prevent abatement opportunities from being captured profitably; resolving issues
of allocation and fairness, in particular between the developed and developing worlds and between
industry sectors; and accelerating progress to avoid missing critical emissions targets.
It will be essential to identify and capture the lowest-cost abatement opportunities in the economy.
Analysis of McKinsey's global cost curve, a map of the world's abatement opportunities ranked from
lowest-cost to highest-cost options, identifies five areas for action to drive the necessary microeconomic
changes: capturing available opportunities to increase energy efficiency in a cost-effective way;
decarbonizing energy sources; accelerating the development and deployment of new low-carbon
technologies; changing the behaviors of businesses and consumers; and preserving and expanding
the world's carbon sinks, most notably its forests.
The carbon productivity challenge Any successful program of action on climate change must support two objectives—stabilizing atmospheric greenhouse gases and maintaining economic growth Launch slideshow
Averting the next energy crisis: The demand challenge Global energy-demand growth is expected to flatten in the short term but will rebound with recovery. Indeed, there is potential for liquids-demand growth to outpace that of supply—risking a new spike in oil as soon as 2010 to 2013, depending on the depth of the economic downturn. Read more
Fueling sustainable development: The energy productivity solution By choosing more energy-efficient cars and appliances, improving insulation in buildings, and selecting lower-energy-consuming lighting and production technologies, developing countries could cut their annual energy demand growth by more than half from 3.4 to 1.4 percent over the next 12 years. This would leave energy consumption some 22 percent lower than it would otherwise have been—an abatement equivalent to the entire energy consumption of China today.
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Capturing the European energy productivity opportunity With energy-efficiency standards in Europe set higher than in many other regions, European companies are in a strong position to make large energy-cost savings and innovate lucrative new markets in energy-efficient technologies and services, attracting worldwide demand. If policy makers and business engage fully in boosting energy efficiency, Europe could hold energy demand at today’s level instead of seeing it grow 1.2 percent annually. Read more
The case for investing in energy productivity Additional annual investments in energy productivity of $170 billion for the next 13 years could cut global energy demand growth by at least half while generating average internal rates of return of 17 percent. Such outlays would also achieve significant energy savings and cuts in greenhouse gas emissions. Read more
Leapfrogging to higher energy productivity in China By taking advantage only of currently existing technologies that pay for themselves, China could further its ongoing efforts and reduce total energy demand in 2020 by as much as 23 percent. Lower energy demand would also mean that China could cut its projected oil imports by up to 15 percent and its CO2
emissions by at least 20 percent by 2020.
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Wasted energy: How the U.S. can reach its energy productivity potential By capturing the potential available from existing technologies, the United States could cap U.S. energy consumption, as well as its greenhouse gas emissions, at today's levels.
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Curbing global energy demand growth: The energy productivity opportunity There is a large opportunity to contain accelerating energy demand growth in practical, cost-effective ways and, in the process, cut CO2
emissions.
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What is energy productivity? Learn more about this concept and how it applies to policy goals.
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