This year's first issue of the McKinsey Quarterly has several research summaries devoted to environmental concerns. As is the McKinsey way, these are heavily devoted to the economics of these situations, rather than the environmental or moral factors. Thus, instead of asserting whether one should or should not attempt to curtail global warming, they address the costs of various components of that effort.
In other words, if I decide to improve my energy productivity and decrease greenhouse gas output, what's the most cost-effective way to do each?
Diana Farrell, Scott Nyquist, and Matthew Rogers address the first concern. "Energy productivity" is "the ratio of value added to energy inputs." More plainly, how much money do you make per unit of energy consumed? This has an obvious link to environmental concerns, inasmuch as low energy productivity means that you're burning a lot more energy to get the same economic output. You can, then, increase overall economic output either by dumping more energy into the system (costly, environmentally untenable) or increasing your energy productivity (a net gain for you and the world). McKinsey sees extant opportunities to increase productivity and thus reduce growth in global energy demand from a projected 2.2% per year to less than 1% per year. And, as they point out, increases in energy productivity are net moneymakers, so you don't even need to subsidize them -- in theory.
So where are the opportunities?
The report identifies substantial room for improvement in residential heating and lighting (a whopping 25% of global energy demand), in electricity generation and distribution, and in various refinery processes.
So what stands in the way of increasing energy productivity?
There are a couple big roadblocks to tapping into the potential of increased productivity. First off is the "if I ruled the world" problem, which crops up again when discussing greenhouse gas reduction. Sure, 25% of global energy demand is in residential heating and lighting, and sure, an average family might get a net savings in energy expenses after a couple years if they just reinsulated their place, but it's awfully hard to inform consumers about this, and convince them to spend money on new double-paned windows instead of something that rewards them right now. When you can't even convince people to stick money in the bank and let it earn interest, it's awfully hard to get them to spend money because it'll save them money three years from now. So, even though it would be great if all the individuals of the world made their homes more efficient, you just can't magically mobilize them all. Second is the problem that energy is not a major expense for business. As curious as that may sound, the average business may well see many other places where it can earn a better productivity increase than by upping energy productivity. Finally, a lot of government policies distort people's economic relationship with energy. The article cites fuel subsidies in the Middle East as well as the fact that residential gas is effectively free in Russia as two major examples of policies that motivate people away from increasing their energy productivity. Of course, as they know in Tehran, it's politically tricky to try and revoke this kind of subsidy.
In a second article, Per-Anders Enkvist, Tomas Naucler, and Jerker Rosander take a look at the costs of greenhouse gas reduction. Once again, the question is not "Should you do this?" but rather "If you decide to do this, how much do various measures cost?" They set as their upper bound a cost of 40 Euros per ton (of carbon dioxide not emitted) in 2020, and then look at the various measures that make it under that line, from cheapest to most expensive.
The first, and most important, realization here is that there's a whole chunk of this cost curve that's negative. In other words, many carbon-reduction measures make you money. Most of these money-making measures are, unsurprisingly, efficiency related. The top winner is building insulation, followed by a host of efficiency increases in subsystems, efficiency increases in vehicles, and so on, with sugarcane biofuel as the only big contender that isn't based on increases in efficiency.
The second major realization, and one that ties into the energy productivity issue as well, is that a lot of the cheapest emission-reduction measures lean on developing nations. There's much more opportunity for gains from energy efficiency there, precisely because many of the infrastructure components are being built right now. Making the coal industry in the United States more efficient involves rebuilding plants; making the coal industry in a developing nation more efficient involves building them efficiently the first time.
Here, again, we hit the "if I ruled the world" problem. Looking at the situation globally, it's obvious that you want to make all the gains you can in the areas where they're most affordable. However, if you're a local administrator somewhere in a developing nation and you need to power a growing city, you can't justify throwing extra money into a more efficient power plant just because it makes economic sense on a global scale. And until we can arrange things such that that does make sense, a big chunk of the most effective climate-saving measures just won't happen.
In an ideal world, an effective carbon cap-and-trade system would motivate players in industrialized nations to push money into increased efficiency in developing nations, making it a win-win all the way around. In the meantime, fragmentation and local politics will block many of the best opportunities to prevent climate damage.
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