Climate

Must read McKinsey report shatters myths on cost of curbing climate change

The McKinsey Global Institute has published another terrific piece of analysis, “The carbon productivity challenge: curbing climate change and sustaining economic growth.”

MGI is best known for its comprehensive cost curve for global greenhouse gas reduction measures (reprinted below), which came to the stunning conclusion that the measures needed to stabilize emissions at 450 ppm have a net cost near zero. The new report has its own stunning conclusion:

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.

The new analysis explains that “at a global, macroeconomic level, the costs of transitioning to a low-carbon economy are not, in an economic ‘welfare’ sense, all that daunting — even with currently known technologies.” Indeed, 70% of the total 2030 emissions reduction potential (below $60 a ton of CO2 equivalent) is “not dependent on new technology.”

mgi-myths-small.jpg

The final reality is perhaps the most important:

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.

I am reprinting the cost curve here, because MGI have provided a much bigger version of it (click to enlarge):

mgi-cost-curve-small.jpg

The report notes that “we have been fairly conservative in our assumptions about technological progress in these projections.” For instance, the analysis appears to ignore the potential of concentrated solar thermal electricity entirely (see “Concentrated solar thermal power — a core climate solution“).

Finally, although McKinsey is a classic market-oriented business consulting company, the report offers a realistic assessment of the policies needed to achieve our crucial low-carbon future:

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.

The entire report is well worth reading.

15 Responses to Must read McKinsey report shatters myths on cost of curbing climate change

  1. Mark Shapiro says:

    I would love to see a Romm version, and an Amory Lovins version of the graph. I certainly agree that CSP will become big, and wind already is, but I also think that PV will grow very rapidly, led by Nanosolar.

    At $8/watt installed, PV is expensive. But more than half of the cost is installation and conversion to AC. Eliminate the installation cost with BIPV, then eliminate the inverter with a DC standard (choose a voltage and a plug/receptacle design). If Nanosolar (or anyone) then gets modules costs near $1/watt, it takes over.

    Can we please call for a DC standard? Thank you.

  2. David B. Benson says:

    BIPV?

    E-mail the IEEE regarding setting a household+commercial DC standard.

  3. David B. Benson says:

    Also e-mail NIST.

  4. Eric G says:

    Well Mark, it’s a little late to switch over to a DC standard, but it is possible to hook your PV to an internal DC network within the building to support your DC loads. You get some very nice efficiencies with that scheme.

    When you talk about the cost of PV, or any generation, you need to talk about the cost per kWh, not per watt. $1/watt PV might sound great, but when it’s mounted vertically you don’t actually ever get a watt of power (assuming it’s rated at a 90 degree tilt to the sun). And then only one wall can be facing true south, there’s clouds and shade, not to mention night. On the other hand, $/kWh can be compared meaningfully.

  5. Dano says:

    I’d like a 220 standard, so I could see stars at night.

    Nonethless, inverters are coming way down in price and solar is competitive in many markets with the rebates power companies offer. I have many friends that spin back their meters for many months, and their payback is ~8-11 years.

    Best,

    D

  6. Earl Killian says:

    Eric G, someone on this blog pointed me at this company, so I’ll pass it on: http://www.nextekpower.com/index.html

    Dano, it is not the cost of inverters are the issue (since even many off-grid houses with lots of DC appliances have them for the oddball stuff). It is the efficiency loss. The inverter is usually 90-94% efficient at their peak (feed something other than a resistive load at peak power and you’ll get lower numbers). That’s pretty good (a few years ago it was more like 80-90% I think). But all those wall warts, power bricks, and similar vampire loads are usually pretty inefficient. You’re probably luck to get one at 80% efficiency. (One reason power bricks can get hot is that they are inefficient.)

    Multiply and you find that you might be losing 25% of your PV output to stupid DC to AC to DC.

    For comparison, I’ve seen DC to DC converters rated at 98% efficiency (e.g. the Outback MX60).

  7. Ronald says:

    Eric,
    I can understand why you would want a standard for PV’s but does Kwh really do it. Isn’t that a function of where you are in the country, in the southwest it will be one number and in the northwest the same PV’s will be something else.

    The industry must be using something else to compare PV’s.

  8. Bob Wallace says:

    I’m off the grid and know a lot of other people around here who are also off the grid. None of us us DC ‘anything’ any longer. (Well, I can think of one person who has a DC light in his power closet in case his inverter fails. I have a flashlight. ;o)

    DC appliances are just too expensive and most are not very efficient. Better to get an Energy Star refrigerator off the appliance store floor and buy a few extra panels and batteries than to pay thousands more for a super-efficient DC model. There’s a manufacturing economy of scale that makes losing some power converting to AC worth it.

    As for bricks and phantom loads, we switch stuff off when we’re not using it.

  9. Peter Wood says:

    Both the McKinsey cost curve analysis and the wedges analysis suggest that mitigation will be easy, the barriers are political.

    The cost curve analysis suggests to me that we need a strong price on carbon from either a tax or emissions trading (with an aggressive cap). The cost curve also suggests the importance of implementing the mitigation opportunities with negative costs, and addressing the market failures that have prevented these opportunities from being realised.

  10. N. Tesla says:

    You aren’t fooling anyone with that ‘Mark Shapiro’ pseudonym, Mr Edison.

  11. Andy Bauer says:

    David B.

    BIPV = Building Integrated Photovoltaics. Check out Steve Strong’s work at solardesign.com. Some of his stuff has the PV in the windows!

  12. Eric G says:

    Hey Peter,

    Yes, the cost of energy from PV varies depending upon where you are, in addition to your system’s attitude to the sun, construction costs, etc. Which is fine, because it’s real, and the cost of energy is what interests us, not the cost of power.

  13. Jim Bullis says:

    Once more I went on the wild goose chase to find the basis of the oft shown chart by McKinsey.

    The report I found offered nothing in support of this chart you call a “cost curve.”

    I did find that McKinsey combines “management and economics” to find global solutions etc. Huh? Seems like they left out technical expertise. No wonder there is nothing more to the chart.

    Only about a third of the specific bars on the chart carry a notation. And these notations are not discussed anywhere that I can find.

    Has anyone actually found the detail on this?

  14. David Lewis says:

    When I was looking up what Holdren had to say in the past, I saw a speech given by him at “The American Response to Climate Change” conference. McKinsey had a number of speakers, one was waving a similar chart to what Joe has posted above around during his presentation. Access the conference speeches at this link:

    http://www.wildcenter.org/index.php?sub=36

    Ostrowski’s speech was the one that discussed this I think. The written report McKinsey reps were circulating at that conference was called “Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost?” and is available at this link:

    http://www.usclimateaction.org/pages/US_ghg_final_report.pdf

    One surprising finding (to me) was that about the costliest way to spend money to abate CO2 emissions was to spend it on hybrid autos. The chart Joe posted above was presented with hybrids on the far right as a bar way higher than all the others. Note the “Nuclear” abatement bar – its a very low cost way to go according to McKinsey.

  15. msn nickleri says:

    When I was looking up what Holdren had to say in the past, I saw a speech given by him at “The American Response to Climate Change” conference. McKinsey had a number of speakers, one was waving a similar chart to what Joe has posted above around during his presentation. Access the conference speeches at this link: