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Shaping the Post-Carbon Economy

NEW YORK – At the end of this year, representatives of the 170 nations that are signatories to the United Nations Framework Convention on Climate Change will meet in Copenhagen for what they hope will be final negotiations on a new international response to global warming and climate change. If successful, the centerpiece of their efforts would be a global deal on how to reduce harmful greenhouse gases, by how much, and when. The agreement would go into effect in 2012, when the current Kyoto accord expires.

Research at McKinsey into the effectiveness and cost of more than 200 mechanisms for reducing carbon emissions – from greater car efficiency to nuclear power, improved insulation in buildings, and better forest management – suggests that only concerted global action can ensure levels that the scientific community says is necessary to avoid the disastrous consequences of climate change. Our detailed analysis, conducted in 21 countries and regions over two years, suggests that every region and sector must play its part. If this isn’t daunting enough, consider this: if we delay taking action by even a few years, we probably won’t hit the required targets, even with a temporary decline in carbon emissions associated with reduced economic activity in the near term. 

The good news is that we can achieve what’s needed, we can afford to do it, and we can do it all without curtailing growth. The latest version of the McKinsey global carbon abatement cost curve identifies opportunities to stabilize emissions by 2030 at 1990 levels, or 50% below the “business as usual” trend line.

Making these reductions would cost about €200-350 billion annually by 2030 – less than 1% of projected global GDP in 2030. The total up-front financing would be €530 billion by 2020 – less than the cost of the current US financial-sector bailout plan – and €810 billion by 2030, which is well within range of what financial markets can handle.