McKinsey Reports that the U.S. Can Reduce Greenhouse Gas Emissions by 2030 Using Existing, Low Cost Technology

The report cautions, however, that achieving these reductions at the lowest cost to the economy will require strong, coordinated, economy-wide action that begins in the near future.

(The report analyzed more than 250 options for reducing U.S. greenhouse gas (GHG) emissions focusing on reasonably understood and commercially likely options that did not require new breakthroughs and that could meet a specified cost threshold.²)

Cost of Reducing Emissions

The following are highlights of the report's findings related to the cost of reducing U.S. GHG emissions. (partial list):

Almost 40% could be achieved at "negative" marginal costs. The report found that almost 40% of the reduction of GHG emissions could be achieved at "negative" marginal costs, meaning that investing in these options would generate positive economic returns over their lifecycle. However, completely "unlocking" the negative cost options would require overcoming certain barriers, such as mismatches between who pays the cost of an option and who gains the benefit, consumer desire for very rapid payback, etc.

$50 billion annually through 2030 or 1.5% of total U.S. investment. The incremental capital costs associated with reducing greenhouse emissions in the report's "mid-range" scenario³ would average $50 billion annually through 2030. Cumulative net new investment related to GHG reduction through 2030 would be $1.1 trillion or roughly 1.5% of the $77 trillion in real investment the U.S. economy is expected to make over this period.

Emission Reduction Options Fragmented but 5 Initiatives Would Have Big Impact

The report found that opportunities to reduce GHG emissions are highly fragmented and widely distributed across industry sectors and geographic regions in the U.S. It also found that no single reduction option accounts for more than 11% of the total opportunity. However, the report highlights five clusters of initiatives that if pursued in unison, would create substantial progress in reducing U.S. greenhouse emissions. The measures, in order of least to highest cost are:

Improving energy efficiency in buildings and appliances. This large cluster of negative cost options includes: lighting retrofits, improved heating, ventilation, air-conditioning systems, building envelopes, and building control systems; higher performance for consumer and office electronics and appliances; among other options.

Increasing fuel efficiency, reducing carbon intensity of transportation fuels. Much of the benefit of improved fuel efficiency would come from fuel economy packages and increased use of diesel for light-duty vehicles. Lower carbon fuels, and plug-in hybrid cars are among the technologies listed as having great potential as long as certain barriers are overcome.

Energy-intensive portions of industry. These options involve a multitude of fragmented opportunities within specific industries (e.g. equipment upgrades, process changes) and across the sector (e.g. motor efficiency, combined heat and power applications). Despite direct bottom line benefit, these options must compete for capital and without clear incentives to control GHG emissions, may not receive funding.

Expanding and enhancing carbon sinks. Expanding and enhancing carbon sinks involves increasing forest stocks, improving soil management practices, etc.

Reducing carbon intensity of electric power production. This potential derives from a shift toward renewable energy sources, additional nuclear capacity, improved efficiency of power plants, and eventual use of carbon capture and storage technologies on coal-fired electricity generation. Options in the power sector were among the most capital-intense ones analyzed. The report adds that although power generation is the sector with the largest abatement potential, it only accounts for one-third of the reduction potential analyzed in the report.

Report Recommends Strong Policies, Fast Response, Low-Carbon Infrastructure

McKinsey & Company believe that a GHG emissions reduction program for the U.S. should be built on three principal actions:

(1) Strong, coordinated policies. Such recommended policies include: creating certainty about the price of carbon and/or required emissions reductions; a coordinated economy-wide set of reduction policies and initiatives; exchange mechanisms (e.g. trading schemes, offsets, tax credits, etc.); verification, monitoring and enforcement systems; and safeguards against transfer of GHG-emitting activities overseas.

(2) Quick pursuit of certain options. Many of the most economically attractive abatement options analyzed in the report are "time perishable." This means that every year the U.S. delays producing energy-efficient commercial buildings, houses, vehicles and the like, the more negative-cost options the U.S. loses. In addition, the more aggressive the energy efficiency plan, the more the demand for fossil fuels and need for new power plants is reduced. The report also notes that the cost of building energy efficiency into an asset when it is created is typically a fraction of the cost of retrofitting it later or retiring an asset before its useful life is over.

(3) Accelerated development of low-carbon energy infrastructure. Moving to a lower-carbon economy will require significant changes in the U.S. energy infrastructure. Among other things, the report recommends: making the necessary investments; encouraging research and development of promising technologies; and streamlining the approval and permitting procedures.

¹ The report found the U.S. could reduce GHG emissions in 2030 by 3.0 to 4.5 gigatons of CO2e, or "carbon dioxide equivalent" which is a standard measure of GHG emmissions designed to account for the differing global warming potentials of GHGs.

² The threshold used was a GHG reduction cost below $50 per ton; however, the costs would be much lower if the nation captures sizeable gains from energy efficiency.

³ For each option analyzed, the study projected a range of three outcomes or "cases" which are: (1) low range case - incremental departures from current practices; (2) mid range case - concerted action across the economy; and (3) high-range case - urgent national mobilization.

McKinsey & Company, "Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost?" (dated December 2007) available at http://www.mckinsey.com/clientservice/ccsi/pdf/US_ghg_final_report.pdf

BP Note

The California Air Resources Board (CARB) has issued a press release announcing that the state's economic and technology advisory committee has issued a report recommending 55 economic and technology advancement policies for a cleaner and more competitive economy to reduce GHG emissions and develop the California Clean-tech industry. The report is the first to present standards, incentives, and investments for cleaner transportation and energy technology across California's economy. (CARB press release (dated 02/14/08) available at http://www.arb.ca.gov/newsrel/nr021408.htm)