Climate Change and the Cusp of Lost Opportunity

On the eve of this week's UN Climate Change Conference in Bali, two new reports show how tantalizingly able we are to reduce our climate footprint -- and how frustratingly far we are from taking the needed steps to do so.

McKinsey & Co., the global management consultancy, last week released a report showing how the U.S. can reduce greenhouse gas emissions by one-third to one-half by 2030 "at manageable costs to the economy." McKinsey analyzed more than 250 options, including efficiency gains, shifts to lower-carbon energy sources, and expanded carbon sinks.

The McKinsey study follows on the heels of other studies over the past year or so (see, for example, here, here, and here). All have similar conclusions: climate change can be addressed, in large part, with minimal hit to the global economy -- but only if we act sooner than later.

Those two parts of the equation -- profitable solutions resulting from immediate action -- are simple enough, though they seem to elude many corporate chieftains and policymakers. McKinsey drives it home in no uncertain terms, stating that many of the opportunities available to us are "negative cost," meaning they involve investments that pay for themselves over time. In fact, it says, the cost of not acting is significant:

Many of the most economically attractive abatement options we analyzed are "time perishable": every year we delay producing energy-efficient commercial buildings, houses, motor vehicles, and so forth, the more negative-cost options we lose.

For example, says McKinsey, the cost of building energy efficiency into an asset -- a building, a car, a manufacturing process -- 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."

McKinsey calls for a portfolio of "strong, coordinated policies" to capture greenhouse gas reductions efficiently across industry sectors and geographies, as well as accelerated development of "a low-carbon energy infrastructure" -- everything from plug-in hybrid vehicles, to cellulosic biofuels, to carbon capture and sequestration -- along with streamlined approval and permitting procedures to speed up energy infrastructure investments (including, alas, new nuclear power plants).

The McKinsey report was joined last week by a new report from the Confederation of British Industry, the U.K.'s counterpart to the U.S. Chamber of Commerce, which reached similar conclusions. "The next two or three years will be critical," it begins. "A much greater sense of urgency is required if the U.K. is to meet its targets for reducing greenhouse gas emissions at an affordable cost, and to establish an international leadership role in the low carbon economy of the future."

This, from a country that already seems well on its way to progress on the climate front, as I noted a few months ago. Yet despite a flurry of activity on climate in the U.K., the CBI concluded that it's not enough.

Already it is clear that the government's targets for cutting greenhouse gases by 2020 are unlikely to be met solely through measures taken in the U.K. Its longerterm goals for 2050 are also very challenging, and will not be achieved without significant additional effort.

Failure to act now will mean that the costs of tackling climate change in the future will be much higher. The U.K. will also miss out on the commercial opportunities that will emerge on the pathway to a low carbon economy.

The report calls for a shift to a world "where carbon becomes a new currency -- so that consumers and businesses are rewarded for making the right choices. Carbon has to be priced according to supply and demand, under a system which leads to lower emissions, crosses national borders, and rewards good behaviour."

This needn't break the bank, says CBI. Its analysis of additional actions to be taken amount to an investment of around £100 a year per U.K. household (equivalent to about US$205 at today's rates).

This investment will help pay for a more sustainable way of life and shift resources to those parts of the economy providing low-carbon products and services. Some households would pay less than this, depending on things such as their current use of energy and how successfully they take up cost-effective measures to improve energy efficiency.

It all seems so rational. And yet . . .

For us Americans, it would be easy to shrug this off to the lack of leadership on climate issues from both the White House and Congress over the past -- well, dozen years or so. And while leadership has been sorely lacking in this arena, there's a critical role for business and consumers. The CBI report, in fact, identified consumers as "the essential driver for change."

Combining the emissions for which they are directly responsible with those that they influence through their purchasing decisions, they have an impact on some 60 per cent of U.K. emissions. As voters, they have a powerful influence on public policy. They need the information, the incentives, and the opportunity to make low carbon choices.

That last sentence is the key. For citizens to take the lead -- as shoppers, voters, employees, or investors -- we'll need reliable and consistent information about the consequences of our choices, much wider access to energy-efficient products and services than is currently available, and incentives to encourage changes in well-ingrained habits.

That's where the road to a low-carbon future involves a partnership between consumers and companies -- and, ideally, their political leaders.

Comments

[Grant]

Hi Joel - thanks for providing a bit more info on the report.

I've read about the gap between the beneficiaries of efficiency (e.g. building tenants) and the bearers of the up-front cost (e.g. developers).

The sense I get from your review is that the report suggests it's up to consumers to drive this change, or perhaps legislation (in the form of carbon tax or building standards) is the key. I'm wondering if the report address this gap more directly?

[Mark McElroy]

Hi Joel:

I think the hope placed in benevolent consumers is a pipe dream. The average consumer doesn't give a hoot about climate change; and greater efficiencies will only result in higher levels of consumption and emissions, not less. This is the well-known Jevon's paradox in economics. Plus, so-called 'green' products are as liable to be higher-emitting in their impacts as not, thanks to the absence of standards or rigor of any kind in that term. To refer to a product as 'green' is to tell us nothing about the environmental impacts of its manufacture, use, or disposal. When will we get that through our heads?

What we need, in my view, is precisely what we're not willing to do: supply control, also known as rationing. But to do this would be to challenge consumer sovereignty and the sanctity of the free market. Still, in desperate times (and these are desperate times) rationing is the rational thing to do. I wonder if the reports you cited even touch on this subject. If so, good for them. If not, why not? Let's look into this shall we?

Regards,

Mark

[Stephen Albinati]

Hi Joel

Excellent post -- I look forward to reading both the McKinsey and CBI reports.

Theses statements echo an interesting quote that I came across a year ago when reading Suncor's 2005 CSR report:
"Suncor was the first Canadian energy company to present a cost analysis showing compliance with the Kyoto Protocol should not have a material impact on our business – at a range estimated between $0.20 and$0.27 per barrel of oil."

For those of you unfamiliar with Suncor, they are an oil company whose oil producing assets primarily consist of the extremely CO2 intensive tar sands of Northern Alberta. If a company, in one of the most CO2 intensive industries is willing to take the leadership and voluntarily publish a claim as such, why are our politicians not showing more leadership and providing a vision for our industries to strive toward.

[Adam]

Hey Joel,

Thought I’d throw my two cents in. Sorry if it's a little long.

A vast majority of small businesses and their employees are not too savvy when it comes to this carbon stuff. Obviously, I’m included in that group. I have to admit, I don’t completely understand it but that’s more of a result of not paying attention in science class. But American society is learning and getting better every day. Two areas that will bring change quicker is better understanding of the language of carbon neutrality, carbon capture/sequestration and the messaging on public policy initiatives that address these and other environmental issues.

The language and science is sophisticated jargon, and hard to understand especially for a baker, trash hauler or restaurant owner. The Energy Bill and the Bali Conference need to address the educational side of energy issues too and make them very easy to understand. I’m sure that there are a lot of businesses that have no understanding of the complex notion of carbon sequestration. Does someone really catch it and store it?

The other point relates to mixed messages, specifically from business groups. You recently posted a great article on greenbiz by Kevin Fletcher that discussed the role of Chambers of Commerce can play in helping to educate businesses on how to better understand and embrace green business practices. That would include the carbon thing. Chambers and NGOs can play a role here and help the business community and their employees better understand the carbon lingo. But when it comes to taking positions on public policy sometimes business groups are not on the same page. On this very issue, while the Conference Board, a leading NGO, endorses the McKinsey Report, the U.S. Chamber of Commerce has stated that if the Energy Bill becomes law, among other things, “American consumers will be forced to pay as much as $6 trillion to cope with carbon constraints. “ If I’m a small business owner or mid level executive who happens to be a member of both organizations, how conflicted am I? The McKinsey report is looking good, my company does its little part, won’t be too expensive, The Conference Board says so. And then $6 Trillion! How many zeros is that?

Best,

Adam

[Roger]

Speaking of lost opportunities, we're coming up on one in the N H Primary. Visit www.carboncoalition.org for a record of what caanidates have promised on climate action.