Emissions reduction: what pays, what costs

Published Tuesday, May 27, 2014 in the New Brunswick Telegraph Journal.

McKinsey and Company is a global management consulting firm with a unique specialty: it conducts financial analyses of all the technologies that can be used to reduce global carbon emissions.  That might not sound exciting, but it’s hugely important: McKinsey’s work identifies which technologies yield the biggest bang for the buck, which are most costly and where everything else falls in between.  That information can be very helpful in guiding our individual and collective choices as we work to break our fossil fuel addiction and solve our climate crisis.

Spend a little or spend a lot?

When faced with a problem, most of us would choose the most cost-effective solution available.  For example, we’d rather patch a rust spot than replace a fender; we’d rather install a few new shingles than replace an entire roof.  No surprise here; it’s just logical human behaviour.

So it makes sense that, when dealing with a huge challenge like climate change, we’d apply the same logic: we’d look for the solutions that provide the best return for the money we spend.  That applies not only to personal choices, but to larger societal choices too. 

That’s where McKinsey’s work comes in.  The company financially analyzes every known strategy for reducing carbon emissions, and then assigns a dollar value to each: the amount of money involved in preventing a tonne of carbon emissions.  Some things cost; some things pay.  From this work has come McKinsey’s “Global Greenhouse Gas Abatement Cost Curve” – an easy-to-understand chart that ranks everything from the best return on investment to the worst.  (See it at www.tinyurl.com/emissioncostcurve.) 

Before getting into McKinsey’s results, it’s worth remembering an important principle.  There are two primary ways to reduce carbon emissions: one is by replacing fossil fuel-fired energy with energy from non-fossil fuel sources.  The other is by using less energy in the first place.

The best investments

So, of all the available technologies out there, what provides the very best return on investment?  Surprise – it’s efficient lighting: replacing incandescent light bulbs with LEDs.  According to McKinsey, preventing one tonne of carbon dioxide via this simple act actually pays back about $240.

Not far behind are upgrading residential electronics and appliances to ENERGY STAR models; those actions return about $200 per tonne carbon dioxide prevented.

Next, in order of payback, come more efficient industrial motor systems; hybrid cars; upgrading residential air conditioning; adding insulation to buildings; constructing highly efficient new buildings; generating electricity from landfill gas; improved industrial efficiency; and recycling.  Per tonne of carbon emissions saved, all of these provide a positive return on investment.

It’s interesting to note that, with few exceptions, the best paybacks identified by McKinsey come not from generating alternate sources of energy but from efficiency: using less energy in the first place.

The worst investments

On the other end of the cost spectrum is carbon capture and storage (CCS) – compressing the CO2 that normally goes up a power plant’s smokestack and storing it deep underground.  According to McKinsey, every tonne of CO2 captured this way costs $75.  (Ironically, CCS is the cornerstone of Canada’s current emissions reduction strategy.  Ottawa and Alberta have spent over $2 billion dollars subsidizing the technology, which remains rife with risk and uncertainty in spite of that investment.)

Solar, wind and even nuclear power can reduce emission for less than half the cost of CCS.  

The key messages: when it comes to curing our addiction to fossil fuels, there are cheap solutions and expensive solutions.  Most people would choose cheap over expensive, and efficiency, in big ways and small, is almost always a better investment than capturing carbon or finding alternate sources of energy.  When it comes to making choices, McKinsey’s work is very enlightening and instructive.