Wednesday, November 26, 2008

Energy efficiency is the low-hanging fruit of the clean-energy revolution

McKinsey | The first step in the clean-energy revolution is to dramatically improve energy efficiency. Through a variety of measures ranging from better building efficiency and low-energy lighting to more fuel-efficient vehicles, we have the potential to cut world energy-demand growth by more than 64 million barrels of oil a day—equivalent to one and a half times current annual U.S. energy consumption.

Best of all, improvements in energy efficiency more than pay for themselves. We estimate that dramatically increasing energy efficiency would require annual investments of $170 billion over the next 13 years. But these investments would generate a return of well over $900 billion annually by 2020 through lower energy costs.

Just as one can measure labor productivity—the amount of output created per hour worked—one can measure the “carbon productivity” of an economy as the amount of output produced per metric ton of carbon dioxide and other equivalent greenhouse gases emitted into the atmosphere. If we are to meet the twin goals of reviving the economy and tackling climate change, then we need to dramatically boost the world's carbon productivity.

Today, carbon productivity is at $740 of gross domestic product (GDP) per metric ton of emissions. But if we are to continue to reduce poverty in the developing world, maintain growth in the developed world, and accommodate three billion more people on the planet by 2050, then world GDP will need to grow by at least 3 percent per year. Likewise, to avoid the potential nightmares of global warming, such as mass migrations from flooded cities and starvation due to drought, the scientific consensus is we need to cut carbon emissions by at least 50 percent from 1990 levels by 2050. Combining these targets means carbon productivity must reach $7,300 by 2050—a tenfold increase over today.

To make this more personal, the average citizen of a developed country emits 27 to 63 kilograms of carbon equivalents per day depending on where he or she lives. In order to minimize climate damage, that number needs to come down to less than 6 kilograms per day. To live on such a budget at today's levels of carbon productivity, one would be forced to choose between a taking 40-kilometer car ride, using air conditioning for the day, purchasing two new T-shirts (without driving to the shop), or eating two meals that included meat. In short, without a major boost in carbon productivity, stabilizing the climate would require a painful change in lifestyles in the developed world and the loss of hope for greater prosperity in the developing world.

A tenfold increase in carbon productivity sounds daunting, but it is a type of challenge that humankind has met before. U.S. labor productivity increased tenfold over a 125-year period from 1830 to 1955. We now need a clean-energy revolution on the same scale as the Industrial Revolution. But we probably have less than 40 years before emissions lead to irreversible damage. The clean-energy revolution has to happen three times faster than the Industrial Revolution did.