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The CO2 Abatement Curve and business response. Copenhagen, November 24, 2009. Today’s topics. Quick introduction to McKinsey’s CO2 abatement curve and findings from the recent v2.0 release Business’ response to climate change Implications for business schools. Peak at 550 ppm, 3.0°C.
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The CO2 Abatement Curve and business response Copenhagen, November 24, 2009
Today’s topics • Quick introduction to McKinsey’s CO2 abatement curve and findings from the recent v2.0 release • Business’ response to climate change • Implications for business schools
Peak at 550 ppm, 3.0°C • Peak at 510 ppm, 2.0°C • Peak at 480 ppm, 1.8°C 70 • Business-as-usual • Technical measures < €60 per tCO2e • Focus of the study -38 32 • Additional measures Behavioural changes & expensive measures -9 23 Possible to contain global warming below 2°C • Global GHG emissions • GtCO2e per year 70 60 50 40 30 20 10 0 • 2005 • 2010 • 2015 • 2020 • 2025 • 2030
Global GHG abatement cost curve beyond business-as-usual – 2030 • Gas plant CCS retrofit • Abatement cost • € per tCO2e • Coal CCS retrofit • Iron and steel CCS new build • 60 • Low penetration wind • Coal CCS new build • Cars plug-in hybrid • Power plant biomass co-firing • 50 • Residential electronics • Degraded forest reforestation • Reduced intensive agriculture conversion • Residential appliances • Nuclear • 40 • Retrofit residential HVAC • Pastureland afforestation • High penetration wind • 30 • Degraded land restoration • Tillage and residue mgmt • Solar PV • 2nd generation biofuels • Solar CSP • Insulation retrofit (residential) • 20 • Building efficiency new build • Cars full hybrid • 10 • Waste recycling • 0 • 5 • 10 • 15 • 20 • 25 • 30 • 35 • 38 • Organic soil restoration • -10 • Abatement potentialGtCO2e per year • Geothermal • -20 • Grassland management • Reduced pastureland conversion • -30 • Reduced slash and burn agriculture conversion • -40 • Small hydro • 1st generation biofuels • -50 • Rice management • Efficiency improvements other industry • -60 • Electricity from landfill gas • -70 • Clinker substitution by fly ash • Cropland nutrient management • -80 • Motor systems efficiency • -90 • Insulation retrofit (commercial) • Lighting – switch incandescent to LED (residential) • -100 Note: The curve presents an estimate of the maximum potential of all technical GHG abatement measures below €60/tCO2e if each lever was pursued aggressively. It is not a forecast of what role different abatement measures and technologies will play.
Operational efficiency – key areas of regulation required • Abatement cost€ per tCO2e • 60 • 30 • 0 • 0 • 20 • 40 • -30 • Abatement potentialGtCO2e per year • -60 • -90 • -120 • -150 1 2 3 • Energy efficiency regulation • Long-term stable international system for power and industry • Mechanisms to drive selected key technologies down the learning curve 4 • Targeted systems for agriculture and forestry
Key findings global GHG abatement cost curve v2.0 • There is sufficient abatement potential to contain global warming below 2°C with high probability (480 ppm peak, 400 ppm stabilization) • Three major technical GHG abatement opportunity areas to address - Energy efficiency, Low-carbon energy supply, Terrestrial Carbon (Forestry & Agriculture). Behavioral change could provide a fourth source of abatement • Scale of change is immense – In 2030, as examples, 40% of new cars would be hybrids, 70% of electricity would be generated from low-carbon sources, and until 2030 deforestation of an area of twice the size of Venezuela would be avoided • Global and cross-sector action is essential to capture the opportunity – leaving out major sectors or regions makes it very challenging to stay below 2°C • Effective policies on national, regional and global level are required • Costs and financing look manageable, but challenging in some sectors and regions – Costs likely less than 1% of global GDP (€200-350 billion/year by 2030). Investments ~5% of BAU investments in fixed assets (€810 billion/year in 2030). 60% of investment in consumer sectors, 60% in developing world • Time is of the essence, and the value of early investment is high – delaying action by 10 years would get the atmosphere towards 3°C or more, rather than towards 2°C and abatement costs would increase
4 5 • Energy efficiency (buildings, industry transportation • 300-500 BEUR “extra” market by 2030 • Water • EUR 500 billion market with 4–5% growth 1 3 • Carbon markets • Carbon marketscould reach size of oil industry by 2030(USD 1 – 1.6 trillion) • Land, biomass and biofuels • 100 - 300 million hectares needed for biofuel & bio-energy Moving towards a low-carbon economy will fundamentally shake up a broad list of industries 2 • Renewables and new Power technologies • EUR 400 billion market by 2020 • Threat and opportunity for various industries!
Climate response by business: Key success factors for winning in the low carbon economy • …internal CO2-efficiency • …new business, innovation, and growth opportunities • Think … • …policy influencing
1. Think CO2-efficiency – reduce carbon footprint across the business system • Investing into fuel efficiency and reducing emissions of the 787 Dreamliner expecting a 20 percent improvement • Efforts are focused on the following areas: New engines, increased use of light weight composite materials, more-efficient systems applications and modern aerodynamics • Fuel efficiency • All airplanes—including the 787—may benefit from the potential of using alternative fuels that can reduce carbon dioxide emissions over their life-cycles • Company has developed and tested a diverse set of sustainable, plant-based fuels – initial results have been positive • Reducing dioxide emissions • Boeing participates in developing a number of new methods (with airports, air-traffic management systems and airline operational changes) that deliver real and substantial emissions savings over the past year • Air traffic system efficiency • Beyond the Aerospace & Defense field: Working with the wholly-owned Spectrolab subsidiary to produce some of the world's most efficient solar cells for Earth- and space-based uses • Solar SOURCE: Boeing environment report 2009
2. Think growth – leveraging green to increase sales • Tesco developing carbon footprint labels for all of its 70,000 products • Labels measure the carbon emissions from • Manufacture • Transportation • Packaging • Similar label for nutrition resulted in • 30% decrease in sales for redlighted products • 85% increase for greenlighted products Source: Tesco, Guardian; McKinsey analysis
2. Think growth: European Chemicals major identified over 30 business opportunities through focused growth scan • Low methane feed • Enzymes in pulping • Slow release fertilizer • Industrial feedstock substitution • CCS; coal retrofit • Waste • Livestock/soils • 40 • Soil • CCS EOR;new coal • Wind;low pen. • Solar • 30 • 20 • Industrial non-CO2 • Nuclear • 10 • 0 • -10 • 0 • 1 • 2 • 3 • 4 • 5 • 6 • 7 • 8 • 9 • 10 • 11 • 12 • 13 • 14 • 15 • 16 • 17 • 18 • 19 • 20 • 21 • 22 • 23 • 24 • 25 • 26 • 27 • -20 • Industrial CCS • Sugarcanebiofuel • Celluloseethanol • Industrialnon-CO2 • CCS;new coal • -30 • -40 • Enzymes andorganisms • Wind blade composites • Non-reflective • coating • CCS • membranes • AbatementGt CO2e/year • -50 • Fuel-efficient vehicles • -60 • -70 • Innovative coolant • -80 • Air-conditioning • Lighting systems • -90 • Metal replacement • -100 • Fuel-efficient commercial vehicles • Enabling by the chemical industry • -110 • -120 • Insulation material • Substantial • -130 • Partial • -140 • Insulation improvements • Little/none • -150 • -160
Applied research • Regulation and time dynamics • Cross functional focus Implications for business schools • Climate change is a playground for applied economics – application focused research must be rewarded • Apply economics to real challenges and practical actions, as e.g. in the carbon cost curve • For business / strategy research, climate change is an opportunity to revisit strategy and look at e.g. regulation as an important performance driver • True long term dynamics and risk must be understood, e.g. cost of energy and CO2 emissions in companies' production cost setup really matter over time • Cross functional collaboration important : to understand long term environmental changes, social sciences must be comfortable with understanding basic scientific debates, e.g. technology learning rates