If we believe McKinsey (and most of us usually do because of their excellent work) we can keep global warming below the magic 2oC level at relatively little cost. This is good news, but maybe it is too good to be true, at least for the building sector.
The consulting guru's latest report on the costs of cutting greenhouse gases (Pathways to a low-carbon economy – Version 2 of the global greenhouse gas abatement cost curve) presents an update of the McKinsey greenhouse gas abatement cost curve that has become quite famous. It shows the potential of reducing greenhouse gases across sectors and regions with a € 60 per tonne of CO2 equivalent (tCO2e) maximum abatement cost.
It is very convincing and carries a very strong message. The report repeatedly stresses the time factor - we cannot wait to act if we aim to stabilize global warming below 2oC. People can see the logic for acting as well as the relative cost of different actions. It shows the extremes, from switching light bulbs in the residential sector, to retrofitting a gas plant into a carbon capture and storage facility. The former produces savings of nearly € 100 per tCO2e and the latter just squeezes in under € 60 per tCO2e. The curve shows the many options between these extremes, allowing comparisons of abatement opportunities. The total annual cost would be between € 200-350 billion, corresponding to less that 1% of forecast global GDP, matching the estimates made in the earlier “Stern Review”.
McKinsey's message is very simple: start to act now, at least on measures that do not cost society anything and that could be implemented today. So far so good.
But I believe the report is overly optimistic about the potential to reduce GHG emissions by 2030. It uses an economic lens and disregards other considerations. The weak part is of course how to do it.
Naturally, I am most interested in what it says about energy efficiency in the building sector, since that is the target of the WBCSD's Energy Efficiency in Buildings (EEB) project.
EEB is working on both the residential and commercial sectors through a detailed examination of the measures that are likely to be adopted under various financial, technical and policy conditions. In the residential sector alone we have amassed a collection of 609 construction option packages, including building performance, the nature of the equipment and energy currently and potentially used in houses in specific geographical markets.
The Mc Kinsey report has grouped its 26 housing options into six categories:
- New building efficiency packages
- Retrofit building envelope
- HVAC for existing buildings
- Water heating for existing buildings
- Lighting and appliances
- Electronics.
Amazingly, especially as McKinsey assumes no lifestyle or behavior changes, the report states: “approximately 75% of total abatement potential in the building sector shows net economic benefits, with the remainder available at very low cost.” It stresses, in particular, the introduction of lighting options. Lighting is always referred to despite the marginal total energy effect in a residential house in a cold climate, where electricity has been produced by hydro or nuclear. In fact there are cases of low-energy bulbs leading to increased CO2 emissions because additional heating is required to make up for the loss of internal heating.
The report assumes “aggressive” abatement measures would succeed in transforming the market, but it does not define them! This implies that all design and technical options available today would be implemented within the € 60 per tCO2e limit. Owners would see that additional investments would be cost-effective and would rapidly adopt them. Full stop.
This is difficult to accept. It seems too good to be true. The building sector is too complex and fragmented to turn around just like that.
The EEB work uses a model we developed based on detailed investment choices within specific subsectors (single family homes, multi-family homes, retail and offices) all based on real micro-economic data and realistic decision criteria.
We found that low-cost opportunities are likely to achieve limited reductions in energy and CO2 emissions. Furthermore, investments that have substantial impacts are likely to be expensive and have a long payback time. They are therefore unlikely to be implemented under normal market conditions. We also found many obstacles that significantly hold back the likely adoption of even financially sound investments in the building sector.
EEB is finalizing the analysis (the EEB report will be out by the end of April) and we are trying to answer the following questions for each global submarket we have studied:
- What solutions are building owners likely to adopt under each set of conditions?
- How will policy options affect decisions?
- What are the energy and emissions impacts of these decisions?
- What are the combinations of construction packages, prices and policies that achieve a given emission target?
We are not as optimistic as McKinsey. We see that the prices and market conditions for investing in energy efficiency in buildings – even with policies in the pipeline – will have only a limited impact.
EEB believes that to achieve the climate targets for building energy, we will need a complete transformation of the building sector and its marketplace.
Great review of the McKinsey report. Perhaps you also saw their now famous abatement curves in the March 09 NatGeo centerfold? I’ve been amused by the paucity of explanation and methodological details provided on this work - relating to the buildings sector. PNNL also reviewed that report on our new Structured Thinking blog addressing energy efficiency analysis in the buildings sector.
Posted by: Dave Anderson | 09 July 2009 at 11:42 PM