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Costing Out Greenhouse Gas Emissions Reductions

February 2, 2007

The Intergovernmental Panel on Climate Change reported today that it's 90 percent sure that global warming is tied to human activities. The observed trends – melting ice fields, rising sea levels, more extreme temperatures, more intense droughts – are likely to get worse without prompt action to limit greenhouse gas emissions.

Ninety percent ought to be enough certainty to justify action, and for rational players in the worlds of business and government, it is. There will always be those who, in the interest of being politically correct within their echo chambers, traipse around on self-indulgent ideological excursions from reality. Political energies, however, would be better spent crafting mainstream climate legislation that can get enacted, rather than trying to convince an obdurate minority that will brook no convincing.

That said, what would it cost to reduce greenhouse gas emissions low enough to stabilize the atmosphere’s carbon load at a safe level?

McKinsey Quarterly recently published an intriguing study indicating that costs may not be as high as many fear.

The study estimated that carbon dioxide emissions would have to be reduced by 26 gigatons (26 billion tons) per year by 2030 in order to stabilize the atmosphere’s carbon dioxide concentration at 450 ppm by 2030. (Today’s concentration is about 380 ppm.)

Nearly 25 percent of that reduction could be accomplished by energy efficiency measures that have no net cost. The remainder of the 26-gigaton annual reduction – expanded wind and nuclear energy development, carbon-sequestered coal, forest preservation, for example – would cost no more than $52 per ton. That works out to about 0.6 percent of the world’s projected economic output in 2030.

Carbon abatement can be viewed as a kind of insurance policy against catastrophic climate perturbations that humanity would be ill-prepared to cope with. The authors helpfully pointed out that all insurance costs – excluding life insurance – amounted to 3.3 percent of gross world product in 2005.

Seen in that context, 0.6 percent doesn't sound like a bad deal at all.