Emission cost-effectiveness

March 10, 2008
Lately there has been a preponderance of company ads claiming that they are “going green” or reducing their carbon “footprint.

Lately there has been a preponderance of company ads claiming that they are “going green” or reducing their carbon “footprint.” But what does this really mean? What are the best ways for these companies to be more environmentally friendly and reduce greenhouse gas (GHG) emissions?

In December, McKinsey & Co. published a report, “Reducing US Greenhouse Gas Emissions: How Much at What Cost?” The report was produced in association with Royal Dutch Shell PLC, Honeywell, PG&E, DTE Energy, National Grid, Natural Resources Defense Council, and Environmental Defense.

The central conclusion of the study is that the US could reduce GHG emissions in 2030 by 3-4.5 gigatons of carbon dioxide equivalents (CO2e) using tested approaches and high-potential emerging technologies. The reductions would be those that cost less than $50/ton of CO2.

Some of the more interesting conclusions of the study were specifically which technologies had a positive payout and which were not cost-effective.

Future GHG emissions

Based on an analysis of US government forecasts, the study estimated that GHG emissions in the US will rise to 9.7 gigatons/year CO2e in 2030 from 7.2 gigatons/year CO2e in 2005—an increase of 35%. These increases will be due to continued expansion of the US economy, growth in buildings-and-appliances and the transportation sectors, and greater use of carbon-based power without the use of carbon capture and storage technology.

This growth in GHG emissions will be accompanied by a gradual decrease in the absorption of carbon by US forests and agricultural lands, the study said. Carbon absorption will decrease to 1 gigaton/year in 2030 from 1.1 gigatons/year in 2005.

Interestingly, carbon absorption from forests and US lands had been rising for 50 years, in contrast to some developing countries. According to the study, net annual carbon absorption has risen by 25% since 1990, primarily due to greater accumulation of carbon in existing forests and some forestation.

The net effect is that US emissions in 2030 will exceed GHG reduction targets outlined in climate change bills currently before Congress by 3.5-5.2 gigatons.

Solutions

According to the study, the US could reduce GHG emissions by as much as 3 gigatons/year in a midrange case to 4.5 gigatons/year in a high-range case by 2030.

Of the more than 250 abatement options, the study found that almost 40% of them could be achieved at “negative” marginal costs, meaning that investing in these options would generate positive economic returns over their lifecycle. The study also found that the abatement potential and costs varied across geographical regions.

The GHG reductions could come about most effectively if the US used five “clusters” of initiatives:

  • Improving energy efficiency in buildings and appliances would reduce GHG emissions by 710 megatons in the mid-range case to 870 megatons in the high-range case.
  • Increasing fuel efficiency in vehicles and reducing carbon intensity of transportation fuels would save 340-660 megatons/year. Improved fuel efficiency could provide 240-290 megatons/year of abatement, most of it from automobile advancements and increased use of diesel for light-duty vehicles.

    In this cluster, it was interesting that cellulosic biofuels had only a slightly advantageous average cost. The study stated that achieving large-scale production of cellulosic biofuels depends on many critical, and uncertain, developments. Much more effective technologies, from a cost and technology point of view, are improving fuel efficiency of vehicles and increasing the use of diesel fuel in light-duty cars and trucks.

    One of the most expensive options in this cluster is the adoption of hybrid electric vehicles.
  • Improvements in the energy-intensive portions of the industrial sector would reduce emissions by 620-770 megatons/year.
  • Expanding and enhancing carbon sinks would reduce emissions by 440-590 megatons/year.
  • Reducing the carbon intensity of electric power production would reduce GHG emissions by 800-1,570 megatons/year.

Without a coordinated set of actions, however, it is unlikely that the most economically beneficial options would materialize at the magnitude and costs estimated in the study.

The study found that these abatement opportunities are highly fragmented and widely spread across the economy. And it remains to be seen if the politicos will use common sense and heed the recommendations in the report.

But, as many in our industry know, common sense and politics rarely go hand-in-hand.