Over the last couple of weeks I’ve been debating with a reader named Rav Casley Gera, who disagrees with me about economic growth. He’s challenged me to read a McKinsey report called The Carbon Productivity Challenge: Curbing climate change and sustaining economic growth. In return, Rav is going to read Tim Jackson’s book Prosperity Without Growth. My homework was a little shorter than Rav’s, so I’m ready to report back.
The essence of McKinsey’s report is that it is entirely possible to grow the economy while reducing our CO2 emissions, if we pursue a radical programme of energy efficiency. Rather than reducing activity, we need to work on ‘carbon productivity’ – the amount of carbon produced for each unit of economic growth.
Writing in 2008, McKinsey calculates that the economy gets $740 of GDP for each tonne of CO2 equivalent. In order to keep the carbon content of the atmosphere below 500 parts per million, that ratio of dollars to carbon would have to increase tenfold by 2050. “This is comparable in magnitude to the labour productivity increases of the Industrial Revolution,” they admit, only carried out in a third of the time.
It’s a formidable challenge, but not impossible. They outline five key strategies to achieve carbon stability:
- Increase energy efficiency
- Decarbonize energy sources
- Accelerate the development of low-carbon technologies.
- Change behaviour of business and consumers
- Protect forests and other carbon sinks
Along the way they mention removing perverse subsidies for fossil fuels, pricing carbon into consumer goods, efficiency standards for vehicles, and transferring technologies to developing countries. Even inequality gets a mention towards the end. I agree with all of their strategies, and I agree with them that it’s achievable by their calculations, however difficult it may be. I’m prepared to accept nuclear power and carbon capture and storage. However, they have not gone far enough.
McKinsey have gone for 500ppm as their baseline, taking their cues from Nicholas Stern. Unfortunately Stern has changed his position since he wrote the book and now believes that 350ppm is a better target. Many climate scientists now advocate the lower number, and policy makers and economists need to catch up. If 350ppm (we’re currently at 392) is the realistic target, then even a project as transformative as the Industrial Revolution is still woefully inadequate.
“Without a major boost in carbon productivity,” say the authors, “stabilising GHG emissions would require a major drop in lifestyle for developed countries.” Indeed, but if they have overestimated the baseline, then we need to pursue all of their strategies and accept that major drop in lifestyle as well. That’s my own position – pursue every possible new technology, drive efficiency as far as it can go, and scale back our hypermobile, hyperconsuming lifestyles too. If McKinsey were to recalculate for 350ppm, they might find themselves agreeing.
There’s another problem. McKinsey have addressed climate change as if it’s the only crisis of the 21st century. Writing in 2008, they should have been able to see a debt problem coming. Instead, the report contains statements that don’t seem quite so optimistic today: “The EU and other parts of the developed world would likely find it possible to finance their incremental investment through borrowing.” Perhaps we could pull off a second industrial revolution in 40 years – human ingenuity is a remarkable thing. But can we do it with a full-blown debt crisis as well?
Similarly, McKinsey have ignored the problem of resource depletion. There’s a painful line in the report in which they calculate the return on energy investments “assuming an average oil price during the period of $50 a barrel”. That’s just bizarre – even if you’re completely unaware of peak oil, why would you assume that the price of an essential commodity would remain unchanged for 40 years? It’s the only mention of the price of oil, but the end of cheap energy has serious consequences for the economy and our ability to react to climate change and it deserves attention.
There’s no mention of population either, and the role that demographics has in climate change – another major factor that seems to be missing from the equation. So again, the report has plenty of sensible ideas and is and well argued, it just doesn’t recognise the magnitude of the challenge. “The world can abate carbon and continue to grow” the report maintains, but it fundamentally underestimates the scale of the problem and the exacerbating factors of resource depletion and population growth. It also shows how much things have changed since 2008, which is no fault of McKinsey’s. We really are living in a time of radical change.
The other thing to bear in mind is that McKinsey are, presumably, not suggesting that growth stops in 2050. But that means that, having just completed an unprecedented transformation of the industrial economy, we now need to do it again if growth is to continue until 2100. Only this time the curve will be steeper and the odds higher, because growth is exponential. How many times can we do that? And how long do we need to stretch every sinew to protect this precious growth, before we actually start asking what we wanted the growth for in the first place?