HOW THE WORLD SHOULD INVEST IN ENERGY EFFICIENCY
A program that targets cost-effective opportunities in energy productivity could halve the growth in energy demand, cut emissions of greenhouse gases, and generate attractive returns, says McKinsey Quarterly in a recent article.
170 billion dollars a year invested in efforts to boost energy efficiency from now until 2020 could halve the projected growth in global energy demand. What’s more, these investments could also deliver up to half of the emission abatement required to cap the long-term concentration of atmospheric greenhouse gases at 450 parts per million, the level experts suggest will be needed to prevent the global mean temperature from rising by more than two degrees centigrade.
The key to achieving these results will be carefully targeting cost-effective opportunities to boost energy productivity—the level of output achieved from the energy consumed.
The energy productivity investment opportunity varies dramatically by sector and region. The transportation sector would absorb annual investments of some 25 billion dollars. Fully one-third of the transportation sector’s energy-saving opportunity requires no additional capital, according to calculations by McKinsey. These gains would come from removing fuel subsidies in oil-exporting regions such as the Middle East and Venezuela, thereby reducing their overconsumption of transportation fuel.
The remaining two-thirds of the sector’s total opportunity is relatively capital intensive. Opportunities to reduce the weight and size of vehicles by redesigning them and substituting new materials, for example, can be expensive. Lightweight materials such as aluminum and high-performance composites cost significantly more than iron and steel do. In all, the capital requirements in transportation are larger than those for other sectors.
Efficiency standards can play a critical role in coordinating the transition of production volumes from less efficient products to more efficient ones, thus boosting their market penetration by generating large unit cost reductions.