US could cut GHG emissions up to 50% at 'manageable' cost: study

Washington (Platts)--29Nov2007

The US could reduce projected 2030 emissions of greenhouse gases by
one-third to one-half at a "manageable" cost to the economy and without
requiring big changes in consumer lifestyles, according to a report issued
Thursday by management consultant McKinsey & Company and The Conference Board,
a business research organization.

The report, "Reducing US Greenhouse Gas Emissions: How Much at What
Cost?" was based on an analysis of 250 opportunities for reducing emissions of
carbon dioxide and other gases believed to contribute to global warming.

The report said that based on government forecasts, US annual GHG
emissions will rise 35% to 9.7 billion mt of CO2 equivalent in 2030 if no new
mitigation actions are adopted. At this level, emissions would overshoot by
3.5 billion to 5.2 billion mt the targets currently implied by economy-wide
climate change bills introduced in the US Congress.

The McKinsey-Conference Board report said a reduction of 3.0 billion to
4.5 billion mt in 2030 is achievable at "manageable cost using proven and
emerging high-potential technologies--but only if the US pursues a wide array
of options and moves quickly to capture gains from energy efficiency."

"Almost 40% of the opportunity for greenhouse gas reduction identified
comes from options that more than pay for themselves over their lifetimes,
thereby creating net savings for the economy," the report said, adding that
improving energy efficiency in buildings, appliances and industry could, for
example, "yield net savings while offsetting some 85% of the projected
incremental demand for electricity in 2030."

But the report warned that "private sector innovation and policy support
will be necessary to unlock these and other opportunities. Without forceful
and coordinated action it is unlikely that even the most economically
beneficial options would realize their full potential," Ken Ostrowski, a
McKinsey director, said in a statement.

McKinsey said its analysis focused on options likely to yield greenhouse
gas reductions at a cost of less than $50/mt of CO2e.

The report found, among other things, that "opportunities to reduce
greenhouse gas emissions are highly fragmented and widely spread across the
economy."

The study said a single option--carbon capture and storage from
coal-fired power plants--offers less than 11% of total potential identified.
The largest sector, power generation, accounts for less than one-third of
the total potential reductions, the report added.

In addition, the report said that cutting emissions by 3 billion mt of
CO2e in 2030 would require $1.1 trillion of additional capital spending, or
roughly 1.5% of the $77 trillion in real investment the US economy is expected
to make over this period.

The study said investment would need to be higher in the early years to
capture energy efficiency gains at lowest overall costs and accelerate the
development of key technologies, and would be highly concentrated in the power
and transportation sectors.

Such investment, the report continued, would "likely put upward pressure
on electricity prices and vehicle costs."

The study also said that "five clusters of initiatives, pursued in
unison, could create substantial progress towards the targets implied by bills
currently before Congress. From least to highest average cost, they are:
improving energy efficiency in buildings and appliances (710-870 megatons);
increasing fuel efficiency in vehicles and reducing carbon intensity of
transportation fuels (340-660 megatons); pursing various options across
energy-intensive portions of the industrial sector (620-770 megatons);
expanding and enhancing carbon sinks, such as forests (440-590 megatons) and
reducing the carbon intensity of electric power production (800-1,570
megatons).

McKinsey and The Conference Board said the report was produced in
association with DTE Energy, Environmental Defense, Honeywell, National Grid,
Natural Resources Defense Council, Pacific Gas & Electric and Shell.

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