Combating Climate Change Can Produce Economic Gain

Countries that take ambitious action against climate change can benefit macro economically—if they prioritize the most economically efficient measures for mitigating emissions. The Economic Case for Combating Climate Change, a recent report released by The Boston Consulting Group (BCG) and the BCG Henderson Institute, shows that most countries can achieve 75% to 90% of their individual 2050 2°C Paris Agreement targets using proven and generally accepted technologies. If they prioritize the most efficient emissions reduction measures, mitigation activities actually accelerate, rather than slow, GDP growth for many of them—even if countries move unilaterally.

“Across the world and in the Middle East, considerations of the impact of climate change is at the top of the mind of policy makers and business leaders,” said Bjorn Ewers, Partner & Managing Director at BCG Middle East. “Navigating climate change is an ever-changing challenge, which requires both economic considerations, an understanding of global trends, and a clear appreciation of innovative solutions that will disrupt the current state of affairs. In the Middle East, industry and country leaders must explore the strategic options which will secure their long-term success and space in the future market.”

BCG examined climate change mitigation strategies globally, which account for close to 60% of current global greenhouse gas (GHG) emissions. Under current policies, BCG estimates that for all countries globally to move to a 2°C path would require total investment of up to $75 trillion until 2050. But almost half of this is accrued in the “last mile” between what can be done under current technologies and the full 2°C target, and much of it creates payback through efficiency gains or savings in fossil fuels. For many countries, a significant share of investments before this “last mile” can thus create macroeconomic gain.

The report corrects several common misconceptions:

• We hardly require new technologies—more R&D remains critical, but current technologies can go a long way.
• Power systems with high shares of wind and solar do not need to produce much excess power—flexibility to balance power is cheaper than storage.
• The world will not go all-electric—liquid and gaseous fuel use will need to decline, but they remain an important pillar.
• We are not (yet) moving to a hydrogen economy—broader hydrogen application still requires a breakthrough in cost digression.
• Global emissions trading is no one-stop solution—while it would help, among many countries there is no economic case for trading.
• Many subsidies for heating buildings with biomass or converting it into fuels are misguided—where biomass is scarce, it should go to industry.

Policymakers have a clear case for more decisive unilateral action to reduce national emissions. To motivate this, they need to help companies and individuals overcome the investment hurdles, as many measures accrue benefits in other parts of the economy but are uneconomic for decision makers. To avoid escalating costs, they need to stick to economic optimization as a guiding principle. Finally, they need to ensure critical infrastructure like power grids and e-mobility charging and take steps to prevent “carbon leakage” if they move unilaterally.

Many companies have started to focus on a low-emission world, and industry will contribute more going forward. Investments in energy efficiency, a key lever in less developed economies, continue to be strong. Newer ways to isolate buildings and provide low-emission heating and cooling are being developed all over the world.

“Public-Private-Partnerships becomes an imperative, where businesses should enter into active dialogue with their respective governments to encourage systemically optimized action,” said Shelly Trench, Partner and Managing Director at BCG Middle East. “Early movers stand to benefit and corporations around the world need to make the global action against climate change a key element of their long-term strategy.”

A copy of the report can be downloaded here.