Not Sky-High

With the global financial system in crisis and the economy in a downturn, there is a risk that momentum for investing in clean energy and tackling climate change may ebb. Some argue that action is too expensive when the economy is weak; others say it will hurt economic growth and force consumers to make changes in their lifestyle they will not like.

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But new research by the McKinsey Global Institute and McKinsey's Climate Change Special Initiative shows that this need not be the case. With the right mix of policies, investments, new technologies and changes in behavior, we can shift to a clean-energy economy while continuing to grow. The key is dramatically increasing the "carbon productivity" of the economy.

Just as one can measure labor productivity—the amount of output created per hour worked—one can measure the "carbon productivity" of an economy as the amount of output produced per metric ton of carbon dioxide and other equivalent greenhouse gases emitted into the atmosphere. If we are to meet the twin goals of reviving the economy and tackling climate change, then we need to dramatically boost the world's carbon productivity.

Today, carbon productivity is at $740 of gross domestic product (GDP) per metric ton of emissions. But if we are to continue to reduce poverty in the developing world, maintain growth in the developed world and accommodate 3 billion more people on the planet by 2050, then world GDP will need to grow by at least 3 percent per year. Likewise, to avoid the potential nightmares of global warming, such as mass migrations from flooded cities and starvation due to drought, the scientific consensus is we need to cut carbon emissions by at least 50 percent from 1990 levels by 2050. Combining these targets means carbon productivity must reach $7,300 by 2050—a tenfold increase over today.

To make this more personal, the average citizen of a developed country emits 27 to 63 kilograms of carbon equivalents per day depending on where he or she lives. In order to minimize climate damage, that number needs to come down to less than 6 kilograms per day. To live on such a budget at today's levels of carbon productivity, one would be forced to choose between a 40-kilometer car ride, air conditioning for the day, purchasing two new T shirts (without driving to the shop) or eating two meals that included meat. In short, without a major boost in carbon productivity, stabilizing the climate would require a painful change in lifestyles in the developed world and the loss of hope for greater prosperity in the developing world.

A tenfold increase in carbon productivity sounds daunting, but it is a type of challenge that humankind has met before. U.S. labor productivity increased tenfold over a 125-year period from 1830 to 1955. We now need a clean-energy revolution on the same scale as the Industrial Revolution. But we probably have less than 40 years before emissions lead to irreversible damage. The clean-energy revolution has to happen three times faster than the Industrial Revolution did.