McKinsey on Energy Productivity

by Richard T. Stuebi

The McKinsey Global Institute — the think-tank offshoot of my alma-mater, the management consultancy McKinsey & Company — recently released a study claiming annual global investment of $170 billion between now and 2020 would cut greenhouse gas emissions in half, while producing an internal rate of return on investment of about 17%.

Interestingly, none of this investment is in renewables or other forms of zero-carbon energy. Rather, all of the investment is in energy efficiency.

Actually, McKinsey employs the term”energy productivity”: squeezing more economic output per unit of energy input. Maybe McKinsey is wise to be using the phrase “productivity” rather than “efficiency”, since it conjures up “more good stuff with less input”. As we all know, the concept “energy efficiency” has hardly caught the world by storm, as it seemingly falls prey to the same challenge as the word “conservation”, evoking the unpleasant images of sacrifice, making do with less, and Jimmy Carter wearing the cardigan.

Whatever the semantics, I hope that a study such as this one compels serious economic actors to deploy more capital to reduce energy consumption, and thereby reduce emissions. Per a quote in an article in The Financial Times from Diana Farrell, director of the McKinsey Global Institute, “it shows just how much deadweight loss there is in the economy in energy use.” Sounds to me like a big opportunity for savvy capitalists.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

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