McKinsey Explains How to Halve Global Energy Demand for Free

McKinsey Global Institute, the company's economics research arm, last week released a report with a banal title: The Case for Investing in Energy Productivity. A mere 34-pages long, it delivers headline news.

For a global investment of $170 billion a year for the next 13 years -- or less than 1/2 percent of global GDP -- global energy demand growth can be cut in half by 2020.

That's not all. The investments would yield a 17 percent rate of return and collectively generate energy savings that by 2020 would be worth $900 billion annually.

And that's still not all. The investments would increase energy productivity -- the level of output achieved per unit of energy consumed. As a result, hundreds of millions of dollars that would have been invested in new energy infrastructure projects could be put to better uses.

It's a radical proposal, backed up by numbers and details of "how to." It's radical, because it means we don't need the myth of clean coal or a prolonged oil war in the Middle East to imagine a way out of energy dependence and the climate crisis.

By capturing the potential available from existing technologies, the United States could cap U.S. energy consumption, as well as its greenhouse gas emissions, at today's levels.

The path of increasing energy productivity also works for China.

By taking advantage only of currently existing technologies that pay for themselves, China could further its ongoing efforts and reduce total energy demand in 2020 by as much as 23 percent. Lower energy demand would also mean that China could cut its projected oil imports by up to 15 percent and its CO2 emissions by at least 20 percent by 2020.

So what stands in the way? Distorting policies and market distortions, which the report identifies on a chart on page 23.

To overcome the barriers, McKinsey says there are four priority areas for action that we need to "get right."

1. Set energy efficiency standards for appliances and equipment
2. Finance energy efficiency upgrades in new buildings and remodels
3. Raise corporate standards for energy efficiency
4. Invest in energy intermediaries

Half the energy and climate problem facing us can be solved if we adopt policies that encourage win-win investments in energy productivity.

Hm. And you wonder why McKinsey makes the big bucks.

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