EnviroEconomics.ca

…environmental economics and the implications of environmental policy

Technology Trickery — there is no free lunch

with 13 comments

McKinsey curves pop-up all the time, as in here today. And I am often asked to produce similar ones (see picture).

But the McKinsey curves have some important flaws, and drive me nuts for a couple of reasons.

Iron and Steel Curve
First, they assume no baseline. In time technologies will be deployed in response to rising energy prices and straight technology innovation, where energy efficiency occurs absent policy. This then lowers the emission intensity of the economy. So, absent policy we get a certain level of this stuff, and with this technology deployment we then have less of the potential to go after later. The McKinsey curves then overstate reductions, because they ignore what we are doing anyway. This then understates costs cause we have already deployed the stuff and moved up the curve regardless of what policy is in place.

And then there are costs. The costs are not what it would take to get folks to move into these technologies. Instead, they are a mix of social costs, and include all kinds of benefits, such as avoided tipping fees for waste management. This is good, but folks think of the curves as marginal abatement curves, which is not really right.

Simpson falls into this trap,

One of the very best attempts at measuring effectiveness and cost comes from McKinsey & Co., an international consulting firm that has produced a cost-abatement curve comparing different technologies used today or likely to be ready in the next two decades.

Mixing cost and effectiveness, and choosing approaches that won’t materially affect consumers’ lifestyles, McKinsey offers a rough guide to how the world might hold the rise in global mean temperatures to below 2 degrees Celsius. Obviously, different measures will be more appropriate for some countries than for others.

Finally, the costs don’t reflect behavioural choice. That is they are mostly engineering costs assuming long-paybacks and low discount rates. But this is not how folks make decisions. Take public transit. While it is cheaper than operating your own car, there is a reason many if not most don’t ride the bus. Simply, there are other determinants of costs that affect technology choices. And if you want to move folks out of their warm car pods and get them to exchange germs on transit, you have to whack them hard with prices. This means abatement costs are significantly underrepresented in the McKinsey curves.

The curves have done much to highlight potentials, which is good. But they can’t really be used in policy development because they overstate potentials and understate costs. And if we could really get all those free reductions, would we still be locked in inaction?

Written by Dave Sawyer

December 4th, 2009 at 11:41 am

Posted in Uncategorized

13 Responses to 'Technology Trickery — there is no free lunch'

Subscribe to comments with RSS or TrackBack to 'Technology Trickery — there is no free lunch'.

  1. .

    áëàãîäàðåí!!…

    alan

    29 Jul 14 at 3:58 pm

  2. .

    ??? ?? ????!…

    nathaniel

    22 Aug 14 at 5:33 pm

  3. .

    good….

    Kenneth

    23 Aug 14 at 8:25 am

  4. .

    ???!…

    Anthony

    23 Aug 14 at 11:05 am

  5. .

    thanks….

    Darren

    24 Aug 14 at 4:00 am

  6. .

    tnx!…

    alexander

    21 Nov 14 at 9:13 am

  7. .

    thanks for information!…

    chester

    23 Nov 14 at 1:22 pm

  8. .

    ñïñ!…

    Shawn

    30 Nov 14 at 8:12 pm

  9. .

    tnx for info….

    Dean

    30 Nov 14 at 10:37 pm

  10. .

    good!!…

    Adam

    5 Dec 14 at 1:53 pm

  11. .

    ñïñ çà èíôó!!…

    donald

    6 Dec 14 at 2:13 pm

  12. .

    áëàãîäàðåí!…

    enrique

    10 Dec 14 at 2:06 am

  13. .

    áëàãîäàðþ….

    Gabriel

    11 Dec 14 at 4:37 pm

Leave a Reply