Building a “Green Economy”: A New Revolution in China?

A “green economy” can be built in China in less than 20 years, argues a new McKinsey report. The new study, “China’s Green Revolution“, offers the most comprehensive quantitative analysis to date of China’s abatement cost curve.

Previous studies of a similar ilk, like the Stern Review, have incorporated social benefits to partially offset the cost of scaling up energy efficient and clean technologies. In contrast, the latest McKinsey report considers only technology-related costs and attaches a figure to the cost of green initiatives in China.

So what is the final damage? While costs are negative for upgrades in some industries, like buildings, due to the savings generated from energy efficiency improvements, a total 1.5-2 trillion yuan (USD 220-295 billion) would have to be spent every year until 2030 in order to reach McKinsey’s alternative scenario.

The alternative scenario assumes extensive deployment of some of the 200 energy efficiency, clean energy, and carbon management technologies considered across six key areas:

• Power
• Transportation
• Heavy Industry & Waste Management
• Buildings and appliances
• Agriculture & Forestry
• Urban Design & Consumer Behavior

So what will this get us? According to McKinsey’s analysis: a reduction in projected oil imports by 30 to 40 percent, coal use by 40 percent, and greenhouse gases by up to 50 percent. In the power sector, where “low hanging fruit” are most abundant, improvements could reduce carbon emissions from the projected 5.4 gigatons to 1.6 gigatons by 2030.

The comparison between a maximum effort scenario and the McKinsey projection, which was formulated according to expected energy efficiency improvements and GHG abatement potential from current policies and initiatives, is rather impressive. However, the aggregate numbers do not stack up as favorably. For instance, under a maximum effort scenario, China would still emit more – 10 percent more – in 2030 than 2005, and coal demand would remain undiminished. When faced with this mathematical reality during the report’s China launch last week, McKinsey’s Shanghai Director, Jonathan Woetzel said “another way to look at that is China will have increased its carbon productivity faster than any other country in the world.”

Though that might sound grim to some, McKinsey’s Woetzel is steadfast in his dedication to the cause. In back-to-back launch events this week – first at the Woodrow Wilson Center and then on the Hill – Woetzel suggested that US policy and investment could have a significant impact in bringing about reductions. While undeveloped markets and lacking standards across industries present real constraints, key decisions need to be made fast, before China makes irreversible mistakes – like committing to inefficient power plants with 30-year lifespans.

A total transformation of industry and development, and not just ideology: now that’s revolutionary.

Photo Credit: Francesa Tronchin on Flckr Commons