Europe: irrationally inefficient

McKinsey published a report today (pdf) today that shows how all our energy and carbon targets can be met through productivity improvements alone (i.e. our energy supply does not need altering). And even better – unlike most GHG abatement technologies, all energy productivity improvements are reported to have a positive NPV.

Improving energy productivity involves things like energy efficient buildings and recovering heat from industrial processes.

The chart below from McKinsey’s report shows just how important energy productivity is. When we compare with CCS, which has the potential to deliver 3% of Germany’s GHG abatement potential and according to most industry estimates requires a carbon price of EUR 40 – 75 to be commercially viable, it seems obvious that our obsession with clean coal being necessary to deliver safe levels of emissions is misplaced.

So why isn’t the market delivering these improvements? Even with no carbon price, energy productivity makes economic sense. According to McKinsey, most productivity gains are dispersed among consumers who have insufficient capital and information to make the right investments. Product standards are the only way to address these barriers.

It feels like there’s something missing to me – it just seems like too big a market failure. I’m afraid I don’t have an answer right now but will mull it over.

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