What are some economic reasons that a country might implement policies to curb population growth?

The Economic Instance for Combating Climate change

Introduction: The Big Myth

Consensus thinking holds that the world will accept a hard time reaching the headline goal of the Paris Agreement—keeping the increase in global average temperature to less than 2°C to a higher place preindustrial levels. Moreover, in the absence of coordinated global action, countries that unilaterally pursue a "ii°C path" will face up pregnant first-mover disadvantages.

While the first point is very likely true, the 2d is not. At that place are clear paths for most countries to reach substantial reductions in greenhouse gas (GHG) emissions that can generate nigh-term macroeconomic payback. Just about all leading emitters could eliminate 75% to xc% of the gap between emissions nether current policies and their private 2050 2°C Paris targets using proven and by and large accepted technologies. If they prioritize the most efficient emissions reduction measures, taking the necessary steps will actually accelerate, rather than slow, GDP growth for many countries. All countries can generate economical gain by moving at least part of the way—even if they motion unilaterally.

BCG recently completed a study of the economically optimized paths for implementing climate change mitigation efforts in Germany. Using this work every bit a model, we analyzed half-dozen other countries that, together with Germany, collectively business relationship for shut to 60% of electric current global GHG emissions: Prc, the United states of america, Bharat, Brazil, Russian federation, and South Africa. For each country, we examined three scenarios: the "electric current policies path," the "proven technologies path," and the "full 2°C path."

This report presents the results of our work, including, summaries of the bear upon of accelerated climate mitigation actions on each country that we studied. The side by side few chapters examine our main findings and their implications. Principal amid our observations is that there are skilful economic equally well as environmental reasons for many countries to pace up their climate change mitigation efforts—starting now.

HOW TO DECARBONIZE A DEVELOPED ECONOMY

In Klimapfade für Frg (or Climate Paths for Deutschland), one of the most comprehensive studies of national emissions reduction potential to date, BCG, together with the economic research house Prognos, recently assessed how Germany can meet its stated goal of reducing GHG emissions past 72% to 93% (versus 2015 levels) by 2050. (This is equivalent to the officially quoted lxxx% to 95% reduction with respect to 1990 levels. ^one Notes: 1 While the COP21 Paris Understanding uses 1990 emissions as a basis, a comparison with 2015 levels is more than relevant for an activity-oriented analysis. In this chapter on Federal republic of germany, we point emissions reductions through 2050 with reference to both 2015 and 1990. For the rest of the written report, we use 2015 equally the base of operations yr. ) The study presented economically optimized climate-change mitigation paths for reaching these goals, and the findings were surprising.

Nether current policies, Federal republic of germany is already on a path that cuts GHG emissions by more than 45% (60% versus 1990 levels) past 2050. The state can achieve a 77% emissions reduction (80% versus 1990 levels) past pushing further the utilise of proven technologies—and, if properly orchestrated, such a motility would be economically viable even if Germany moves forward unilaterally. With global cooperation, a 93% reduction (95% versus 1990 levels) would non harm economic growth, although it would test the boundaries of foreseeable feasibility and require further maturing of, or overcoming acceptance hurdles against, some technologies.

In an unprecedented position newspaper, the Bundesverband der Deutschen Industrie (BDI)—the High german Industry Association, which commissioned the study—united backside the cadre findings and demanded more systematic climate action by the German regime. ² Notes: two Bundesverband der Deutschen Industrie (BDI): BDI-Handlungsempfehlungen zur Studie "Klimapfade für Frg," 2018.

Delivering the German contribution toward a global 2°C scenario requires that emissions pass up by 93% from 2015 levels, to 62 1000000 metric tons of carbon dioxide equivalent (Mt CO2e), by 2050. This is an aggressive goal, to say the least; for near sectors of the German economy, emissions would need to be eliminated entirely.

However, achieving very substantial reductions is well within reach. Under current regulations and assuming current applied science trends, Germany is on a path to reduce GHG emissions from 2015 levels by approximately 45% by 2050. Upwards to 77% lower emissions can be achieved past expanding further the apply of proven technologies. Doing so would require the following changes:

• In the ability sector, current of air and solar power would need to encompass more than fourscore% of demand, and Germany'south coal and lignite generation would demand to be phased out in favor of gas to still provide sufficient flexible backup chapters. ^{iii3 Notes: three This level of investment will require accelerated grid expansion, more storage capacity (by and large from batteries), and a flexible system integration of, for instance, due east-cars and heat pumps.}
• In parallel, all sectors would need to intensify their efficiency efforts—to accommodate new power consumers from the building and transportation sectors, and to avoid overstretching Germany's renewable generation potential.
• Available biomass should exist full-bodied in the industrial sector, replacing fossil fuels in process heat generation. (Encounter "A New Strategy for Biomass.")

Biomass is a valuable and scarce resource in the battle against climatic change. Valuable because information technology tin theoretically replace fossil fuels in all sectors of the economic system. Scarce considering global supplies are limited and most countries do not take sufficient sustainably available volumes to practise so.¹ It pays to call up strategically about how this resource is deployed.

Today, most of the biomass used in energy production is consumed in three applications: biofuels to partly supercede gasoline and diesel fuel in transportation, scrap forest pellets or regular firewood to heat individual households, and rest solid biomass and biogas, which are incinerated in smaller, decentralized units, to produce (baseload) power.

This mix is inefficient, and to accelerate emissions reduction economically, information technology needs to change. The more than ambitious an emissions mitigation target that a country pursues, the more than it should avoid using its biomass in applications that suffer further transformation losses (such as 3rd-generation biofuels), that have technology alternatives (such equally space heating and water heating), or that employ the resource inefficiently (such as in ability generation). Biomass should be concentrated primarily in the industrial sector, where it can replace fossil fuels in process heat generation.² Beyond using available volumes most efficiently, this application besides has a long-term systemic do good; the emitted nonfossil carbon dioxide can either be recycled to produce synthetic fuels or stored underground to create a "negative emissions" do good.

Notes

1. Sustainable volumes do not diminish existing forest or create competition with nutrient production and material utilize. Algae-based biofuels and like innovations could become interesting breakthroughs, but they are non yet mature enough to predict big-scale awarding.

2. Solid biomass can be used to generate low- and medium-temperature heat and steam (<500 °C); biogas can serve in high-temperature heat generation (>500°C).

• In the building sector, up to 80% of current edifice stock would demand to be renovated by 2050 (an acceleration of today'south energetic renovations by near 70%). Depression-emission district heating could replace individual oil and gas heating in urban areas and heat pumps in less populated ones.
• In transportation, electrical mobility would need to take over a large part of road transport— meaning battery power for rider transport and lite commercial vehicles and perhaps electric overhead lines for trucks on major highways (a GHG-reduction mensurate that is already in piloting but remains controversial).

To exist sure, the investment required is substantial: a total of $ane.6 trillion through 2050 (1.one% of annual Gross domestic product). ^iv Notes: 4 This judge includes investments for current noneconomic measures. But the annual direct add-on costs (after the substantial savings in operating costs are accounted for) are less than $20 billion. When private hardships are systematically mitigated, they would barely injure the German language economy every bit a whole. Moreover, fifty-fifty if Germany moves forward unilaterally, the overall economic impact from a systemically optimized implementation (including "carbon leakage" protection ^v Notes: 5 That is, preventing industrial processes from just moving abroad, oft increasing global carbon emissions while unilaterally pain the German economy. ) would be slightly positive, thanks to GDP gains from accelerated investment and a nigh 80% pass up in fossil fuel imports, which together would outweigh failing industrial competitiveness.

Achieving the full 2°C target will be much harder. In addition to unpopular carbon capture and storage (CCS) for industrial processes, information technology will require significant amounts of expensive, imported synthetic fuels to eliminate emissions in power backup and high-temperature industrial heating (power-to-gas) and in shipping, air transportation, and the remaining non-electrified road transport (ability-to-liquid). As of today, this will require either solid G20 consensus or alternative—equally yet unidentified—technological innovations. (See Exhibit 1.)

ONE GOAL, DIFFERENT CHALLENGES

The seven markets that we studied reflect the global diversity of economic, demographic, geographic, and technical circumstances affecting climate change mitigation—and reveal many of the challenges that ambitious mitigation paths face. Nether current policies, all 7 countries volition fail to run into their individual 2°C Paris targets; all of them need to invest more than in reducing the carbon intensity of their economies. Adult nations must accelerate their decline in per capita emissions. Most developing countries, which continue to use carbon-intensive technologies in their desire to catch upwards economically, need to alter direction. (See Exhibit 2.)

Europe and the US

Adult economies, such as the US and Germany, take already managed to decouple economical growth from GHG emissions growth. At the same time, the mobility and consumption patterns of their prosperous populations result in a loftier emissions footprint per capita. Under current policies, almost developed nations are on a path to lower emissions, thank you to ascent efficiency, more electric mobility, and gradual displacement of fossil fuels. The lessons from Federal republic of germany can largely apply to other European countries because well-nigh have comparable economical structures and similar, high levels of fuel importation.

There are some central differences between European nations and other developed countries, however. For example, while Europe's population (despite continuous clearing) is expected to decline, the U.s.a. population is expected to increase by one-fifth, or some 67 million people—the equivalent of the population of the United kingdom—by 2050. In the US, with a larger country mass and a potent preference for larger cars, transportation is a much bigger source of emissions. And while Europe needs to import the vast majority of its energy, the U.s.a. has substantial domestic resources, which reduces the economical benefits of displacing fossil fuels.

These differences have a big bottom-line impact; for instance, while Deutschland will reduce its emissions footprint past 45% under electric current policies, US emissions are expected to decline past but 11% by 2050.

Reaching their respective 2°C targets would crave both countries to essentially advance existing efforts. Similar imperatives employ to all highly adult economies effectually the world.

The Globe at Large

Many other countries face an fifty-fifty harder challenge. To grab upwardly economically, they continue to employ depression-cost and carbon-intensive technologies, increasing their per capita and full emissions footprints. From the perspective of global climatic change mitigation, this situation is not sustainable. Most countries need a change in direction.

The divergence in starting points and current trajectories is striking:

• China expects economic growth of more than 300% by 2050. Emissions, however, are expected to increase by but about 6 percentage points under electric current policies, equally the population declines, efficiency increases, and the country burns less coal.
• India combines even more ambitious economic growth (more than 700% by 2050) with a strongly expanding population (a 26% increment). The resulting rise in coal combustion, a principal source of free energy for ability and industrial processes, will lead India'south emissions to more than than double by 2050, making it the second-largest emitter in the world. Countries in Southeast Asia face similar challenges.
• In Brazil, economical and population growth is expected to bring college emissions in all sectors. The land faces a specially thorny challenge in that more than 40% of its greenhouse gas footprint is caused past agriculture, much of which is for export.
• Among larger developing countries, just South Africa is expected to reduce its emissions footprint, despite economical growth and a population increase of more than than twoscore% by 2050. Inefficient coal power generation today makes up more than half of the country's emissions. Every bit old plants are replaced, this footprint will shrink. The African continent overall, however, is heading toward big population and emissions increases.
• The trajectory of Russia's emissions depends in big part on the global demand for fossil fuels. Bold electric current policies go on, emissions will slightly increase despite mitigation measures and a decreasing population. (See "The Challenge for Russia.")

Russia offers extreme examples of the climate alter challenges faced by carbon-intensive economies that practise not have loftier per capita incomes.

Russian federation's Gdp is most half that of Germany'south, only its fossil fuel-based economy emits virtually 2.4 times every bit much GHG emissions. As a result, following a two°C path would require about two and a half times college investment ($5.5 trillion through 2050). In proportion to its economic chapters, the difference is even greater (6.1% of annual Gross domestic product versus one.4% for Federal republic of germany—more four times as high). With the additional factors of high capital letter costs and inexpensive domestic fuels, implementation of an aggressive Russian climate change mitigation agenda would demand to overcome massive obstacles.

This does not hateful information technology cannot be done. Saudi Arabia, for instance, which has some like structures, has announced one of the globe'due south nearly ambitious programs to plough its economic system toward solar power.

PROVEN TECHNOLOGIES CAN Get A LONG Style

It's a high bar. To achieve the global 2°C goal, all of our analyzed countries must significantly accelerate their emissions reduction efforts. To come across their respective Paris commitments, Bharat and Brazil demand to eliminate well-nigh half of their 2050 current-policy emissions. The US, China, Russia, and South Africa must eliminate all but one-quarter, and Germany all but i-eighth. (See Exhibit 3.)

Technically, these are achievable goals. All vii countries can close 65% to 90% of the gap between current-policy emissions and their individual 2050 ii°C Paris targets with proven and generally accepted technologies. And for the remaining abatement gap, solutions likewise already exist.

In the following sections we notation the changes needed in each of the major carbon-emitting economic sectors. Exhibit 4 illustrates how the about effective technology path differs by country, and why all of the countries analyzed crave a national emissions reduction agenda.

Ability Generation

By 2050, all of the countries studied could provide at least 80% of their power with low-carbon technologies such as wind, solar, hydropower, biomass, and nuclear. The exact mix depends on state-specific circumstances. For instance, Russia volition continue to rely heavily on nuclear power, but Federal republic of germany decided to stage out this applied science, along with fossil fuels. Brazil benefits from extensive hydropower chapters. Other countries will demand to rely on a wider technology mix. In nearly, more air current and solar generation would need to be complemented by additional investment in grid infrastructure and need flexibility, which, together with fill-in capacity, help to curb volatile generation profiles. (See "The Myth of Backlog Ability.")

Pop belief has it that a strong expansion of volatile current of air and solar power generation inadvertently creates prolonged periods of "excess ability" that can fuel new conversion solutions for cheaply producing hydrogen and power-to-x fuels. This is likely a myth.

In reality, increasing volatile ability generation will trigger a "flexibility merit club," in which loss-prone electricity conversion processes are naturally relegated to terminal in line. In a showtime step, expanded power grids (including cross-country interconnections) can increase the corporeality of generated power that matches need at any given time. In a second stride, new consumers, such equally electrical vehicles, heat pumps, and power-to-heat processes, can all become more flexible in focusing their need on periods with sufficient available power. As a result, excess power would either be caused by filigree bottlenecks (which volition be eliminated, if persistent) or full-bodied in very few hours of a year (bereft to make technologies built around excess power economically viable). In our German language scenarios, backlog power tin be limited to merely one.iv% of full 2050 net generation, even when more than 80% of power generation stems from intermittent renewables. About of the excess occurred in fewer than 100 hours in the year studied.

To farther reduce emissions, the use of coal in power generation will demand to decline over time. In many countries, this volition result from both regulatory pressures and economical forces. As the cost of renewable energy sources continues to autumn, and as their share of the power production mix rises, coal will gradually be pushed into a backup role. For this role, coal's loftier fixed costs make it a poor fit, which will trigger a gradual shift to gas-based generation in many countries. More than ambitious climatic change mitigation efforts will accelerate this transition. Because CCS is economically unviable for plants that are running below full capacity, coal plants no longer accept a viable economic path to eliminating emissions. For utilities, this means that whatsoever new plant construction carries a growing economic take chances. (Meet "No Futurity for Coal?")

In a recent publication, we argued that in the years ahead coal need could remain relatively stable, given no drastic changes in consumption patterns and regulations. (Run into "Why Coal Will Keep Called-for," BCG article, March 2018.) In the longer term, however, such changes, combined with evolving economics, may give united states of america a very different outlook.

Driven by a rapid decline in costs, the share of renewable technologies in the global free energy mix is rising significantly. If these costs continue to fall, coal plants could exist pushed into a backup part, for which they are non well suited given their high fixed costs. Many plants being planned or built today face the risk of becoming stranded assets—even in countries with rising power demand.

More aggressive climate change mitigation efforts would exacerbate this effect because coal plants accept no economic path to eliminating emissions if they are running far beneath full chapters.¹ In all the countries we analyzed, closing down existing coal plants, fifty-fifty prematurely, and replacing them with a mix of intermittent renewables and gas backup would be cheaper than installing CCS capabilities. The risk premium on new found construction in the coming decades may put the case for coal-based business models in peril.

Note

1. Low-emission coal generation is realistic only with carbon capture and storage (CCS). The further plant utilization declines as a issue of intermittent renewables, the farther the abatement costs of CCS increase.

Industry

All countries could significantly reduce their industrial energy demand by expanding employ of efficiency technologies, such as efficient motors and pumps and state-of-the-fine art process innovations. They could too replace a significant share of the fossil fuels used for industrial process heat generation by redirecting biomass to this awarding from other sectors. Depending on the availability of sustainable biomass relative to demand in each nation, this shift could eliminate betwixt xiv% (in Cathay) and 70% (in Brazil) of all industrial free energy emissions.

Transportation

Toll-effective emissions reduction in the transportation sector requires a widespread shift to electric propulsion. ⁶ Notes: 6 Electric propulsion includes battery-powered (both full-fourth dimension and hybrid) and fuel prison cell vehicles. The switch to electric mobility clearly presupposes continuous emissions reductions in the power sector. Our research suggests that virtually one-half of all new automotive powertrains will be partly or fully electric past 2030. (See The Electric Car Tipping Point, BCG Focus, January 2018.) New passenger cars and lite trucks could all exist electric by 2050 in the US, China, and Frg. The aforementioned is probable true for all of Western and Key Europe. Depending on the dynamics of fleet renewal in each country, this would lead to an overall e-mobility share of 75% to 90% in 2050. Developing countries would follow with a slight delay, although some could struggle to reach similar electrification levels given their infrastructure constraints.

Cost-efficient reduction of emissions from larger trucks is possible with a mix of electric mobility technologies, including batteries, fuel cells, and overhead electric lines on highly frequented roads, complemented by renewable fuels. Federal republic of germany, which has the highest road-freight ship density of all analyzed countries, could electrify more half of its heavy send with overhead lines. Such moves would non be necessary in countries such as Russia, where more than 60% of freight already travels via depression-emitting rail.

Buildings

In the building sector, direct emissions can be reduced significantly past improving the efficiency of buildings and appliances and by expanding the use of heat pumps in place of gas and oil heating in suburban and rural areas. For countries that apply district heating systems (such as Cathay, Germany, and Russia) it will be easier to phase out fossil fuels in cities. In warmer countries such equally Republic of india and Brazil, solar thermal could play a growing role in water heating. In these countries, increased building efficiency will too assist slow the power need increase for air conditioning and cooling.

Other Sectors

In agriculture and waste matter management, efficient soil nitrification, ameliorate utilization of manure (for biogas production, for example), efficient waste utilization, and a ban on landfilling can help bring downwardly emissions. Reduced mining and fossil fuel utilize would too assistance curb avoiding emissions. To reduce emissions from deforestation, several countries must employ more sustainable state utilise policies. (Meet "LULUCF: A Called-for Platform.")

A Called-for Platform

The worldwide greenhouse gas impact from country employ, land-use change, and forestry (LULUCF) is currently iii Gt CO2e, or about 6% of total global emissions. These emissions are non subject area to international climate commitments under the United Nations Framework on Climate Change. Yet nether a global 2°C path, they would need to be cutting by half.

Achieving this will crave a significant increase in agronomical productivity—enough to stop the conversion of forests into farm land. The (quite literally) burning platform for this change lies in Republic of indonesia, which currently causes more than than half of the world'south net LULUCF emissions (distantly followed by Zambia and Brazil, with about 10% each).^ane If Indonesia alone managed to reduce deforestation to the level in Brazil, and all other countries stayed at current levels, the global LULUCF two°C trajectory would be met.

Note

1. A major driver of Indonesia's LULUCF contribution is the increasing global demand for palm oil.

THE EARLY-MOVER Reward

Collectively, the various national paths described in the previous chapter could close almost iii-quarters of the gap between current-policy and 2°C emissions levels in the seven analyzed countries. The cost is loftier: some $28 trillion in total investment through 2050. The US, China, Brazil, and Germany (and probable most other OECD countries) would demand to invest about ane% of their GDPs in accelerating emission reductions. India, Russia, and South Africa would need to invest nearly twice every bit much. In the latter countries, two sectors (power and buildings) business relationship for more than 80% of the investment requirement; a more aggressive cost decline in renewables could relieve the fiscal burden.

But, contrary to conventional wisdom, countries that movement unilaterally to lower emissions need not endure an early on-mover disadvantage. Planned and managed properly, unilateral climate alter mitigation can take a positive affect on GDP considering the required investments create significant economic stimulus. How much of this stimulus translates into a positive net impact depends on a land's cost of capital and the share of imported fuel in its energy mix. (Run across Exhibit five.) For countries with low costs of upper-case letter, the investment is relatively affordable. For countries that import a lot of their fossil fuels, energy savings carry college macroeconomic value.

For Federal republic of germany, and for many OECD countries with similar circumstances, all or well-nigh of the proven technology path creates positive macroeconomic value. In countries with high costs of capital, such as Brazil, Republic of india, and South Africa, higher involvement payments on investment-heavy emissions reduction measures oversupply out the benefits from free energy savings. Countries with cheap domestic fossil resources, such every bit South Africa and Russian federation, do not relieve Gross domestic product-deflating imports. Russia is in a specially tough spot regarding climate investments; uppercase is expensive, and fifty-fifty potentially large energy savings have trivial economic value while fossil fuels are domestically ubiquitous. Nonetheless, all of the countries nosotros analyzed tin can create economic growth by moving closer to their two°C target.

REACHING 2°C: A $75 TRILLION Challenge

Although realizing the proven technology path will be hard, traveling the final mile to 2°C emission levels will be tougher nonetheless. To achieve its 2°C GHG reduction target of 93% by 2050, Germany, for instance, would demand to eliminate entirely the emissions from all but two of its economic sectors (procedure industry and agriculture). It would exist forced to use persistently unpopular CCS to remove process emissions from steel, cement, and ammonia production. It would demand to import about 340 terawatt hours (TWh) of expensive renewable synthetic fuels for emission-gratis flexible power backup, high-temperature industrial heat, and air traffic and shipping, and replace all fossil fuels in road freight transport and passenger cars. Finally, unless meat and cheese consumption patterns change, it would fifty-fifty need to reduce natural emissions from its cattle population, potentially past using methane-suppressing food additives ("methane pills"). (Agriculture would still remain Germany's largest emitter, past a broad margin.)

A challenging problem for all countries is that costs rise in nonlinear fashion every bit measures become more far-reaching. To close the final quarter of their gaps to a 2°C path, the vii countries nosotros analyzed would collectively demand to step up investments by another 60% (to $45 trillion in full through 2050). Globally, this translates into a $75 trillion challenge, or two% to vi% of countries' annual GDPs. ⁷ Notes: 7 This estimate includes the price of synthetic fuels to supersede international bunkers.

The additional investment brunt would vary among countries. Near would demand to spend less than an additional 1% of their GDP, simply South Africa (at 1.6% more than) and Russia (3.9% more) would be hit particularly hard.

For this last mile, it is difficult for countries to act without broader international consensus, at least at the G20 level. With such consensus in place, still, even very ambitious mitigation efforts in many countries would non exist detrimental to economic growth. Such efforts might too offer a softer landing for some of the world's fossil fuel-based economies equally the earth inevitably moves toward renewables. (See "The Oil Exporter Paradox.")

If the results of our study are correct, emission reduction efforts should advance on a global scale cheers to environmental and economic incentives. This creates a strategic trilemma for major fossil fuel exporting economies: whether to resist, adapt, or embrace decarbonization.

If the world (or—out of cocky-involvement—many of its major emitters) were to adopt an accelerated climatic change calendar based on proven technologies, investments in efficiency and renewable technologies would duly displace all types of fossil fuels. Moreover, coal would be replaced past natural gas, liquefied natural gas, and biomass in the power and industrial sectors. Such a path would significantly challenge the business model of all fossil fuel exporting economies as the following dynamics accept hold:

• After "peak oil" in 2030, the global oil market declines past half.
• The value of coal apply drops past more $200 billion in but the seven countries analyzed.
• The value of gas use increases only marginally (by nearly $20 billion, assuming constant prices).

On the other hand, many current hydrocarbon exporters (those that can combine existing infrastructure with stiff wind and solar weather) accept a clear advantage for producing synthetic fuels. If global demand for such fuels picks upwards—which would be necessary to see the 2°C target—their revenues could partially compensate for the falling sales of fossil fuels. Equally a result, a globally coordinated and ambitious two°C attempt could actually offer a softer landing for energy-exporting countries and oil and gas majors because it avoids the depression-demand, low-price scenario that they might otherwise face up. (See the exhibit.)

THE LIMITS OF EMISSIONS TRADING

To shoulder the investments needed, some countries will need help. Defended, depression-interest financing and risk-reduction measures for companies making climate mitigation investments could enable many countries to advance their emissions reduction while safeguarding GDP growth. Current financing volumes, however, would need to rising significantly to accept an touch on.

1 frequent recommendation—putting a global toll on emissions—could convert what are now vague political ambitions into tangible investment incentives (and help convalesce the competitive imbalances that might arise in sectors where some countries move faster than others). Another widely touted musical instrument, global emissions trading, has some potential to increase economical efficiency by enabling developed countries with high abatement costs to pay for cheaper measures in less developed nations. In our judgment, still, this mechanism has limitations.

First, the notion that cheap mitigation measures should be implemented earlier expensive ones—the idea that underpins the emissions trading concept—begins to crumble in the confront of ambitious reduction targets. If countries need to eliminate nearly of their emissions, there is greater economic benefit from implementing both cheaper and more costly measures from the first, because many involve durable upper-case letter appurtenances with long replacement cycles. For instance, if space-heat generation needs to exist emission-costless by 2050, an oil-fueled boiler with a 25-year lifespan that is replaced in the side by side decade should be switched to a non-emitting technology, even if cheaper brusque-term alternatives for emissions reduction exist. Fifty-fifty under a global emissions trading scheme, corresponding national regulation will exist required to accomplish national targets efficiently.

Second, in their early on phases, many technologies (electrical vehicles, CCS, and synthetic fuels, for example) volition be more expensive than mature mitigation alternatives. The cost of such technologies will autumn over fourth dimension, just they need to be deployed early, so that learning and scale can enable cost reductions.

Third, the power to shift the emissions burden among countries has articulate limitations, since many countries with lower reduction targets accept no long-run incentive to merchandise. In principle, developed economies need to invest in more than expensive abatement measures sooner, while countries such every bit China and India can go along to implement less expensive measures for a number of years. ⁸ Notes: viii Some other key concern related to global emissions trading is that regulating regime in different countries compete, and emissions will always flow to the country with the about loopholes. The entire system would thus but be as stiff as its weakest fellow member. Efficient emissions trading systems betwixt adult and less developed economies should thus reduce abatement costs for everyone. Even so, for many countries the same logic does non hold. In reality, the loftier costs of capital in many countries with lower immediate national reduction ambitions (such as South Africa, Brazil, and Russia, forth with others) brand abatement costs for these countries as loftier or higher than those in the developed world. Every bit a upshot, fifty-fifty advanced countries with just expensive national measures have no incentive to trade with them. (See Exhibit 6.)

Even an effective carbon trading scheme would therefore need to exist accompanied by a range of global and national policy instruments, including low-interest financing back up, research funding, and market place ramp-up support for young technologies that are required to reach the 2°C path, as well equally new regulations (designed to increase free energy efficiency and phase out inefficient fuel subsidies) at the sector level.

Time TO MOVE

All in all, countries should—and will—advance emissions reduction. In many sectors (power generation and transport, for example), the shift toward climate-friendly technologies is already under way. Equally these technologies mature, their markets volition grow, specially if governments around the world start pursuing more aggressive emissions mitigation agendas. The results of our study suggest that many will.

Policymakers take a clear case for more than decisive unilateral activity to reduce national emissions. Most countries can make meaning progress toward their Paris accordance targets without triggering any first-mover disadvantages, and many even stand to do good economically. Moreover, global leadership in many new technologies is notwithstanding upward for grabs, and early movers tin can plant footholds in strongly growing markets. Given these benefits, policymakers should develop economically optimized mitigation agendas and implement thoughtful policies that incentivize companies (and individuals) to act and aid them overcome the investment hurdle.

For their role, companies demand to prepare for a world that moves far across electric current emissions policies and prefer much more aggressive emissions reduction in their strategies and planning. Leaders should start moving their business concern portfolios toward low-emission solutions and prepare for declining fossil fuel consumption. They should as well enter into active dialogue with their respective governments to encourage policies that assist address investment hurdles. The transition will likely be faster than expected. Early on movers stand to benefit.

Limiting global warming is i of humanity's defining challenges in the 21st century. Although the odds of reaching the 2°C goal remain challenging, comprehensive national activeness can aid achieve a much-needed change in direction—and close a substantial portion of the gap while safeguarding economic growth.

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The BCG Henderson Institute is Boston Consulting Grouping's strategy call back tank, dedicated to exploring and developing valuable new insights from business, technology, and science past embracing the powerful technology of ideas. The Institute engages leaders in provocative word and experimentation to expand the boundaries of business theory and do and to translate innovative ideas from within and across concern. For more ideas and inspiration from the Institute, please visit Featured Insights.

Authors

Stefan Schönberger

Master

Berlin

Joonas Päivärinta

Lead Knowledge Analyst

Helsinki

About Boston Consulting Group

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