While Australia will need to strengthen its effort, McKinsey found that a significant reduction in the nation’s greenhouse gas emissions is achievable and affordable. Australia can reduce emissions by 30 per cent below 1990 levels by 2020 and 60 per cent by 2030 without major technological breakthroughs or lifestyle changes. Moreover, with swift action from government, business and consumers, achieving these emissions reductions is affordable, with an average annual gross cost of approximately $290 per household to reduce emissions in 2020.

McKinsey’s approach

These conclusions stem from analysis by McKinsey that modelled the costs and abatement potential across six industry sectors – power, forestry, industry, building, agriculture and transport.

After determining a business-as-usual baseline for current and future emissions, the Australian greenhouse gas abatement cost-curve was determined based on emissions reduction opportunities, estimated costs and the potential abatement volume presented by each opportunity. The report links environmental with economic outcomes to enable fact-based decision making to guide Australia’s policy choices and inform business leaders about the most efficient and effective response to climate change and transition to a carbon-constrained economy.

McKinsey’s three key findings

1. Significant reductions in greenhouse gas emissions are achievable: Power offers the greatest abatement potential by 2030, with carbon capture and storage (CCS) for coal and gas, onshore wind and geothermal offering the most significant abatement opportunities. The modelling is based on a “significant uptake of CCS only by 2030” as although CCS is currently in its “technological infancy”, McKinsey argues that it is a rapidly developing technology with major abatement opportunities. Another emerging technology included in the modelling with major potential in the next three decades was geothermal power generation, which McKinsey argues could supply just under 8 per cent of the country’s energy production by 2030. As the most cost effective renewable technology, McKinsey argues that onshore wind power generation not only has room to grow but is expected to remain relatively cost-competitive through to 2030, when it has the potentials to capture over 15 per cent of Australia’s energy production. 2. Significant quantities of ‘negative-cost’ opportunities are available: To meet emissions reduction targets by 2020, energy efficiency measures within the building sector offer significant negative or low-cost opportunities and can be implemented today. Commenting on this finding, Clean Energy Council Policy Development Manager Rob Jackson said that while many of these measures are cost effective today, they face a number of market barriers before they can be implemented. 3. Long term marginal cost of abatement - $60-70 per tonne CO² equivalent: Australia has the opportunity to reduce greenhouse gas emissions by approximately 70 per cent below business-as-usual levels in 2030 for costs under $65.

Seizing Australia’s abatement opportunities

Business

The report found three major actions Australian businesses should take to reduce greenhouse gas emissions. Firstly, business must reduce its carbon footprint. The report acknowledged the progress the sector has made in this respect, but argues that companies need to move beyond an offset-only approach to implement approaches which improve energy efficiency and significantly reduce overall emissions.

The real challenge for business, however, is to “productively contribute” to the climate change debate. Business may choose to respond “reactively of proactively” but it consider its long-term contribution to Australia’s and global prosperity as well as protecting short-term interests. The third major challenge for Australian business is to identify and capture new business opportunities.

Government

The report concluded the Federal Government’s role involved taking three important steps. It must set an aggressive but realistic target for greenhouse gas reduction soon. Setting a target may not by itself result in carbon reduction, however McKinsey found that it will enable businesses to “understand the magnitude and timing of change” required to respond to climate change.

The government must also rapidly develop and implement an integrated set of policies to capture the full set of abatement opportunities. This action requires a range of measures, including pursuing negative-cost opportunities, fast-tracking technological development and establishing a national emissions reduction scheme as early as possible. In achieving this, McKinsey recommended a ‘learn as we go’ – rather than a ‘wait and see’ approach – will leverage existing national studies and global experiences. Finally, governments must participate in and support the existing global framework by playing a leadership role for developing nations, including investment in Clean Development Mechanism projects.

A land of abatement opportunity

With rapid action, McKinsey argues that the cost curve shows that affordable emissions reductions are achievable. They require government, business and consumers to work together for, as the report states, effective action is difficult to envisage without all parties playing a role.

Echoing calls for action by other climate change advisors and experts, McKinsey concludes that “Australia has unique challenges and unique opportunities to reduce its impact on climate change. Understanding them is an important first step.”