Introduction: The Big Myth

Consensus thinking holds that the world will have a hard time reaching the headline goal of the Paris Agreement—keeping the increase in global average temperature to less than 2°C above preindustrial levels. Moreover, in the absence of coordinated global action, countries that unilaterally pursue a “2°C path” will face significant first-mover disadvantages.

While the first point is very likely true, the second is not. There are clear paths for most countries to achieve substantial reductions in greenhouse gas (GHG) emissions that can generate near-term macroeconomic payback. Just about all leading emitters could eliminate 75% to 90% of the gap between emissions under current policies and their individual 2050 2°C Paris targets using proven and generally 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 economic gain by moving at least part of the way—even if they move unilaterally.

BCG recently completed a study of the economically optimized paths for implementing climate change mitigation efforts in Germany. Using this work as a model, we analyzed six other countries that, together with Germany, collectively account for close to 60% of current global GHG emissions: China, the US, India, Brazil, Russia, and South Africa. For each country, we examined three scenarios: the “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 impact of accelerated climate mitigation actions on each country that we studied. The next few chapters examine our main findings and their implications. Principal among our observations is that there are good economic as well as environmental reasons for many countries to step up their climate change mitigation efforts—starting now.

HOW TO DECARBONIZE A DEVELOPED ECONOMY

In Klimapfade für Deutschland (or Climate Paths for Germany), one of the most comprehensive studies of national emissions reduction potential to date, BCG, together with the economic research firm Prognos, recently assessed how Germany can meet its stated goal of reducing GHG emissions by 72% to 93% (versus 2015 levels) by 2050. (This is equivalent to the officially quoted 80% to 95% reduction with respect to 1990 levels.1 Notes: 1 While the COP21 Paris Agreement uses 1990 emissions as a basis, a comparison with 2015 levels is more relevant for an action-oriented analysis. In this chapter on Germany, we indicate emissions reductions through 2050 with reference to both 2015 and 1990. For the rest of the report, we use 2015 as the base year. ) The study presented economically optimized climate-change mitigation paths for reaching these goals, and the findings were surprising.

Under current policies, Germany is already on a path that cuts GHG emissions by more than 45% (60% versus 1990 levels) by 2050. The country can achieve a 77% emissions reduction (80% versus 1990 levels) by pushing further the use of proven technologies—and, if properly orchestrated, such a move would be economically viable even if Germany moves forward unilaterally. With global cooperation, a 93% reduction (95% versus 1990 levels) would not 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 paper, the Bundesverband der Deutschen Industrie (BDI)—the German Industry Association, which commissioned the study—united behind the core findings and demanded more systematic climate action by the German government.2 Notes: 2 Bundesverband der Deutschen Industrie (BDI): BDI-Handlungsempfehlungen zur Studie “Klimapfade für Deutschland,” 2018.

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

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

In the power sector, wind and solar power would need to cover more than 80% of demand, and Germany’s coal and lignite generation would need to be phased out in favor of gas to still provide sufficient flexible backup capacity. 3 3 Notes: 3 This level of investment will require accelerated grid expansion, more storage capacity (mostly from batteries), and a flexible system integration of, for example, e-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 be concentrated in the industrial sector, replacing fossil fuels in process heat generation. (See “A New Strategy for Biomass.”)

A NEW STRATEGY FOR BIOMASS Biomass is a valuable and scarce resource in the battle against climate change. Valuable because it can theoretically replace fossil fuels in all sectors of the economy. Scarce because global supplies are limited and most countries do not have sufficient sustainably available volumes to do so.1 It pays to think strategically about how this resource is deployed. Today, most of the biomass used in energy production is consumed in three applications: biofuels to partly replace gasoline and diesel in transportation, scrap wood pellets or regular firewood to heat private households, and residual 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, it needs to change. The more ambitious an emissions mitigation target that a country pursues, the more it should avoid using its biomass in applications that suffer further transformation losses (such as third-generation biofuels), that have technology alternatives (such as space heating and water heating), or that use the resource inefficiently (such as in power 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 also has a long-term systemic benefit; the emitted nonfossil carbon dioxide can either be recycled to produce synthetic fuels or stored underground to create a “negative emissions” benefit. Notes 1. Sustainable volumes do not diminish existing forest or create competition with food production and material use. Algae-based biofuels and similar innovations could become interesting breakthroughs, but they are not yet mature enough to predict large-scale application. 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 building stock would need to be renovated by 2050 (an acceleration of today’s energetic renovations by nearly 70%). Low-emission district heating could replace individual oil and gas heating in urban areas and heat pumps in less populated ones.

In transportation, electric mobility would need to take over a large part of road transport— meaning battery power for passenger transport and light commercial vehicles and possibly electric overhead lines for trucks on major highways (a GHG-reduction measure that is already in piloting but remains controversial).

To be sure, the investment required is substantial: a total of $1.6 trillion through 2050 (1.1% of annual GDP). 4 Notes: 4 This estimate 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 individual hardships are systematically mitigated, they would barely hurt the German economy as a whole. Moreover, even if Germany moves forward unilaterally, the overall economic impact from a systemically optimized implementation (including “carbon leakage” protection 5 Notes: 5 That is, preventing industrial processes from simply moving abroad, often increasing global carbon emissions while unilaterally hurting the German economy. ) would be slightly positive, thanks to GDP gains from accelerated investment and a nearly 80% decline in fossil fuel imports, which together would outweigh declining industrial competitiveness.

Achieving the full 2°C target will be much harder. In addition to unpopular carbon capture and storage (CCS) for industrial processes, it 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 (power-to-liquid). As of today, this will require either solid G20 consensus or alternative—as yet unidentified—technological innovations. (See Exhibit 1.)