Adeline Tiffanie Suwana | Staff Kajian Kanopi FEUI 2014 | Ilmu Ekonomi 2013
Whether or not you believe in global warming and climate change, it is a fact that now, numerous nations have set specific targets to reduce emissions of greenhouse gases (GHG) in attempts to mitigate global carbon level. They recognize the importance to mitigate one of the worst impacts of a climate crisis – a rise in global mean temperature above 2 degree Celsius – on the human population, on our economies and on the environment.
As a reality check, Indonesia’s former President, Bambang Susilo Yudhoyono, has declared a decree to reduce Indonesia’s GHG emissions by 26% in 2020, or up to 41% with international support. This statement follows immediate actions from ministries and local government to implement low carbon development activities. Given that more than two-thirds of Indonesia’s greenhouse gas emissions result from deforestation and degradation of forests and peat lands, the decree significantly impact in new concessions in primary forests and peat lands, notably the Reducing Emission from Deforestation and Forest Degradation (REDD) program. Since it’s first initiation, there is only one country, Norway, who has pledged up to $1 billion to help Indonesia to reduce deforestation and degradation. Some climatologist and economist believe that it is enough, but how much does it actually cost to reduce global carbon emissions? And how do we actually know?
McKinsey & Company reported a potential to reduce GHG emissions by 35% by 2030 compared with 1990 levels, or by 70% compared with the levels we would see in 2030 if the world collectively made little attempt to curb current and future emissions. In order to achieve this, there are indeed numerous different ways to reduce the amount of greenhouses gases released into the atmosphere, each with their own specific reduction opportunity of CO2. On the contrary, the cost per ton of CO2 reduction, or abatement, is relatively constant. To fully understand discussion that follows, it is important to firstly dichotomize and understand the cost of abatement.
Figure 1 – McKinsey & Company, Pathways to a Low-Carbon Economy: Version 2 of the Global Greenhouse Gas Abatement Cost Curve, 2009.
The width of each rectangle indicates the amount of CO2 that can be reduced, and the height of each rectangle represent the cost of abatement. The red color indicates the net cost we need to pay to fully abate the carbon emissions from our economic activities, whereas some of the activities, such as energy efficiency, can actually save us money over time, as they reduce our energy bills by more than the initial cost of the efficiency upgrade. They therefore have a negative cost of abatement, resulting us to save money and gain savings, which are shown on the graphic in green.
Calculating all measures, if economical actions are to rationally conduct abatement actions while keeping profit, despite all optimistic assumptions, the total worldwide cost could be $250 to $400 billion annually by 2030 – a less than 1% forecasted global GDP in 2030. In order to initiate the entire effort, an upfront investment in abatement measures will be required. On a business-as-usual (BAU) assumption, a minimum total cost of investment about $580 billion in 2020 annually, and a further increase to $860 billion per year in 2030. However, the enormous required upfront investment would open many opportunities to future energy savings and a much sustainable future for all.
It is inevitable that fully seizing the potential to curb global carbon emissions is an extremely challenging task, but it is still possible when all regions and sectors capture the opportunity cost for abatement. More importantly, the world needs to act now as we on the verge of a ticking bomb; a 10-year delay in taking abatement actions will result in no other possible measures to keep the global mean temperature below 2 degree Celsius.
It is now or never.