Global greenhouse gas (GHG) emissions have been a topic of concern as the world has seen the rise of new industrial powers in new regions. Ahead of the recent United Nations 21st Conference of the Parties in Paris, where the issue of reducing emissions globally was discussed, A.T. Kearney released new research and a three-point plan to significantly reduce the amount of greenhouse gas emissions in Europe without harming economic growth. The plan includes increasing energy efficiency, changing the power mix to include more renewable energy sources, as well as finding the right price for C02 emissions to achieve technology leadership and create jobs. Consulting recently caught up with Florian Haslauer, A.T. Kearney’s Global Head of Utilities, who has put together a plan of attack to facilitate this much-needed energy transition.
Consulting: Could you summarize the key points of the three-point plan to lower GHG emissions?
Haslauer: We tried to find an answer around the topics being discussed in Paris and what has been achieved so far and what can we learn from it regarding the reduction of C02 emissions. So we tried to get insight about what is urgent and what is not urgent regarding climate policy in Europe. We then tried to figure out what could be done. One option is a trading system like was introduced in Europe some years ago. The first option would be to expand this system and invite other countries to participate, especially other large emitters like China and the US. Another would be CO2 taxes. We also need to decouple the growth of economies from the growth of C02 emissions. This is what we see as maybe the most important reason may countries don’t follow the ambitions of some others. Because they are afraid if they try to reduce emissions they’ll hurt their economic development.
Consulting: What are some ways companies can reduce their GHG emissions?
Haslauer: Energy generation and usage is accountable for over 80% of all emissions. Without a significant reduction of energy intensity (energy usage/GDP) a reduction of GHG emissions is not possible. New technologies in energy efficiency for space heating and cooling as well as in industrial processes are essential. There is a need to further develop and take advantage of e-mobility and power to heat technologies. Investments in new technologies and digitalization of energy usage patterns will be key levers to continue to increase energy efficiency.
The most important single lever for emission reduction is the power generation sector which accounts for 40 percent of CO2 emissions. Renewables need a further reduction of costs and in the long run is the only technology other than nuclear that offers zero emissions for electricity. To motivate updates to the global power mix, governments must steer away from technology-oriented intervention and toward market- and results-oriented intervention.
Next we must find the right price, and use the outcome from CO2 auctions for R&D to achieve technology leadership and create jobs. The European Union’s Emissions Trading System (ETS) is basically a good approach, which should be further developed and included in other sectors. Globally, the objective should be to integrate other regions such as the United States, Japan, China, or India into the CO2 market. CO2 taxes are needed in case of no alignment on the further development of ETS. Policy makers globally should focus on this topic, this is the most important lever for energy policy to reduce GHG emissions.
Consulting: What could the negative ramifications be on business if companies fail to curb their emissions?
Haslauer: We have some assumptions and insights from our analysis of the situation in Europe. In the long run there is a certain risk for the industry that CO2 prices in Europe will increase or CO2 taxes in emerging markets will be introduced. We will probably observe a further move of energy intensive industry to the Middle East or Asia.
Consulting: What is preventing companies from getting serious about transforming their energy consumption habits?
Haslauer: Low commodity prices (oil, gas, coal, CO2 allowances) will prevent companies from investing in energy efficiency or changing their consumption behavior.
Consulting: Is there a way to make lowering GHGs profitable to incentivize companies to take action? Or if not, how do you incentivize companies to get serious about such efforts?
Haslauer: In order to incentivize companies to invest in emission reduction it is necessary to have certain cost connected with the emission of CO2. The only market oriented way is to give CO2 a price, like the ETS in the EU or CO2 taxes. There is no way that policy makers can influence market driven price development of oil, gas and coal prices. ETS is somehow an artificial market, which gives the right incentive, if the price is high enough. At the moment the ETS in Europe is not giving the right incentive because the price of the allowances is much too low.
Consulting: What are the consulting opportunities that arise from GHG lowering/energy efficiency initiatives?
Haslauer: We see the biggest opportunity in driving and supporting energy transition. For example, traditional utilities have to transform their business model. The global supply and demand balance will change, and companies looking for ways to improve energy efficiency.