Acting to Combat Climate Change is More Cost-Effective Than Inaction

Boston Consulting Group’s new Center for Climate Action, in a recently published report determines that, in terms of climate change, the cost of inaction far outweighs the investment needed to combat it. Ignoring the problem comes at a very high price, estimated at a reduction in global GDP per capita of 30%, if not more, by 2100, far greater than the cost of tackling it, given the rapid technological advances in low-carbon technologies.

According to Boston Consulting Group’s recent publication Flipping The Script on Climate Action, the economic costs of climate change far outweigh the economic impact of a major investment in order to decarbonize the planet.

New advances and developments in low-carbon technologies have shown that reducing emissions has an increasingly positive economic impact. For many countries, this reduction in emissions translates into an increase in GDP. The report that captures these findings has been released by BCG’s new Climate Action Center (CCA), a specialized expert center, which aims to help businesses, governments and non-profit organizations lead the technological and economic transformation needed to address the growing threat of climate change.

“This is a global challenge for the coming decades, one of the most critical issues for many of our clients and a clear leadership imperative for BCG,” notes publication co-author Michel Frédeau, BCG Global Climate and Environment Leader and co-author of the publication. “The good news is that big emission reductions are not only possible, but they also make economic sense.”

A Basis for Economic Action

The publication analyses the dilemmas faced by different actors in tackling climate change. Existing research shows that uncontrolled warming will reduce global GDP by up to 30% by 2100, with significant additional risks given the far-reaching effects of global temperature increase and new evidence that continually points to more dramatic negative impacts than anticipated.

In direct comparison, these figures are far greater than the economic costs of taking action. According to the BCG report, most countries can already meet about 80% of the requirements of the Paris Agreement without resorting to immature or as yet undeveloped technologies. The relative economic impact of drastic reductions in CO2 emissions is therefore likely to be slightly negative or even positive for many countries (it will represent around +/- 1% of national GDP in 2050).

Based on this positive economic impact, the authors of the report urge governments, companies and investors to intensify their efforts to reduce CO2 emissions. In the absence of an international regulatory framework and a global price for emissions, governments should take unilateral action by adopting national CO2 pricing schemes, subsidies for green technologies, and existing sectoral regulatory models. For their part, companies must define their own roadmap towards total reduction of their emissions and accelerate initiatives that already have a positive or neutral economic impact, while developing new technologies that will play an increasingly important role in the coming decades. Those sectors with difficulties in reducing emissions must take action and partner with competitors, customers and suppliers in initiatives to share the risks of large investments in research and deployment of new technologies.

A Comprehensive Climate Campaign

Given the urgency of acting against climate change, BCG has integrated its intellectual capital, leadership in innovation, and experience in this area into a Center for Climate Action (CCA). The CCA will support the global drive for decarbonization and provide organizations with tools to achieve carbon dioxide emission reductions by focusing on three areas: business strategy, operations and stakeholder engagement. It will also work with governments, NGOs and social sector groups to define and implement strategies to reduce emissions.

As companies reorient their strategy to drive their own transformation to low-carbon operating models, CCA will work with them to assess trade and portfolio impacts in a variety of future climate scenarios. In terms of operations, the CCA will help companies identify and follow the most cost-effective path to emission reductions, both in their own operations and in their supply chains. The CCA will also collaborate with organisations in their efforts to engage with the climate change action agenda of their internal and external stakeholders.

“BCG’s Climate Action Centre has been created at a critical time, when both companies and governments need to accelerate progress to reduce carbon emissions,” says Patrick Herhold, Managing Director and Partner at BCG. “As detailed in our publication, a real boost is being generated from low-emission companies as they reinvent their business models and decarbonize their operations. The CCA will engage with business and government leaders and be a catalyst for climate impact.”

Access the study Flipping the Script on Climate Action