Adapting to climate change is critical because, as a recent McKinsey Global Institute report shows, with further warming unavoidable over the next decade, the risk of physical hazards and nonlinear, socioeconomic jolts is rising. Mitigating climate change through decarbonization represents the other half of the challenge. Scientists estimate that limiting warming to 1.5 degrees Celsius would reduce the odds of initiating the most dangerous and irreversible effects of climate change.
None of what follows is a forecast. Getting to 1.5 degrees would require significant economic incentives for companies to invest rapidly and at scale in decarbonization efforts. It also would require individuals to make changes in areas as fundamental as the food they eat and their modes of transport. A markedly different regulatory environment would likely be necessary to support the required capital formation.
No easy answers
And the stark reality is that delay is quite possible. McKinsey’s Global Energy Perspective 2019: Reference Case, for example, which depicts what the world energy system might look like through 2050 based on current trends, is among the most aggressive such outlooks on the potential for renewable energy and electric-vehicle (EV) adoption. Yet even as the report predicts a peak in global demand for oil in 2033 and substantial declines in CO2 emissions, it notes that a “1.5-degree or even a 2-degree scenario remains far away”. Similarly, the McKinsey Center for Future Mobility (MCFM)—which foresees a dramatic inflection point for transportation does not envision EV penetration hitting the levels that our analysis finds would be needed by 2030 to achieve a 1.5-degree pathway. MCFM analysis also underscores a related challenge: the need to take a “well to wheel” perspective that accounts for not only the power source of the vehicles but also how sustainably that power is generated or produced.
Given such uncertainties and interdependencies, we created three potential 1.5-degree-pathway scenarios.
The first scenario frames deep, sweeping emission reductions across all sectors; the second assumes oil and other fossil fuels remain predominant in transport for longer, with aggressive reforestation absorbing the surplus emissions; and the third scenario assumes that coal and gas continue to generate power for longer, with even more vigorous reforestation making up the deficit
Regardless of the scenario, five major business, economic, and societal shifts would underlie a transition to a 1.5-degree pathway. Each shift would be enormous in its own right, and their interdependencies would be intricate. That makes an understanding of these trade-offs critical for business leaders, who probably will be participating in some more than others but are likely to experience all five.
Shift 1: Reforming food and forestry
Shift 2: Electrifying our lives
Shift 3: Adapting industrial operations
Shift 4: Decarbonizing power and fuel
Shift 5: Ramping up carbon-capture and carbon-sequestration activity