How much does it cost to cut CO2 emissions? The answer, of course, depends on who you are and what you do. Management consultant McKinsey has a graph that tries to judge how much it would cost to cut emissions in different ways — from the perspective of the world in 2030. It concludes, for instance, that it will be cheaper to generate carbon-free energy by building new nuclear power stations than by building coal-fired stations with carbon capture technology.
But the intriguing part of the graph shows all the possibilities with 'negative cost', including the use of biofuel from sugar cane and, most obviously, better insulation and more efficient vehicles. By negative cost, of course, it means that these technologies save money and should be used even if there were no concern about humans causing climate change.
The mere existence of these negative cost opportunities is puzzling. If these investments are so obviously profitable, why aren’t they being made already? It is possible that McKinsey's sums are wrong, but unlikely. Lord Stern, economist and climate-change evangelist, used the graph at a gathering of the Royal Economic Society. And at a discussion on the business case for sustainability, every panellist argued that money was being left on the table because businesses were not investing in simple energy-efficiency measures.
New research from economists includes a survey of the quality of management processes at 300 medium-sized manufacturing firms in the UK, with open-ended phone conversations ranging from just-in-time inventory management to performance reviews and whether targets were realistic.
The economists compared those results with data on production and energy use. The results are striking: better-managed firms use less energy for any given amount of output, and they also use less energy per worker. A firm whose management processes put it barely in the bottom quarter uses 20 per cent more energy than a firm barely in the top quarter.
It’s impossible to draw a firm causal link between good management and energy-efficiency, but it’s striking to note that the statistical relationship held up when the economists adjusted for potential confounding factors such as industry sector, firm size and firm location.
It seems as though modern management isn’t just hot air.
Tim Harford is a Financial Times columnist and bestselling author of The Undercover Economist and The Logic of Life
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