McKinsey defends its climate costs slide rule

(Reuters) - Global consulting firm McKinsey on Thursday played down suggestions that it had underestimated the costs to farmers and industry of making cuts in carbon emissions.

Governments around the world want to know the cost of low-carbon technologies to choose the cheapest path to fight climate change and overhaul the world's energy system.

McKinsey has devised "cost curves," which compare different low-carbon technologies from insulating homes to trapping carbon emissions from coal plants.

The European Bank for Reconstruction and Development said in a report published on Wednesday that the McKinsey approach focused on governments rather than private investors and so overestimated what the market could do.

Greenpeace and the UK Rainforest Foundation said on Thursday the McKinsey approach had underestimated costs to poor landowners of halting deforestation, risking failure by creating under-funded programs that targeted smallholders instead of major logging and palm oil concessions.

McKinsey said its estimates should not be taken out of context because they missed out lots of additional factors that governments would consider before making decisions.

"Anyone who sat down with a real policy decision-maker would quickly identify many other factors that they need to take into account before introducing a new law," said Per-Anders Enkvist, a partner at McKinsey, referring to competitiveness, job creation and equity issues.

"You cannot mechanically translate any abatement cost curve into policy implications, and we have been clear about that in our publications."

McKinsey said that it was possible to take the perspective of individual investors or of governments. The latter, "societal" approach meant excluding extra costs borne by investors such as a higher cost of capital or taxes.

"If you want to create a set of numbers to compare the importance of different measures in different sectors and countries, then you would want to use a societal perspective, and that is why we have in many circumstances chosen that," said Enkvist.

As for its rainforest figures, McKinsey said it stood by them and that pilot projects were needed to establish the exact costs. The firm said extra upfront costs would be needed to establish a forest protection program involving many smallholders.

The Rainforest Foundation's Simon Counsell said that governments may fail to account for the extra context missing from the cost curves.

"Governments do tend to take these studies literally, and they will rarely have the expertise to unpick them," he said.

(Editing by Jane Baird)