I just came across this fascinating TED video by Jens Burchardt, BCG’s global expert on climate impact and low-emissions technologies.
In it, he shows how much more expensive it is to produce carbon-neutral commodities, like steel.
However, he also shows how small changes in our spending habits could have a huge impact on the advancement of low-carbon technologies.
He illustrates this beautifully with an example of moving from conventional steel production to carbon-neutral steel production for an average family car, costing €30,000, which requires about a tonne of steel.
In order for a steel producer to stop using their existing processes and build an entirely new steel plant, able to produce carbon-neutral steel, it would increase the cost of their steel about 10x. Since steel is such a commodity, other manufacturers who keep using the older, more polluting processes would therefore stay cheaper, and the more expensive steel would not be competitive on price. This is what Bill Gates referred to as the green premium.
However, if the car manufacturer were to choose to purchase the steel which costs 10x as much, how much more expensive would that make the €30,000 car for the end consumer?
The answer: only about €200 more expensive.
And to build a car with only carbon neutral materials (including aluminium, plastic, rubber etc) would only increase the sale cost by about €500.
That is only about a 2% increase in costs for the consumer.
And it is less than they would pay to select a different colour for the car.
It turns out that the cost of the raw materials only makes up a very small percentage of the overall cost of producing and selling many consumer objects.
So if consumers change their spending habits, and tell manufacturers they would be willing to pay 2% more for products if they are made with carbon-neutral materials, then the manufacturer can talk with the producers and say they would be willing to buy those materials at 10x the cost for that reason.
It is a fascinating idea, and a different way to look at the way the entire ecosystem can innovate.
Check out the video here, it is well worth a watch.
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