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November 19, 2009

This report is solely for the use of client personnel. No part of it may be circulated, quoted, orreproduced for distribution outside the client organization without prior written approval fromMcKinsey & Company, Inc. This material was used by McKinsey & Company, Inc., during an oral

presentation; it is not a complete record of the discussion.

MacroeconomicMacroeconomicConsequences ofConsequences of

Climate ChangeClimate ChangeDiscussion Forum: Germany and Poland in Europe

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1

The science suggests we need to "decarbonise" our

economy by around 90% long term to stabilize the climate

Requires a

radical changetowardsa low carboneconomy!

"Business as usual" GHG emissions

Global emissions

GtCO2e

Natural GHGabsorption rate

85

70

40-90%

205020302002

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2

35 Gt of reductions below Business as Usual in 2030 arerequired for a 450 ppm, 2C pathway

Referencepathway"Business asUsual"

450 ppm pathway(with overshoot)

Change relative to 1990Percent

+17% -7%

Current proposals1

811 Gt abate-ment in 2020

50

55

60

65

70

75

1990 2000 2010 2020 2030

0

40

45

52

61

70

50

55

60

65

70

75

1990 2000 2010 2020 2030

0

40

45

4435

-17

Global GHG emissions, Gt CO2e per year

1 US: 1728% below 2005 level by 2020; EU: 2030% from 1990 level by 2020; China: Reduce energy consumption per national income by 20%between 200510; Russia: stabilise emissions at ~30% below 1990; Brazil: Reduce deforestation rates by 70% by 2017, equivalent to 4.8b tons lessCO2 emitted cumulatively; Japan: Reduce 80% by 2050 from current levels; Canada: 20% reduction from 2006 level by 2020; Mexico: Reduceemissions from 2002 levels by 50% by 2050, plus proposals from 12 smaller Annex 1 countries. Assumptions have been made on timeline and

pathway to calculate abatement in 2020

SOURCE: McKinsey Global GHG Abatement Cost Curve v2.0; Houghton; IEA; US EPA; den Elzen, van Vuuren;Project Catalyst analysis

-35

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3

What could we could afford if we had to live on 6 kilos of

co2e a day?

* Based on 20 Gt/year sustainable emissions and future population of 9 billion people.

Source: McKinsey analysis

Per-capita annual emissions, 2005

TCO2e

21.5United States

15.9Russia

9.6EU-27

5.7China

1.7India

2.2World sustainableaverage*

Correspondingto 6 kg of CO2eper day

Emission budget for a day (alternatives)

Travel 2040 km car ride

Stay home 1020 hours air conditioning

Shop 2 new T-shirts

Eat 2 meals a day of 300 gmeat, 200 g fries, tap

water

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4

McKinsey has quantified global greenhouse gas

abatement opportunities

Source: McKinsey

Scope: 6 sectors, 6regions, 3 time-

frames ('10, '20, '30)

Involvement: Morethan 300 clients,industry experts and

more than 10,000customers

Academic review:More than 50 leading

academics

AbatementGt CO2e/year

Cost of abatement

EUR/tCO2e

Each bar is one measure, or group ofmeasures (e.g., "solar")

Width: Amount of CO2 equivalents that canbe reduced by implementing the measure

(reasonably aggressive potential) Height: Cost to avoid a ton of CO2

equivalent by the measure (as comparedto business as usual)

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5

30 35 38

40

-100

10

10

30

25

-50

20

60

-20

-10

Solar PVOn-shore wind

15

Solar conc.Degraded forest reforestation

Co-generation - New build

Nuclear

Retrofit building envelope, residential

20

Recycling new waste

Consumer electronics, residential-86.35

Coal CCS new built

-60

0

-70

-30

-40

Grassland management

Reduced deforestation fromslash & burn agriculture

Coal CCS retrofit

Reduced deforestation frompastureland conversion

Off-shore wind

-80

-90

50

5

Energy efficiency other Industry

Abatement cost1 per tCO2e, 2030

Abatement potentialGtCO2e per year

SOURCE: McKinsey Global GHG Abatement Cost Curve v2.0

Achieving 35 Gt in reductions will require capturing more than 90percent of the worlds economic reduction opportunities

1 Up to costs of 60/t, excluding transaction costs, 4% discount rate

Breakdown by geographiclocation

12 Gt in developed countrygeographies

26 Gt in developing countrygeographies

Breakdown by abatementtype: 8 Gt for forestry 14 Gt for energy efficiency 12 Gt for low carbon energy

supply 4 Gt for agriculture

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6

The cost curve can be broken down into three main

abatement categories Average costEUR / t

Abatement potentialin 2030Gt CO2e

Low carbonenergy

supply

Land use

Energyefficiency

SOURCE: McKinsey Global GHG Cost Curve V2.0

-32

-9

-7

1

8

11

14

45

Industrial and waste 6.6

Transport 3.2

Agriculture 4.6

Reducing Emissions fromDeforestation/Forest Degradation

5.1

Afforestation/Reforestation 2.7

Renewables, nuclearand other clean energy

9.9

CCS 2.2

Buildings 3.5

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7SOURCE: Global Insight; World Industry Monitor, February 2009; McKinsey

100% =

Energy industry

IT and IT services

Mechanical and plant engineering

Energy-intensive industries

Building technologies andconstruction industry

Transportation and logistics

36,500

8,760

1,1101,710

9,830

7,440

7,650

Energy is a critical strategic factor for 40 percent of theglobal economyGlobal revenues 2008, EUR billions

60% 40%

100% = 90,750

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8

In Germany, the share of industries where energy is of strategicimportance is higher than in most industrialized nations

SOURCE: Global Insight; World Industry Monitor, February 2009

2008, percent

5,380 7,460 3,640 4,170 4,370 21,070Total marketEUR billions p.a.

Revenues ofrelevant sectorsEUR billions p.a. 2,380 3,210 1,420 1,460 1,360 6,320

UK

31

France

35

Italy

39

Japan

30

Germany

Transportation andlogistics

44

Building technologiesand constructionindustry

Energy-intensiveindustries

43

Mechanical andplant engineering

IT and IT services

Energy industry

World: 40%

USA

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9

Growth centers offer business opportunities of more thanEUR 2 trillion

SOURCE: McKinsey

29%

8%

16%

13%

6%

Total, selected andother growth centers Development of selected growth centers within the relevant sectors

EUR billions p.a.

13% p.a.

2020

500

2008

2,140

Annual

growth rate

79

5

49

87

15

345

30

120

180

325

Energy industry

IT and IT services

Mechanical andplant engineering

Building technologies

Transportation andlogistics: passenger cars

2008

2020

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10

2

13

20

35

270

110

30

360

Plug-in hybrid2 and

electric vehicles

< 1

Components of optimizedcombustion engines

Hybrid vehicles1

Energy-efficient cars global market potential in growthcenters

SOURCE: McKinsey

29%

3

27%

Development in growth centers

EUR billions p.a.

2008

2020, scenario: USD 60/barrel2020, scenario: USD 110/barrel

31%

25%

3

Energy-efficient cars:total, growth centers

29% p.a.

1 Largely "mild hybrids" in which the electric motor simply supports the combustion engine2 Full hybrids that can be operated purely on electricity3 Market currently too small to calculate the growth rate

Annual growth

rate

15

2008 2020

325

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11

7

16

23

40

10

20

35

40

75

Smart homesolutions < 5

< 1

Decentral CHP< 1

Heating technology

Lighting

Building insulation

White goods

Efficient building technologies global market potential ingrowth centers

SOURCE: McKinsey

Development in growth centers

2008

2020

5%

5%

7%

9%

1

1

6% p.a.

1 Market currently too small to calculate the growth rate

Efficient buildingtechnologies: total,growth centers

Annual growth

rate

87

2008 2020

180

EUR billions p.a.

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12

5

1

16

17

10

10

15

25

30

40

Efficient motorsystems

Efficient IT

Heat recovery

Automation andcontrol

Industry-specificsolutions

Efficient technologies in mechanical and plant engineering global market potential in growth centers

SOURCE: McKinsey

12%

5%

4%

25%

6%

EUR billions p.a.

8% p.a.

49

2008 2020

120

Mechanical and plantengineering: total,growth centers

Annual growth

rate

Development in growth centers

2008

2020

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13

1

1

3

5

10

15

Traffic management

systems

Smart gridsolutions

IT in energymanagement

Innovative IT systems in energy management globalmarket potential in growth centers

SOURCE: McKinsey

Development in growth centers

20082020

14%

14%

21%

16% p.a.

EUR billions p.a.

Innovative IT systemsin energy management:total, growth centers

Annual growthrate

30

5

2008 2020

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Low-emission technologies in the energy industry globalmarket potential in growth centers

SOURCE: McKinsey

15%

10%

14%

10%

1

13% p.a.

EUR billions p.a.

Development in growth centers

1 Market currently too small to calculate the growth rate

Annual growthrate

Low-emissiontechnologies in theenergy industry: total,growth centers

79

2008

345

2020

0

11

13

23

32

10

35

60

75

165

Carbon captureand storage

Biomass power

Nuclear power

Solar power

Wind power

2008

2020

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15

Energy efficiency measures to Germany would reduceenergy consumption by roughly 20 percent until 2020

SOURCE: McKinsey

Energy consumption in Germany, TWh p.a.

13

Energy cost savingsEUR billions p.a. 21 7 41

9

Additional savings ofGerman companies abroad 0 3 12

Total savingspotential in 2020:EUR 53 billion

1 The same usage patterns and economic performance as in 2007 were assumed to give a better illustration of the savings potential

250

680

1.000

720 1,900

520

750

20201Industrialproduction

630

Trans-portation

Industrialproduction

Buildings

2.40090

160

BuildingsTrans-portation

2007

-21%

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You can find studies and more aboutMcKinseys Climate Change SpecialInitiative here:

http://www.mckinsey.com/clientservice/ccsi