McKinsey & Company published its report Net-Zero Europe: Decarbonization pathways and socioeconomic implications, which lays out what it would take for the European Union to reach its goal of net-zero carbon emissions by 2050. The report finds there is a cost-efficient, feasible pathway to achieve the EU’s emission targets – a pathway that carries net-zero cost and would yield a net gain of 5 million jobs. The analysis modeled ten regions in the EU 27; Romania is included in SEE group of countries, along with Bulgaria and Greece.
According to McKinsey’s report, achieving EU climate targets at the EU level would come at a lower cost than achieving them at the member state level. In order to reach the EU’s targets in time, sectors would need to reduce their emissions in parallel. The changes would require a fundamental reconfiguration of the energy system and land use practices. Most of the technology to reach net-zero is already available, but continued technological innovation will be critical.
“There are many possible emissions-reduction pathways. Our report describes a cost-effective scenario that illustrates specific, feasible actions that would allow the EU to achieve its emissions-reductions targets,” said Hauke Engel, a partner in McKinsey’s Sustainability Practice, who co-leads McKinsey’s work on climate change globally.
This pathway would achieve net-zero emissions at net-zero cost and would create additional socio-economic benefits.
McKinsey’s research identifies the optimal uses of more than 600 emissions-reduction levers in 75 subsectors and ten regions and assessed their impact on employment and other socio-economic factors. The analysis found that the most cost-efficient way to net-zero emissions requires parallel action across five key sectors: power, transportation, buildings, industry, and agriculture.
- The power sector would reach net-zero emissions first, in the mid-2040s. Transportation would approach its target in 2045, buildings in the late 2040s, industry in 2050, followed by agriculture. By 2050, consumption of oil, gas, and coal would decline by more than 90 percent; power demand would double; and renewable sources would generate more than 90 percent of electricity, up from 31 percent now. Gas should be used as a transitional fuel while phasing-out coal. In this regard, countries such as Poland, Slovenia, and Romania should set their agendas to phase out coal, while countries such as Germany, that already have these agendas, to advance their timelines.
- Some 30 Mha of marginal lands could be used to produce biomass.
- Reducing emissions would raise the cost of doing business in some sectors. However savings in others would make up the difference. If these costs and savings were passed along to consumers, the average cost of living would decline slightly for low- and middle-income households.
- Reaching net-zero emissions would create 11 million jobs and eliminate 6 million jobs through 2050, leading to a net gain of 5 million clean energy jobs. Most significant gains would be in power and buildings sectors. Up to 18 million people could need training and transition support throughout Europe.
“The decrease in emissions at the European level was 19% between 1990 and 2017, while in Southeast Europe, the percentage was over 50%. Achieving the proposed EU targets for 2030 and 2050 requires all countries to work much harder to reduce emissions. However, given the key geographic differences in emissions-reduction pathways of Bulgaria, Greece, and Romania, they could become a key exporter of hydrogen and power, supplying cheap energy to the North of Europe within the next decades. We hope that the numerous other similar insights this report is providing will help business and government leaders to take decisive action and launch emissions-reductions projects that will secure a healthy, prosperous future for Romanians and Europeans,” said Alexandru Filip, Managing Partner at McKinsey & Company’s Bucharest Office.
Investment and policy interventions would be required to stimulate investment into low-carbon technologies.
Decarbonizing Europe would require decisive action from stakeholders to accelerate the transition, including:
- An average of €800 billion per year in capital spending—roughly a quarter of all EU capital outlays—would need to shift from carbon-intensive technologies to low-carbon technologies.
- An additional €180 billion would need to be invested each year. That sum would be offset by savings in operating expenses.
- Policy interventions would be required to stimulate investment. Just half of the investments needed for a net-zero pathway would have a positive investment case. Government financing of around €4.9 trillion would close the gap. Alternatively, a carbon price of €50/tCO2e would make three-quarters of the necessary investments profitable, and a carbon price of €100/tCO2e would make 85 percent profitable.
The pathway outlined in the report also shows that achieving net zero emissions could make Europe effectively energy independent, albeit possibly more reliant on imports of zero-carbon technology components or materials. At the same time, the EU has a major opportunity to accelerate R&D and retain its global low carbon leadership.