World Bank: Decarbonizing the Romanian Economy - A Path to Prosperity and Improved Living Standards

A new report released by the World Bank Group, titled the Romania Country Climate and Development Report (CCDR), has shed light on Romania’s potential to significantly enhance its living standards while taking concrete steps to combat climate change and reduce carbon emissions. The report, unveiled today at the Cotroceni Palace, outlines a pathway for Romania to raise its national income by nearly threefold over the next three decades if it continues implementing a series of broader economic reforms.

Romania, like many countries, faces the challenges of climate change, particularly the increasing threats of floods and drought. Additionally, its economy remains relatively carbon-intensive, with emissions roughly 2.5 times the European Union (EU) average. The country’s vulnerability to climate change is exacerbated by rising temperatures and the more frequent occurrence of heatwaves, which pose serious risks to its economy, people, and infrastructure.

Marina Wes, World Bank Country Director for the European Union, highlighted the potential for Romania, stating: “While the challenges of decarbonization are considerable, with the proper mix of structural, social, and economic reforms, and effective investments underlined by public, private, and EU funds, Romania can improve living standards while achieving its climate goals.”

The Road to 2050: Carbon Neutrality

The report points out that Romania is already on track to meet its 2030 target of reducing emissions by 55% from 1990 levels, having already achieved a 53% reduction between 1990 and 2018. However, the goal of carbon neutrality by 2050 will require substantial coordinated policy action and funding. The report estimates that the investments needed for a decarbonized energy sector alone will amount to $356 billion by 2050, representing approximately 3% of the country’s cumulative GDP over that time frame.

Energy Transition: A Fundamental Shift

With over 70% of Romania’s total energy usage dependent on fossil fuels, energy transition is paramount. The energy sector, comprising electricity generation, heating, transportation and manufacturing, accounts for 66% of emissions in the country, followed by agriculture (17%), and industry (12%). To reach net zero by 2050, Romania needs to implement a massive electrification program replacing direct consumption of fuels with energy generated from renewable sources. The CCDR demonstrates that the incremental cost of developing a greener, renewable power system does not substantially increase investment needs. Increasing energy efficiency in buildings, especially through better insulation, is also highlighted as a critical investment.

Beyond Energy: Key Areas of Investment

The CCDR report offers a comprehensive pathway to achieving net-zero emissions by 2050, with a strong emphasis on several priority areas beyond energy sector decarbonization. These areas include:

Decarbonizing the Transport Sector: Transportation is a significant contributor to emissions, and the report stresses the importance of accelerating investments, deploying existing technologies, and promoting behavioral shifts, particularly toward electric vehicles.
Optimizing Water Usage: Water scarcity is identified as an urgent concern, impacting energy generation, agriculture, and consumers. Efficient water management is crucial for climate adaptation and mitigation.
Investing in Human Capital and Skills: The report highlights the need to address skills gaps and inadequate training in the labor force, emphasizing the importance of human development to ensure a successful transition to a low-carbon economy.

Anna Akhalkatsi, World Bank Country Manager for Romania, stressed the role of people in the transition, stating:

“People are key to the success of a green transition. The major shift from brown to green sectors cannot be done without an adequately skilled labor force. Romania should invest in closing the skills gaps in the current labor force and evolve its education system to prepare the next generation for the new economy and jobs.”

The Way Forward: Romania’s Climate and Development Path

Given Romania’s significant fiscal constraints, the report underscores the crucial role of the private sector, both in decarbonization efforts and in financing relevant investments, particularly in the transport and electricity sectors. Strengthening the public-private partnership (PPP) framework is suggested as a means to mobilize private finance effectively.

Ary Naïm, IFC Manager for Central and South Europe, underlined the importance of private capital, stating:

“The green transition will generate unprecedented opportunities for growth, development, and technological upgrades, building on Romania’s existing strengths and potentially moving it up the value chains. Incentives need to be put in place to mobilize private capital at scale.”

The release of the CCDR marks a significant milestone, as it is the first to focus on a European Union member state and a high-income economy. The report explores how climate action, aligned with Romania’s goal of achieving net-zero emissions by 2050, aligns with its growth and development path. It suggests priority actions to reduce carbon emissions, enhance resilience, support inclusive economic growth, and reduce poverty.

In conclusion, the World Bank Group’s Romania Country Climate and Development Report highlights the immense potential for Romania to elevate its living standards, combat climate change, and reduce carbon emissions. However, achieving these goals will require coordinated efforts, investment, and policy actions across multiple sectors, with a strong emphasis on transitioning to renewable energy sources and the active participation of the private sector. Romania stands at a crossroads, and with the right strategy, it can lead the way in building a greener, more resilient future.

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