Management consulting firm McKinsey & Company published its report Net-Zero Europe: Decarbonisation pathways and socioeconomic implications demonstrating that there is a cost-optimal, feasible pathway to reduce the EU’s emissions by 55 per cent by 2030 and becoming climate-neutral by the middle of the century without compromising prosperity.
Last week EU leaders endorsed the Commission’s proposal to increase the bloc’s emission-reduction target to 55 per cent by 2030 – paving the way to update the EU’s contribution under the UN Paris climate agreement. Although the targets are clear there is less clarity on the ways such as how much each sector and member state should contribute to the desired emissions reductions or what achieving those reductions would cost.
There are countless possible pathways, covering a wide range of costs and economic impacts. McKinsey’s conducting a comprehensive analysis to find the least costly pathway to achieving the emissions targets while also creating additional socio-economic benefits.
The power sector will be the quickest to decarbonise
The report analysed five sectors which emit the bulk of the European Union’s greenhouse gases (GHGs): transportation (28 per cent), industry (26 per cent), power (23 per cent), buildings (13 per cent) and agriculture (13 per cent). Across sectors, fossil fuel combustion is the biggest source of GHGs, accounting for 80 per cent of emissions.
According to McKinsey, the power sector can be the quickest sector to decarbonise, reaching net-zero emissions by the mid-2040s due to falling costs of renewables and increased electrification. Next is transportation, which can go net-zero by 2045 as EVs gain further momentum. The building sector faces bigger challenges, large-scale renovation of the building stock will take more time, which means that the building sector would reach net-zero in the late 2040s. The most expensive sector to decarbonise, the industry would need some technology that is still under development. As a result, it would reach net-zero by 2050 according to McKinsey. The same goes for agriculture, that will require the offsetting of agriculture emissions with negative emissions in other sectors.
Cooperation lowers transition costs for Member States
Looking at decarbonisation from a regional perspective McKinsey found that achieving EU climate targets at the EU level would come at a lower cost than achieving them at the member state level.
If member states pursued reduction targets individually rather than in aggregate, the transition cost would increase by roughly 25 euros per tCO2e.
Electrification, energy efficiency and innovation are key drivers
The report underlines that by 2030, nearly two-thirds of the EU’s emissions reduction would be achieved by large-scale electrification and increases in energy efficiency.
Innovation will be key to go net-zero by 2050. Mckinsey points out that although most of the required technologies are available, accelerated innovation will be critical to driving down transition costs.
Due to the increased importance of electrification, the power sector would become the central switchboard of the EU energy system, creating and channelling renewable power into other sectors.
“Meeting this renewable power demand would require increasing solar capacity from 20 gigawatts (GW) a year to 50 GW by 2050, and wind from 15 GW a year to 30 GW a year by 2050,” reads the report adding that the EU would also need to triple the interconnections among its power grids by 2030 and increase its battery storage capacity to 25 GW by 2030, and to more than 150 GW by 2050.
And how much would it cost?
An estimated 28 trillion euros over the next 30 years. However, about 23 trillion euros of this investment would come from redirecting investments that would otherwise have funded carbon-intensive technologies.
A shifting job market
The decarbonisation pathway laid out by McKinsey would also create additional socio-economic benefits. Reaching net-zero would create an estimated 11 million jobs while eliminating 6 million, resulting in a net gain of 5 million jobs. Many of the new jobs would be in renewable energy, agriculture, and buildings. The report notes, however, that although most of the regions analysed would see net employment increases, some may experience different levels of job displacement.
Despite the transformative changes, if the cost increases and savings of decarbonization pass directly through to consumers, the aggregate cost of living for an average household in a climate-neutral EU Member State would remain the same as today according to the report. Power and heating/cooling bills would be lower, and mobility would be more affordable, while the cost of food and flights for vacation would increase.