The European Union's target of achieving a net-zero carbon emissions economy by 2050 can be reached at cost-neutrality. According to a new analysis by business consultancy McKinsey & Company, additional investments into new technologies and infrastructure are likely to be offset by savings from fewer fuel imports, for example.
Annual investments into all industrial sectors that require decarbonization are already at €800 billion per year, the report states. With an additional €180 billion of investments, these sectors would decarbonize at the required pace for meeting the net-zero target. These investments would be offset through savings such as reduced fuel imports.
Additionally, the European labor market is also poised for growth. Though the analysts expect that about 6 million jobs in legacy industries will be lost, another 11 million jobs will be created in emerging industrial sectors. The McKinsey team has examined all 27 member states of the bloc and determined the cost and utility of 600 possible CO2 reduction levers in each of those countries.
“Our analysis describes a cost-optimized path to climate neutrality for the whole of Europe. The burdens and benefits affect all countries, regions and sectors, but are not equally distributed,” Hauke Engel, partner at McKinsey & Company, says. For example, Spain's economic growth has outpaced that of Germany since 1990, which will, in turn, make the mid-term target of 55% reduction compared to 1990 levels — a feat harder to achieve for Spain than for Germany.
Broken down by sectors, the authors of the report found that the energy sector will be the first to achieve the net-zero by the middle of the 2040s. This will be achieved by the PV and wind industries stepping up to the challenge and multiplying their efforts. As electricity demand is set to double due to planned hydrogen electrolyzer capacity, annual PV capacity growth in the EU will leap from the current 15 GW to 44 GW from 2030 onwards. The wind sector will also grow from 10 GW of added annual capacity to 24 GW from 2030 onwards.
Next up will be the transport sector, which could fully decarbonize by 2045. Aside from necessary policy levers in the electric vehicle sector, policymakers need to push the development of synthetic fuels for the aviation and shipping sectors.
The authors claim that housing, heavy industries and agriculture are among the most challenging and most expensive to decarbonize. Though it is possible to achieve before 2050, the report points to the use of forest expansions as carbon sinks that will be needed to offset emissions, which will not yet be avoidable in 2050.
Achieving a decarbonized economy will also bring price shifts for certain products and services. McKinsey's analysts expect that space heating and cooling and mobility will become cheaper while the cost of food and air travel will increase.
“Households with lower and middle incomes would even be somewhat relieved, wealthy households would be burdened somewhat more,” Engel asserts.
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