Analysis shows that it would be technically feasible to reduce Europe's greenhouse gas emissions by 80 percent of their 1990 level by 2050.
In July 2009, the European Union and G8 announced an objective to reduce greenhouse gas emissions by at least 80 percent from the 1990 level by 2050 to combat climate change.
What kind of transformation would this involve? How could the EU reconcile its environmental commitments with its aspirations for economic development and energy security?
To support the EU's goal, a foundation launched a project to establish a fact base and explore the implications of decarbonization for European industry and the power sector in particular. McKinsey was asked to help develop a set of visionary yet feasible pathways for achieving a low-carbon economy. Our role was to lead the technical and economic analysis. Eminent academics performed macro-economic modeling, major power utilities supplied industry expertise and perspectives, and non-governmental organizations provided policy insight.
We modeled several potential pathways for achieving the 80 percent reduction target, and analyzed their technical feasibility and financial requirements. Each pathway had a different share of renewable power: 40 percent, 60 percent, or 80 percent. The pathways did not rely on imported electricity and were based on technologies that already exist or are at an advanced stage of development, including renewables such as solar, wind, biomass, and geothermal, and low-carbon non-renewables such as nuclear and carbon capture and storage.
By modeling multiple scenarios in detail we found it would be technically feasible, but challenging, for Europe to achieve its 80 percent reduction target. Emissions from the power, buildings, and road transport sectors would have to be cut by 95 percent. Extensive energy efficiency measures would have to be put in place to reduce demand. Investments would have to be made in regional electricity networks and local smart grids. Power markets would have to be coordinated across member states to maximize the value of low-carbon investments and minimize the need for back-up supply and load balancing. Market reforms would be needed to ensure an effective long-term investment case.
Although building the new power generation capacity required in 2050 would pose a considerable challenge over the next 40 years, in the long term it would cost consumers and the European economy about the same as continuing on a high-carbon energy pathway. Capital expenditure would need to double in the short term, but the economy's overall energy bill would start to fall in the medium term.
The analysis also showed that decarbonized pathways would enhance the security of Europe's power supply. In employment, those jobs lost in fossil fuel production and distribution would be more than offset by the creation of new jobs to implement energy efficiency measures and develop and install new technologies.
A report analyzing these findings was launched in June 2010. It helped inform the European Commission's March 2011 report A roadmap for moving to a competitive low carbon economy in 2050, which sets out a plan for meeting Europe's emission reduction target by the middle of the century.
The analysis, which recently entered its second phase, continues to inform the work of the EC as it looks more closely at the period 2020 to 2030, and has also sparked discussions in member states and the power industry on how to start low-carbon transformations.