3rd February 2021

How the European Union could achieve net-zero emissions at net-zero cost

To help inform the planning efforts of policy makers and business leaders, McKinsey has attempted to find a societally cost-optimal pathway to achieving the emissions targets. Countless possible pathways exist, covering a wide range of costs and economic impacts. This report describes the least costly pathway among the many we identified.

This cost-optimal pathway illustrates the technical feasibility of reducing the European Union’s emissions 55 percent by 2030 compared to 1990 levels and reaching net-zero by 2050. It also shows that decarbonizing Europe can have broad economic benefits, including GDP growth, cost-of-living reductions, and job creation.

To achieve these benefits, the European Union has a long road ahead (Exhibit 1). In 2017,1 the EU-27 countries emitted 3.9 GtCO2e, including 0.3 GtCO2e of negative emissions.2 Although this accounts for only 7 percent of global greenhouse gas (GHG) emissions, the European Union achieving climate neutrality could serve as a blueprint for other regions and encourage other countries to take bolder action.

Exhibit 1

Five sectors emit the bulk of the European Union’s greenhouse gases: 28 percent comes from transportation, 26 percent from industry, 23 percent from power, 13 percent from buildings, and 13 percent from agriculture (Exhibit 2). Across sectors, fossil fuel combustion is the biggest source of GHGs, accounting for 80 percent of emissions.

Exhibit 2

To reach net-zero, the investments and cost savings would be higher in some of these sectors than others. However, if the decarbonization costs and savings were passed through to households, the aggregate cost of living for an average household in a climate-neutral European Union would be the same as it is today and lower-income households would see reduced costs of living. In other words, we found that the European Union could achieve net-zero emissions by 2050 at a net-zero cost.

More information here.

Members of the American Chamber of Commerce in the Czech Republic