How can Europe achieve this life-changing goal? Which solutions does the continent have in place today to reach carbon neutrality?
Before answering these questions, let’s start from the basics and understand what decarbonisation is all about.
What is decarbonisation?
As defined in the Cambridge Dictionary, decarbonisation is “the process of stopping or reducing carbon gases, especially carbon dioxide, being released into the atmosphere as the result of a process”.
Zooming in on the definition, there exist multiple carbon-emitting processes, but the one that has proven to be most emitting is the burning of fossil fuels. This is why the Oxford Dictionary defines decarbonisation as the process of “replacing fossil fuels with a fuel that is less harmful to the environment”. What the dictionary does not add, however, is that there are several replacements available today, which are not necessarily fuels.
The five primary alternatives to fossil fuels are today renewable energy, nuclear power, hydrogen, biomass, and geothermal energy. While their carbon footprint is low, not all of them share the same energy efficiency.
Why do we need to decarbonise and what is Europe doing about it?
In the 2015 Paris Agreement, 195 UN member states agreed to limit the global temperature rise to well below 2 degrees Celsius by 2100. The consequences of exceeding this temperature bound are likely to be dramatic: rising sea levels, higher frequency of forest fires and heavy precipitation events, but also longer and more intense droughts.
According to the IPCC, continued emission of greenhouse gases will cause “long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems”. Decisive action on climate change by all sectors is needed to meet the goals set by the Paris agreement.
The EU originally committed to curbing at least 40% of CO2 emissions below 1990 level by 2030 and set an aspiration of 80-95% reduction by 2050. The decarbonisation bar was further raised in 2021 with the EU ‘Fit for 55’ package, presented by the European Commission on 14 July 2021 under the European Green Deal. The new targets aim at reducing the Union’s net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and achieving climate neutrality in 2050.
In 2022, following Russia’s invasion of Ukraine and Europe’s sanctions against Russia, the continent experienced one of the harshest energy crises to date triggered by Russia’s deliberate curtailment of gas supply towards import-dependent EU countries. To end the EU’s dependence on Russia, the Commission enhanced its decarbonisation ambition even further with its new REPowerEU proposal. The plan has added an additional 41 GW of wind power and 62 GW of solar PV to the Fit For 55 targets.
What is the best way to decarbonise? And why?
Electrification coupled with full decarbonisation of the power sector is a direct, effective and efficient way of reaching Europe’s decarbonisation objectives.
Why? Here’s three reasons.
Carbon Neutral
Firstly, electrification can reduce greenhouse gas emissions by enabling a switch from emitting fuels to carbon neutral electricity from variable renewable sources such as solar and wind power, hydro and nuclear.
Energy Efficient
Secondly, electrification reduces total energy demand thanks to the higher efficiency of electric solutions compared to conventional solutions for most applications. For example, electric vehicles consume only 25% of the energy consumed by conventional vehicles. In space heating, the coefficient of performance of heat pumps is 4 to 5 times higher than the coefficient of performance for typical gas boilers.
Versatile
Thirdly, via electric production of fuels such as hydrogen and power-to-X, electrification can reduce emission in end uses where direct use of electricity is not appropriate, e.g. marine transport and aviation, and selected industrial processes.
Clearly, electrifying Europe’s economy can reduce energy emissions only to the extent that the electricity itself is not emitting. Eurelectric’s Decarbonisation Pathways study shows that it is possible to meet increased electricity demand, and at the same time fully decarbonise the power sector well before 2050 in a cost-effective way.
A huge amount of energy used in the EU economy requires a strong step-up across a portfolio of decarbonisation levers, in which direct electrification of end-uses in buildings, industry and transport can play a significant role.
Energy efficiency measures and other carbon-neutral fuels, such as hydrogen, will complement electrification to deliver on these ambitions.
Which sector is best suited for a rapid decarbonisation?
Eurelectric’s study finds that the electrification potential is large in all sectors including transport, buildings and industry.
In 2018 electricity made up approximately 22% of energy consumption in the transport, industry and buildings sectors. For the EU to reach 95% energy emissions reduction by 2050, direct electrification driven by clean and renewable energy, needs to supply close to 60% of final energy consumption. Production of hydrogen and power-to-X will require an additional electricity production of 600 TWh to 1200 TWh. These are daunting numbers, but the latest trends show that the electric decade has already started in many of these sectors.
Transports
In transport, up to 63% of total final energy consumption will be electric in our most ambitious scenario. This will be driven largely by electrification of road transport including both light and heavy-duty vehicles such as trucks and buses.
There are today around 8 millions of EVs in Europe. Several factors contributed to the electrification of the vehicle fleet including market developments such as the rapid decline in batteries’ costs and expansion of charging infrastructure. In addition, the EU regulatory constraints on internal combustion engines, whose phase-out is set for 2035, fleet emissions and cash incentives further increase the uptake of electric vehicles. The European Commission proposal to reduce heavy-duty vehicle emissions by 45% by 2030 and by 90% by 2040 is a case in point.
Such developments have led 2022 be a bumper year for e-mobility in Europe with electric car sales capturing over 20% of the market up from 17% in 2021. EVs are now close to reaching full scale and enter the mainstream market. Success hinges, however, on six essentials as shown in our EVision study: access to raw materials, grid management, evenly distributed smart charging infrastructure, costumer-friendly digitalisation, skilled labour and clean power generation.
Beyond EVs, Rail transport, which is already 70% electric will increase to 93%. By mid-century only few routes, where electrification is either technologically challenging or not economic, will continue to run on other fuels, for instance, diesel, biofuel or potentially hydrogen in some cases. For the aviation and marine transport segments large-scale electrification will require further technology breakthroughs to reduce the cost of storage, increase energy density, and solve other technological problems.
Buildings
In buildings, energy efficiency is the main source of emissions reduction, followed by electrification through heat pump adoptions. Heat pump economics are expected to become increasingly competitive due to an acceleration in cost reduction driven by industrialisation and standardisation of manufacturing, as well as increasing taxation on gas-and oil-fired heating units for decarbonisation purposes.
While they are not cost-competitive against regular boilers yet, government incentives and regulation will continue to drive their uptake in many regions, thereby enabling learning effects and cost declines.
Industry
A series of industrial processes can technically be directly electrified to up to 50% of total energy consumption by 2050. The electrification ethylene production and electric arc furnaces (EAF) in iron & steel production are the most prominent examples.
Further potential comes from indirect electrification, e.g. via producing hydrogen from electrolysis and using it to replace carbon-based feedstock in steel and ammonia production. The relative competitiveness of electricity against other energy sources and government support to level the playing field in international competition and avoid carbon leakage is a critical driver for this shift.
Electricity as the most cost-effective energy efficient solutions must therefore be prioritised in the EU decarbonisation agenda, keeping complementary alternatives in hand such as green hydrogen when direct electrification is not possible.
How to power decarbonisation in the most cost-effective way?
The types of energy systems that can achieve carbon neutrality at the lowest cost are characterised by 5 factors:
Renewables
Very high penetration of renewables and high transmission build. Renewables, including hydropower and sustainable biomass will represent more than 80% of energy supply by 2045 driven by rapid cost decline, increasing capacity factors, and large untapped resource potentials.
Solar and wind will account for around 15 % and 50% of supply respectively. This will be enabled by significant transmission build up within and between regions, which allow the benefits of renewables to be shared across Europe.
In 2022, wind and solar supplied more of the EU’s electricity than any other power source for the first time ever in 2022 shows a new report. Solar generation, in particular, grew by a record 24% in the EU, helping to avoid €10bn in gas costs. Their growth is expected to continue this year, leading to a potential drop in fossil fuel generation of 20%.
System balancing and flexibility
A system-wide shift from dispatchable generation to renewables require hour-to-hour as well as seasonal balancing to respond to the variability of production. In a high-renewables future this will be provided by competing sources from both within and outside the power sector.
Traditional sources include conventional firm generation capacity such as hydro and nuclear power. In addition, we will see a much larger role played by demand side response from dispatch of new electric end-uses such as electric vehicles, as well as storage and flexible production of electric fuels such as hydrogen and power-to-gas or power-to-liquids.
Changing role of fossil generation
Fossil energy supply will be gradually phased out and represent approximately 5% of total energy supply by 2045. However, gas will still account for around 15% of total installed capacity in order to secure system reliability, especially in regions that don’t have access to hydro or nuclear.
Innovation
Decreasing costs of carbon neutral technologies as well as new technologies can abate the last tons of CO2 emissions. Uptake of renewables will rely on continued technological development and cost improvements for these technologies, especially in less developed industries such as offshore wind.
Additionally, while over 95% of emissions can be abated through a transition to carbon neutral electricity supply, immature technologies such as carbon capture and storage (CCS) and negative emission technologies will be required to abate the final emissions coming from the marginal use of the remaining thermal capacity.
Investments
Last but surely not least: investments. Reaching a carbon neutral power system while meeting an increase in electricity demand that is unprecedented in recent times will require significant investments. These would contribute not only to the decarbonisation of the power system, but to the decarbonisation of other economic sectors that cut emissions through electrification.
As shown in Eurelectric’ Power Barometer, the EU should invest €84 billion per year in generation capacity. Given the scale of deployment necessary to meet Europe’s decarbonisation goals, future annual investment will have to reach €98bn between 2030-2050. This is a scale that is only intensifying as government energy and climate policy, such as REPowerEU, calls for even higher investment rates.
Investments in generation also need to be complemented by those on the electricity infrastructure. Distribution grid infrastructure is the backbone of the EU’s decarbonisation. Annual investment in grids has grown from €28bn in 2020 to €31bn in 2021 but more will be needed between 2030 and 2050 to ensure we have the modern systems to support the energy transition.
For this reason, it is essential to support investor confidence via a reliable, business-friendly investment framework.
Overall, an average annual investments of 90 to 110 bn EUR will be needed to achieve the required capacity to meet increasing demand and transition to a carbon- neutral generator stack. Abatement of the majority of emissions can be achieved at a cost of 18 – 65 € per ton of CO2.
However, the last tons of emissions will likely be much more expensive to abate. These emissions are assumed to be offset by immature technologies such as carbon capture and storage and direct air capture. The cost therefore depends highly on the pace of cost reduction and technological development for these solutions, which is inherently difficult to predict.
Furthermore, there may be an option to exchange negative emissions with other sectors in the future, reducing the total societal cost of decarbonisation of the electric sector by linking it to economy-wide efforts.
The outlook for the cost of wholesale electric supply in a decarbonised power sector is changing rapidly. Due to cost declines in renewables the overall cost of carbon-neutral electricity generation has been reduced drastically in recent years.
According to Eurelectric’s Decarbonisation study, the cost of wholesale electric supply (excl. taxes and levies) in a fully decarbonised system to be 70 – 75 EUR/MWh including storage. This is significantly lower than previous estimates, such as the ones of the European Commission’s 2011 roadmap which forecasted generation costs of 105 EUR/MWh for power supply that is only 80%
decarbonised.
Are EU countries ready for powering their decarbonisation with clean and renewable electrification?
While renewables, flexibility, innovation and reduced fossil fuel consumption are all needed to achieve the ambitious decarbonisation goals, each country will take a different path given different starting points with their existing electricity supply mix.
Norway’s power sector, for instance, is already almost 90% carbon-free while Poland relies on coal for 80% of energy supply. In addition, regions have varying access to energy supply resources, with more solar energy in Southern Europe and more wind in the North Sea.
Countries also put different weight to decarbonisation objectives in their energy policies such as ambition on renewables penetration, and schedules for coal and nuclear phase out. Poland, for example, is currently discussing a policy to maintain 40% coal in their energy mix through 2040. This would imply large additional costs for Poland to abate or offset the emissions associated with this coal production.
How to enable Europe’s full decarbonisation via clean and renewable power?
To reach the required levels of electrification and decarbonisation and put the EU economy on a pathway towards full carbon neutrality by 2050, several enablers will be needed both for electricity supply and for the demand side.
Appropriate regulatory Framework
A clear political commitment to deepen decarbonisation across all regions and sectors of the economy is critical. Decarbonising the power sector will require stronger coordination and integration within and across European regions than today.
Regional resource availability (such as solar and wind) imply that high transmission build between regions will be needed to share the benefits of low-cost renewable capacity cross Europe.
On the demand side, joint policy mechanisms to encourage the uptake of electric solutions and the creation of a “level playing field” will be important. Especially for industries exposed to regional and global market prices.
Societal awareness and involvement
European citizens’ active involvement includes demand side response and self-generation, local energy communities, as well as increased social acceptance for high renewables build out and new transmission lines.
Addressing taxes and levies in electricity to ensure fair competition between clean energy carriers will be a must to achieve consumers’ uptake.
Cross-sectoral cooperation
Co-operation between economic sectors will be important to make use of synergies and enable spill-over effects on the decarbonisation pathways. For instance, while CCS may play a marginal role to abate remaining emissions for the power sector it would also be an important part of the solution for industries where no alternative technical solution exists, such as for the abatement of process emissions from the cement industry.
Another example is electric fuel production which can both enable decarbonisation in industry and transport, and provide important balancing to a high renewable-powered system.
In addition, the relatively low-cost flexibility these electric fuels provide to the power sector also depends in part on the existing gas pipeline infrastructure which represents a vast energy storage system capable of providing seasonal storage. This also reduces the probability of stranded costs as pipeline infrastructure and thermal generation can be re-used and repurposed in a low carbon and highly electrified system.
An efficient market-based investment frameworks
An adequate market design is key to address the investment and operational challenges of a high RES-based power system.
All resources should be valued based on their contribution to reliability and resiliency and carbon neutral investments could benefit from voluntary long-term energy contracts.
Meaningful carbon dioxide price signals will also be required to sufficiently incentivise full decarbonisation and induce needed investments both on the energy supply and demand side.
A smarter and reinforced distribution grid
The electricity grid will play an important role in integrating new market participants, such as decentralised solar PV and local flexibility sources, as well as in empowering consumers through managing local congestions and redispatch, security of supply and grid resilience issues.
The challenges for distribution grids such as the integration of more decentralised resources, digitalisation through smart metering, charging infrastructure for EVs, and access to local flexibility resources will require large investment needs up to 2050.
Furthermore, the increasing uptake of prosumers will trigger additional investment needs at distribution level with an entirely new set of network customers, such as local storage facilities. Therefore, it is crucial to elaborate future DSO investment needs accordingly and in conjunction with eventual cost structure changes as well as the role and responsibilities of DSO in future analysis.
Finally, a just transition means that no region in Europe shall be left behind. Support and dedicated funding will be required for member states that face a more difficult starting point in the electrification and energy transition journey.
Support for investment costs must be especially targeted at coal-reliant regions as well as on energy-intensive industries subject to carbon leakage risks. Regional integration and shared resources can also reduce the cost of this transition for those just beginning the journey.
The power sector, represented by Eurelectric, is committed to leading Europe’s energy transition and secure cost-effective decarbonisation that support European competitiveness in the global marketplace. The sector is today well on its way to reaching carbon neutrality before mid-century and it’s committed to supporting other sectors in their decarbonisation efforts via direct and indirect electrification.
Disclaimer: This article is for informative purposes only and may not entirely reflect Eurelectric official positions. For formal positions, please consult our position papers here.