Net Zero Europe VF

Net-Zero
Europe
Decarbonization pathways and
socioeconomic implications
Net-Zero
Europe
Decarbonization pathways and
socioeconomic implications
Authors
Paolo D’Aprile
Hauke Engel
Godart van Gendt
Stefan Helmcke
Solveigh Hieronimus
Tomas Nauclér
Dickon Pinner
Daan Walter
Maaike Witteveen
Preface
In December 2019, the European We defined more than 600 emissions- The European Commission has
Commission introduced an ambitious reduction initiatives covering embraced its responsibility to
proposal to make the bloc climate- 75 economic sectors and ten help slow and halt global warming.
neutral by 2050. Although the geographic regions. Then we selected McKinsey recognizes the importance
proposal set specific 2030 and initiatives and combined them to and the urgency of the task that
2050 emission-reduction goals, it form different decarbonization Europe has set for itself. In keeping
did not explain how much each sector pathways, any of which would enable with our history of exploring
and member state should contribute the European Union to achieve its environmental-sustainability issues,
to the desired emissions reductions targets for 2030 and 2050. Countless we offer this report not to prescribe
or what achieving those reductions possible pathways exist, covering a what Europe’s policy makers should
would cost. Much work remains to wide range of costs and economic do but to provide a factual basis for
chart the European Union’s course impacts. This report describes the comparing emissions-reduction
toward a climate-neutral future in least costly pathway among the many approaches. Further, we hope the
which prosperity would also increase we identified. report will help leaders in the
for every socioeconomic group. public and private sectors launch
This cost-optimal pathway, we believe,
emissions-reduction projects that
To help inform the planning efforts of illustrates the technical feasibility
will secure a healthy, prosperous
policy makers and business leaders and of achieving the European Union’s
future for Europeans.
explore the implications of the required emissions-reductions targets. It also
changes, McKinsey has attempted to shows that decarbonizing Europe
find a societally cost-optimal pathway can have broad economic benefits,
to achieving the emissions targets including GDP growth, cost-of-living
established by the European Green reductions, and job creation. The effort
Deal plan.1 involved in delivering these benefits
would be just as broad, requiring
a continent-wide effort to make
significant changes to every sector
of Europe’s economy.
Magnus Tyreman Tomas Nauclér Hauke Engel

Europe Managing Sustainability Practice Partner
Partner leader, Europe
1
We define the “societally cost-optimal” pathway as the most cost-efficient way that society as a whole can achieve net-zero emissions by 2050.
Net-Zero Europe 5
6 Net-Zero Europe
Acknowledgments
This report is the product of a Noffsinger, Florian Kühn, Fabian Reach and relevance for this report
yearlong, cross-disciplinary research Stockhausen, and Gustaw Szarek. have been led by Treina Fabré and
effort at McKinsey, led by the Transportation was led by Eric Hannon, Hanna Kaustia.
firm’s Sustainability Practice. The Edouard Michta, and Caroline Vernet,
The team is grateful to Woodwell Climate
research was led by senior partners who drew on the expertise of Christian
Research Center for its land use analysis
Stefan Helmcke in Vienna, Solveigh Begon, Enrico Furnari, Arjen Kersing,
and would like to thank Professor
Hieronimus in Munich, Tomas Nauclér Anselm Ott, Daniel Riefer, Patrick
Cameron Hepburn of Oxford University
in Stockholm, and Dickon Pinner in San Schaufuss, Stephanie Schenk, and
as well as Eveline Speelman, Sahar
Francisco; partners Hauke Engel in Katherine Wolosz. The agriculture team
Rashidbeigi, Wouter Vink, Johanna
Frankfurt and Paolo D’Aprile in Rome; comprised Nicolas Denis, Hannah
Löffler, Katrin Lange, Jocelyn Tarrier,
and senior expert Godart van Gendt in Kitchel, Peter Mannion, and Jan Vlcek.
Tim Parker, and Laurie Cunningham for
Amsterdam. The project team was led The buildings team was led by Bram
their valuable input. A special thanks
by Daniel Cramer, Danielle Imperato, Houtermans, Focko Imhorst, Sergio
to Matt Rogers, David Chinn, Christer
Daan Walter, and Maaike Witteveen. Nistal Prieto, Demian Roelofs, and
Tryggestad, Thomas Vahlenkamp,
The industry team comprised Gian Meta van Veghel. Other analyses were
Thomas Hundertmark, Viktor Hanzlik,
Dapul, Marcin Hajlasz, Saif Hameed, provided by Spencer Dowling, Zarief
Alex Dichter, Joseba Eceiza, Jakob
Alastair Hamilton, and Anna Weegels. Hasrat, Sesilia Plavina, Liza Rubinstein,
Fischer, Holger Harreis, Bernd Heid,
It also drew on the expertise of Peter and Jan-Paul Wiringa. Also contributing
Martin Joerss, Jukka Maksimainen,
Berg, Thomas Czigler, Patrick Green, specialized expertise were Tapio Melgin
Nicola Sandri, Sebastian Stern, Namit
Michel van Hoey, Chris McNally, Ken for biomass, Greg Santorini for CCS,
Sharma, Gernot Strube, and Andreas
Somers, and Steven Vercammen. The and Markus Wilthaner for hydrogen.
Tschiesner for their contributions.
power team comprised Ying Li, Jesse
Net-Zero Europe 7
Contents
Key messages 10
Executive summary 12
1. Getting to net-zero by 2050 38

1.1 Aiming for climate neutrality 40 1.2.2 The EU energy system 41
1.2 The situation today 41 1.3 The road ahead 46
1.2.1 EU GHG Emissions 41
2. The EU pathway to climate neutrality 50

2.1 Net-zero emissions at net-zero cost 52 2.2 Technologies and techniques required to
reach net-zero emissions 58
2.1.1 The costs of emissions-reduction
by sector 52 2.3 Redesigning the EU energy system
and changing land use 66
2.1.2 The pace of emissions-reduction
by sector 53 2.3.1 Transforming the EU energy system 66
2.1.3 Key geographic differences in 2.3.2 An expanded view on EU land use 71

emissions-reduction pathways 56
2.4 Pathway ambiguities 76
3. Sector deep-dives 78
3.1 Power 80 3.4 Buildings 118
3.1.1 Power emissions today 82 3.4.1 Building emissions today 120
3.1.2 The role of power on the path to net-zero 82 3.4.2 The role of buildings on the path to net-zero 120
3.1.3 Key uncertainties and enablers 92 3.4.3 Key uncertainties and enablers 124
3.2 Transportation 94 3.5 Agriculture 126
3.2.1 Transportation emissions today 96 3.5.1 Agriculture emissions today 128
3.2.2 The role of transportation on the path 3.5.2 The role of agriculture on the path to net-zero 129
to net-zero 98
3.5.3 Key uncertainties and enablers 132
3.6 Cross-sector: Hydrogen 134
3.3 Industry 104
3.6.1 Hydrogen use today 136
3.3.1 Industry emissions today 106
3.6.2 The role of hydrogen on the path to net-zero 137
3.3.2 The role of industry on the path to net-zero 112
8 Net-Zero Europe
3.7 Cross-sector: CCS 142 3.8.3 Key uncertainties and enablers 158
3.7.1 CCS installations today 144 3.9 Cross-sector: Nature-based carbon

sequestration 160
3.7.2 The role of CCS on the path to net-zero 145
3.9.1 Nature-based carbon sequestration today 162
3.9.2 The role of nature-based carbon
3.8 Cross-sector: Bioenergy 150
sequestration on the path to net-zero 162
3.8.1 Bioenergy use today 152
3.8.2 The role of bioenergy on the path to net-zero 152
4. The socioeconomic implications of decarbonizing Europe 168

4.1 Financing the transition 170 4.2.2 Reskilling the workforce 187
4.1.1 The capital investments required 170 4.3 Risks and opportunities in trade and production 188
4.1.2 Operating cost reductions 171 4.3.1 The impact on fossil fuel trade balance
and energy dependency 188
4.1.3 Bridging the financing gap 172
4.3.2 A potential shift in import dependencies
4.1.4 Impact on households 178
from fossil fuels to zero-emission technologies
4.1.5 Stranded assets 182 and materials 188
4.2 Job gains and job losses 183 4.3.3 EU production and exports 189
4.2.1 Emissions reductions would lead 4.3.4 EU industrial topography 189

to 5 million more jobs 183
5. Charting a way forward 190

5.1 The time is now 192 5.2.1 The role of CEOs 195
5.2 Critical players and actions to make 5.2.2 The role of policy makers 196
change possible 194
5.2.3 No one left behind 197
6. Technical appendix 198

Modeling methodology 198 Household spending methodology 201
EU regions in the report 198 Jobs analysis methodology 201
Financing analysis methodology 200
7. Acronyms 202
Net-Zero Europe 9
Key messages
What would it take for the European

Union to reach its goal of net-zero
Europe can reach net-zero
greenhouse gas (GHG) emissions by emissions at net-zero cost.
2050? This report is our attempt to
Reducing GHG emissions would raise the cost of doing business in some sectors;
answer that question. It presents the
savings in others would make up the difference. If these costs and savings were
results of a comprehensive research
passed along to consumers, the average cost of living would decline slightly for
effort on a cost-effective, feasible
low- and middle-income households.
pathway to a net-zero Europe. Our
analysis identified the optimal uses of
more than 600 emissions-reduction The transition would yield a
levers in 75 subsectors and ten
regions and assessed their impact on
net gain of 5 million jobs.
employment and other socioeconomic Reaching net-zero emissions would create 11 million jobs and eliminate 6 million jobs
factors. The outcome is not a forecast, through 2050. Up to 18 million people could need training and transition support.
but a scenario that departs profoundly
from current trends. It is a macro view; Sectors would need to reduce
future research will examine challenges
and opportunities at the company level. emissions in parallel and
Here are the key findings.
reach net-zero in sequence.
The power sector would reach net-zero emissions first, in the mid-2040s, because
most of the necessary technology is available now. Transport would approach its target
in 2045, followed by buildings in the late 2040s, industry in 2050, and then agriculture.
More than half the emissions

reductions could be achieved
with mature and early-adoption
technologies.
About 25 percent of emissions reductions would come from pilot-stage
technologies, such as carbon capture and storage, and 15 percent from
technologies now in the R&D phase. Accelerating the development and
deployment of zero-carbon technologies will be critical.
Energy systems and land use

would need to be reconfigured.
By 2050, consumption of oil, gas, and coal would decline by more than 90 percent;
power demand would double; and renewable sources would generate more than
90 percent of electricity, up from 35 percent now. Some 30 Mha of marginal lands
would be used to produce biomass.
10 Net-Zero Europe
Decarbonizing Europe will cost less
if the burden is shared effectively.
Regions where mitigation is especially economical could pursue faster reductions,
thereby reducing the overall cost. For example, the Nordics, which have large
natural carbon sinks, could help offset residual GHG emissions elsewhere.
Nearly €1 trillion must be invested

per year; cost savings would offset
increased capital spending.
An average of €800 billion per year in capital spending—roughly a quarter of all EU
capital outlays—would need to shift from carbon-intensive technologies to low-
carbon technologies. An additional €180 billion would need to be invested each
year. That sum would be offset by savings in operating expenses.
Policy interventions would be

required to stimulate investment.
Just half of the investments needed for a net-zero pathway would turn a profit.
Government financing of around €4.9 trillion could close the gap. Alternatively, a
carbon price of €50/tCO2e would make three-quarters of the necessary investments
profitable, and a carbon price of €100/tCO2e would make 85 percent profitable.
Energy security and competitiveness

could increase.
Europe would become effectively energy independent, but could become more
dependent on imports of climate-neutral technology components or materials.
At the same time, the EU has a major opportunity to accelerate R&D, retain
leadership, and penetrate new export segments.
All stakeholders must

take action now.
Near-term actions include scaling up existing technologies and businesses
to reduce GHG emissions over the next decade, accelerating innovation and
investment to enable reductions after 2030, and investing in research and
development of technologies that will complete the transition to climate
neutrality by 2050.
Net-Zero Europe 11
Executive summary
The EU could achieve net- To reach net-zero emissions by 2050, the Five sectors emit the bulk of the
zero emissions at net-zero cost European Union has a long road ahead2 European Union’s greenhouse gases:
(Exhibit 1). In 2017, the EU-27 countries 28 percent comes from transportation,
In December 2019, the European
emitted 3.9 GtCO2e, including 0.3 GtCO2e 26 percent from industry, 23 percent
Commission announced the EU Green
of negative emissions.3 Although this from power, 13 percent from buildings,
Deal, one of the world’s most ambitious
accounts for only 7 percent of global and 12 percent from agriculture (Exhibit
plans to tackle climate change. If
greenhouse gas (GHG) emissions, the 2). Across sectors, the biggest source
approved by the European Union’s
EU achieving climate neutrality would of GHGs, accounting for 80 percent
27 member states, the bloc would
have a big impact on the global climate of emissions, is fossil fuel combustion.
commit to reaching net-zero emissions by
challenge. Its success could serve as a Not all of these emissions will need to
2050, with an interim target of reducing
blueprint for other regions, encourage be reduced to zero because negative
emissions by 55 percent compared to
other countries to take bolder action, and emissions in some sectors can offset the
1990 levels by 2030.
kickstart the virtuous cycle of increasing hardest-to-abate emissions in others.
adoption and cost reduction of low- Yet achieving the targets will require
carbon technologies. significant changes in all sectors.
2
In this report, we use “emissions reduction” to refer specifically to “GHG emissions reduction” and may also use these terms interchangeably with “decarbonization.”
“Net zero” or “net-zero emissions” refers to net-zero GHG emissions
3
Emissions data from 2017 was latest available at time of analysis. We use CO2e throughout the report. For further explanation on CO2e conversions, see the Technical appendix.
Exhibit 1
The EU will need to reduce net GHG emissions much faster to meet 2030 and 2050
climate targets.
Emission development, indexed at 1 = 1990 level1
1.6 Total emissions
1.4 Benelux2
France
1.2
Germany
1.0
Iberia3
0.8 Ireland
-19%
0.6 Italy
-55% -100%
Nordics4
0.4
Poland
0.2
Southeast Europe5
0 Other central Europe6
1990 2000 10 20 30 40 2050
Yearly emission -35 -130 -110

reduction
MtCO2e
1. Includes impact of land use, land-use change, and forestry (LULUCF) on GHG emissions. 4. Denmark, Estonia, Finland, Latvia, Lithuania, Sweden
2. Belgium, Luxembourg, Netherlands 5. Bulgaria, Greece, Romania
3. Spain & Portugal 6. Austria, Croatia, Czech Republic, Hungary, Slovakia, Slovenia
Source: McKinsey, Eurostat, EEA
12 Net-Zero Europe
Net-Zero Europe 13
Exhibit 2
The bulk of Europe’s emissions are generated by five sectors.
Historic emissions by sector

MtCO2e
5,000 2017 CAGR,

percent
4,500
1990-2017
4,000
3,500
Power -1.0
3,000
2,500 Transportation 0.8
2,000 Buildings -1.0

1,500
Industry -1.5
1,000
500 Agriculture -0.8
0 LULUCF1 0.0
-500
1990 95 2000 05 10 2015 Net emissions
Emission baseline by sector and region

MtCO2e, 2017
Germany 890
France 433
Iberia2 409 Emissions

MtCO2e
Germany
Benelux3 380 1,000
Italy 379
Iberia France
Benelux
Southeast Europe4 336 Poland Italy
Southeast Europe Central Europe
Central Europe5 323
Nordics
Nordics6 248
Ireland
100
Poland 137 100 1,000 10,000
Ireland 67 GDP,
EUR Bn
14 Net-Zero Europe
Emission baseline by sector Emissions shared with
MtCO2e, 2017 non-EU countries
Direct EU emissions
100% = 930 820 490 1,140 470 -250 260

Other Other
Aviation
Shipping Cement
Manure
Light duty trucks Other land
Other non-metallic minerals
Commercial
Iron & steel Equipment

Aviation
Heavy duty trucks

and buses Non-ferrous
metals
Ammonia
Ethylene
Other chemicals
O&G upstream Soils

Power
O&G refining
Forest land
Forest
Mining
land
Residential
Pulp & Paper
Food
Passenger cars
Shipping
Other industry
Enteric
fermentation
Waste management
Power Transportation Buildings Industry Agriculture LULUCF International

Transportation
Emission Absorption
1. Land Use, Land Use Change and Forestry entails all forms in which atmospheric CO2 4. Bulgaria, Greece, Romania
can be captured or released as carbon in vegetation and soils in terrestrial ecosystems 5. Austria, Croatia, Czech Republic, Hungary, Slovakia, Slovenia
2. Spain & Portugal 6. Denmark, Estonia, Finland, Latvia, Lithuania, Sweden
3. Belgium, Luxembourg, Netherlands
Source: McKinsey, IEA, UNFCCC
Net-Zero Europe 15
The challenges in reducing emissions We find that the European Union
vary by country. Some regions such could achieve net-zero emissions
as Benelux are home to much heavy by 2050 at a net-zero cost. The
industry and serve as hubs for air investments and cost savings would
freight and shipping—subsectors that be higher in some sectors and
are harder to decarbonize. In other countries than others. However, if
countries such as Spain and Ireland, the cost increases and savings of
GHG emissions have grown since decarbonization were passed through
1990 because of economic growth, to households, the aggregate cost
putting them farther behind most other of living for an average household in
EU countries. Aside from these factors, a climate-neutral European Union
the pervasiveness of a country’s use nation would be roughly the same as
of coal-based power generation and it is today. Middle- and lower-income
the availability of natural carbon sinks households would see some savings,
would significantly impact how easy it while high-income households may
is for each country to decarbonize. experience a small cost increase.
And the value of the stranded assets
resulting from the transition would total
€215 billion. 4 In the following sections,
we break down the cost-optimal
pathway by sector, region, technology,
and energy and land-use system.
4
We calculate the “stranded” value of prematurely retired assets by multiplying the share of remaining useful life at the point of retirement with the initial capital
investment. For example, retiring an asset after 30 years that cost €50 million to build and would have a useful life of 50 years produces a stranded asset value of
€ 50 million x (20 years/50 years) = €20 million.
16 Net-Zero Europe
Our methodology, and what this Union’s overall emissions by 55 percent perspective of individual stakeholders
report is and is not (compared to 1990) by 2030 and and the decisions they would take in the
There are many paths to achieving 100 percent by 2050. For more details absence of changes in regulation and
EU climate neutrality by 2050. In this on our methodology and assumptions incentive structures may differ, both
report, we outline and explore one see the Technical appendix, Section 6, because there are disparate impacts on
particular pathway that is feasible from a and for a view on the uncertainties in our individual stakeholders and because
technology and supply chain perspective modeling, refer to Pathway ambiguities, they may apply different costs of capital
and cost-optimal in aggregate, based on Section 2.4. and payback expectations in investment
current outlooks. decisions; for an investigation of the
This is not a forecast. Achieving the
latter point and how capital could
To arrive at this pathway, we applied European Union’s climate goals would
be mobilized, refer to Bridging the
more than 600 decarbonization lever require a substantial departure from the
finance gap, Section 4.1.3. While we
business cases across 75 subsectors in current trajectory. Since the impacts
explore macro-level socioeconomic
10 regions to minimize the overall cost of the transition would be unevenly
implications such as employment
to the European Union of achieving distributed and create challenges for
displacements, impacts on household
the 2030 and 2050 targets. In this many individual companies and actors,
costs, structural cost changes on the
optimization, we accounted for many significant changes to policies and
sector-level, and risks and opportunities
EU-wide and regional constraints such regulations would be required. And while
for trade and production, we do not
as the amount of sustainably available we lay out a pathway optimized for net
investigate the specific challenges that
biomass, supply chain constraints costs, other factors would impact the
the zero-emissions transition creates
limiting the ramp-up rates of electric decarbonization pathway the European
for individual companies. These can be
vehicle (EV) production, and the total Union ultimately takes. Nonetheless,
significant. And while we explore some
available land for generating renewable we believe investigating this pathway is
of the potential actions that business
power. We did not constrain economic valuable for two reasons; first, it provides
leaders and policy makers can take to
growth nor consumption, and we a helpful roadmap based on current
navigate and shape the transition in
assumed that production locations will best understanding, and second, it is a
Section 5.2, detailed perspectives on
not shift. We also did not account for the valuable tool to explore the magnitude
how players in each sector can navigate
value of the non-monetary benefits from of the challenge and the resulting
and thrive in the transition are not
reducing emissions, such as reduced air socioeconomic implications.
within our scope. These sector-specific
pollution and associated health benefits
It also is primarily a “macro” view. company-level “micro” views will be the
or reduced physical climate risks. The
Our scenario minimizes net system subject of future publications.
result is a pathway that outlines how
costs using a societal discount rate.
member states could work together
It is important to bear in mind that the
across sectors to reduce the European
Net-Zero Europe 17
Sector perspective: 4. Industry: The industrial sector would
Interdependencies and supply chain be close to climate-neutral only by
scale-ups 2050. The most expensive sector to
Although achieving net-zero emissions decarbonize, industry would require
will require sustained effort across new technologies that are still under
sectors, some could meet the target development. Already in the next
more quickly than others (Exhibit 3). In decade, about 40 percent of emissions
our pathway, the sectors would reach will have to be reduced. An accelerated
their emission-reduction goals in the maturation of hydrogen based steel
following order: making would kickstart the low-carbon
hydrogen industry. Even when applying
1. Power: With wind and solar power
BECCS on some industrial sites towards
generation technologies already
2050, the sector would continue to
available at scale, power would be the
generate residual emissions from
quickest sector to decarbonize, reaching
activities such as waste management
net-zero emissions by the mid- 2040s.
and heavy manufacturing, which would
Since the demand for power will double
have to be offset by negative emissions
as other sectors switch to electricity and
in other sectors or natural carbon sinks.
green hydrogen, the sector must rapidly
scale renewable production and expand 5. Agriculture: Using more efficient
its storage capacity. farming practices, such as managing
manure, switching farm equipment to
2. Transportation: This sector would
alternative fuels, and using enhanced
approach climate neutrality by 2045.
efficiency fertilizers, could reduce
EVs are already in early adoption, but
some agricultural emissions, but it’s
it will take the better part of 10 years
by far the hardest sector to abate
to set up supply chains to support a
without changes in consumption. The
switch to 100 percent EV sales, from
transition of this sector might strain
mining the raw materials for batteries
its competitiveness and will require
to assembling EVs. Once this happens,
aligning regulatory frameworks,
emission reductions can happen
changing farming practices, and
quickly, except for those from aircraft
adopting consumption changes at large
and ships that are too big and travel
scale. The latter is because more than
too far to rely on batteries or fuel cells.
half of agriculture emissions come from
They must opt for the more expensive
raising animals for food, which can’t be
solution of switching to biofuels,
reduced without significant changes
ammonia, or synfuels.
in meat consumption or technology
3. Buildings: Most of the technology breakthroughs, such as vaccines or
required to decarbonize the buildings next-generation feed additives that
sector is already available. However, inhibit enteric fermentation. Because
renovating large portions of the we didn’t factor in dietary shifts,
European Union’s buildings stock is our cost-optimal pathway for this
a massive undertaking. The percent sector requires offsetting agriculture
of dwellings using renewable heating emissions with land-use changes
sources would need to increase to that would create more carbon sinks
100 percent from just 35 percent and drawing on negative emissions
today. Gas usage in buildings would generated by other sectors.
also need to drop by more than half.
The buildings sector would reach net-
zero in the late 2040s.
18 Net-Zero Europe
Exhibit
EXHIBIT 3 3 REF
The power sector would reach net-zero emissions before the others.
Total emissions per sector in cost-optimal pathway for EU-27
MtCO2e, excluding international aviation and shipping
5,000
4,500
4,000
3,500
55%
3,000
2,500
100%
2,000
1,500
1,000
500
-500
1990 95 2000 05 10 15 20 25 30 35 40 45 2050
Power Transportation Buildings Industry Agriculture LULUCF

Emission absorptions techs Net emissions
Current emissions Decarbonization cost1 Emissions evolution

MtCO2e, 2017 EUR/tCO2e MtCO2e
2020-30 30-40 40-2050
1,000
930 900
Power -31 18 145
800
700
Transportation 820 -92 -149 -70
600
Buildings 490 -66 37 40 500
400
300
Industry 1,140 30 86 120
200
100
Agriculture 470 -27 -121 35
0
2020 25 30 35 40 45 2050
1. Weighted average
Source: McKinsey, UNFCCC
Net-Zero Europe 19
Regional perspective: Stronger Because of these differences, a cost- Technology perspective: Most of the
together, on individual pathways optimal pathway would see EU member required technologies are available, but
states achieve climate goals collectively accelerated innovation will be critical
Four geographical factors will determine
rather than individually, so they can Through 2030, some 64 percent of the
how easy it is for each country to reduce
pool their relative advantages and lower European Union’s emissions reduction
emissions and which decarbonization
transition costs (Exhibit 4). For example, would be achieved by large-scale
measures would be the most cost-
cross-border collaboration would electrification and increases in energy
optimal. Those are local climate,
allow countries with recent emissions efficiency, accounting for 47 percent and
CO2 storage opportunities, local
growth to catch up without resorting 17 percent, respectively. Demand-side
agriculture practices, and the amount
to expensive near-term reduction measures and circularity would reduce
of land available for reforestation and
measures. Countries with more abundant emissions an additional 15 percent.
construction of wind farms and solar
solar resources or natural carbon sinks Hydrogen would contribute another
plants. For example, the Northern EU
could also help other countries reduce 13 percent. The remainder would come
countries would benefit from the shallow
or offset their emissions at a lower from ramping up the use of biomass, land-
waters and more hours of wind in the
cost than through measures such as use changes, and other innovations such
North Sea, including 30 to 60 percent
capturing and storing CO2 from residual as inert anodes in aluminum production
more hours of onshore wind than in the
emissions locally. In a scenario in which (Exhibit 5). The rest would come from
south. The North also has the majority of
the European Union’s climate goals were ramping up the use of hydrogen and
possible carbon storage sites, most of
achieved at the individual member-state biomass, land-use changes, and other
which already have oil and gas pipelines.
level instead of in aggregate, the cost of innovations such as inert anodes in
Southern countries would benefit from
the transition would increase by roughly aluminum production (Exhibit 5).
the 1,000 more hours of sunlight they
€25 per tCO2e.
receive per year.
Exhibit 4
On the cost-optimal pathway, some countries’ emissions reductions would compensate

for others’.
MtCO2e over/under EU-wide decarbonization targets
2030 2050
Germany -14 52
France 39 15
Iberia1 56 -41
Benelux2 22 22
Italy 7 -5
Southeast Europe 3 -67 -13
Central Europe4 13 7
Nordics5 -74 -59
Poland 41 13
Ireland 8 9
Decarbonization target -55% -100%
Under emissions target Over emissions target
1. Spain & Portugal 3. Bulgaria, Greece, Romania 5. Denmark, Estonia, Finland, Latvia, Lithuania, Sweden
2. Belgium, Luxembourg, Netherlands 4. Austria, Croatia, Czech Republic, Hungary, Slovakia, Slovenia
Source: McKinsey
20 Net-Zero Europe
Exhibit
Toward 52040, electrification
opportunities would approach their
Through 2030, nearly two-thirds of emissions reduction could be achieved with energy
maximum uptake, and other measures
efficiency
would becomeand electrification.
the focus. By 2050,
45
GHG percent of the European
abatement, Union’s total
relative reduction of CO2e vs 1990 in EU-27
emissions would be abated by switching
-19%
from fossil fuels to electrification, and
(1990-2017) Share of total abatement
another 30 percent would be eliminated
by using hydrogen, biomass, and CCS. 2017-30 2017-50
Demand-side
15% 7% measures and
circularity
17% 11% Energy efficiency
-55% Electrification and

(1990-2030) 47% 44% carbon-neutral
power
Carbon-neutral
7% 13% hydrogen as fuel
or feedstock
Biomass as fuel or
5% 9%
feedstock1
Carbon capture
2% 6% CO2 and storage or
use (CCS/U)
Land use or
3% 7% agricultural
practice changes
4% 3% Other innovations
-100%
(1990-2050)
100%
Share of annual abatement
0
2020 25 30 35 40 45 2050
1. Of the total of the emissions reduced by Bioenergy Carbon Capture and Storage (BECCS), half are attributed to biomass and the other half to CCS
Source: McKinsey
Net-Zero Europe 21
22 Net-Zero Europe
From now until 2030, three-fourths Energy system and land-use
of abatement would be achieved by perspective: Reconfiguring the energy
expanding already mature and early- system and rethinking land use
adoption technologies such as heat Energy system reconfigured: Today,
pumps in buildings, heat cascading in the European Union meets 75 percent
industry, and EVs in transportation. of its primary energy demand with fossil
Through 2050, these technologies fuels. On the pathway we outline, fossil
would achieve maximum market fuel use would decline significantly
penetration, contributing 60 percent of over the next three decades. Most coal
the required abatement to reach climate consumption would be eliminated by
neutrality. Demonstrated but not yet 2030, and oil and gas consumption
mature technologies like CCS or low- would drop to less than 10 percent by
temperature hydrogen heating would 2050. Renewable power would satisfy
need to be rapidly scaled after 2030 to more than 80 percent of primary
reduce emissions by an additional 25 to energy demand by 2050, with most of
30 percent. Solutions still in the R&D the rest from bioenergy. Seventy-five
phase such as direct air capture and percent of renewable energy would
high-temperature electric heating with be used directly as electricity. Another
electric furnaces would be required to 25 percent would be converted into
abate the remaining 10 to 15 percent. green hydrogen to replace fossil fuels
in subsectors such as iron and steel
Even though most emissions would
production, long-haul trucking, aviation,
be abated using mature and early-
and shipping. The power sector would
adoption technologies, continued
become the central switchboard of
innovation and scale effects will be
the EU energy system, creating and
important to drive down transition
channeling renewable power into
costs. Solar panels are a good example
other sectors (Exhibit 6). Meeting
of a solution that has become much
this renewable power demand would
cheaper because of continued
require a significant expansion of
innovation and the industrialization
solar and wind power, increasing solar
of production. In the next 20 years,
capacity additions from 15 gigawatts
EVs and electrolyzers could achieve
(GW) per year today to 45 GW per year
analagous price drops.
during 2030-50, and wind additions
The pathway we outline does not from 10 GW per year in 2019 to 24 GW
factor in consumption shifts or other per year during 2030-50. The EU would
behavioral changes that would make also need to increase interconnections
reaching climate neutrality easier and among its power grids threefold by
less expensive. To determine how 2030 and its battery storage capacity
much these shifts could reduce the to 25 GW by 2030 and to more than
cost of the transition, we analyzed the 150 GW by 2050.
impact of 12 consumption shifts across
sectors ranging from replacing cement
with cross-laminated timber (CLT) in
construction to people driving less and
eating less meat. In a decarbonization
pathway that incorporates these
behavioral changes, the transition
would generate an average cost savings
of €15 per tCO2.
Net-Zero Europe 23
Exhibit
EXHIBIT 6 6 REF
The power sector would become the central switchboard of the climate-neutral EU energy system.
Total primary energy demand

Million TJ
2017
70
60
50
40
30
20
10
0
1990 95 2000 05 10 15 20
Primary energy demand to final energy consumption

Coal
Million TJ
Renewable power1 Industry Oil
Bioenergy Transportation
Gas
Nuclear Buildings
Renewables
Natural Gas Agriculture
Nuclear
Oil
Hydrogen
Coal
Other2
Hydrogen
Bioenergy Power and
Power and heat heat
Total final energy consumption Transportation

48
Million TJ international
Transportation
Coal Biomass Electricity

Oil Other2 Hydrogen
Buildings
Natural Gas Heat Hydrogen derivative
Industry
Agriculture
24 Net-Zero Europe
2030 2050
CAGR, percent
1990-2017 2017-50
Renewable
3.1 6.0
power1
Bioenergy 4.1 0.3
Nuclear 0.2 -8.6
Natural Gas 1.2 -2.8
Oil -0.1 -7.1
Coal -2.0 -10.7
25 30 35 40 45 2050
Industry
Transportation
Buildings
Agriculture
Power and Hydrogen Power and Hydrogen

heat heat
41
29
Transportation
international
Transportation
Buildings
Industry
Agriculture
1. Includes solar PV, solar thermal, wind power, and hydro power
2. Other miscellaneous sources, e.g. non-renewable waste
Source: McKinsey
Net-Zero Europe 25
Land use expanded: Climate neutrality
would require increasing the level of
natural carbon sequestration to offset
residual hard-to-abate emissions
and scaling sustainable bioenergy
production, especially for the
transportation and industry sectors.
We estimate that natural carbon
sequestration in the European Union
could be increased to 350 megatons
(Mt) per year, mainly through reforesting
12 Mha of land freed up by greater
efficiency in the agriculture sector. Also,
62 Mha of land in the European Union
are unused or abandoned and lack
high biodiversity value. Of this, about
30 Mha (45 to 50 percent) would be
used for bioenergy production in the
cost-optimal pathway (Exhibit 7).
Exhibit 7
On the cost-optimal pathway, land use would support carbon sequestration and
bioenergy production.
Additional focus themes
Focus of Common Enhance natural Support carbon-neutral Increase biodiversity

Agricultural Policy
carbon sequestration energy production Share of protected
MtCO2e Million TJ bioenergy land1
Approx. land
Maintain rural use demand 1.5x 1.7x 1.1x
welfare 353 5.5 30%1
With
existing 26%
measures
Support scenario
248
agricultural Refores- 3.1
production tation
Natural
forest
Maintain socio- manage-
ment
cultural and
landscape heritage Grazing
manage-
Today 2050 ment Today 2050 Today 2030
12 Mha 30 Mha N/A
Targets based on analysis of a cost-effective way for EU to Targets based on EU
deliver climate-neutrality by 2050 Biodiversity Strategy
for 2030
1. EU Biodiversity Strategy states that at least 30% of the land should be protected in the EU. This is a minimum of an extra 4% of land as compared to today.
Source: McKinsey, EU Biodiversity Strategy for 2030: Bringing nature back into our lives
26 Net-Zero Europe
Net-Zero Europe 27
Alternative pathways and pathway
ambiguities
Alternative pathways: Although we lay
out a technically feasible, societally
cost-optimal pathway to achieve
climate neutrality, other factors will
undoubtedly influence the emissions-
reduction pathway the European Union
ultimately takes. One challenge may
be the required build-out of renewable
power, which could face resistance
because of the amount of land it
requires. While exploring other possible
pathways, we identified two archetypal
alternative approaches to achieving
climate-neutrality by 2050 (Exhibit 8).
Exhibit 8
There are two main alternatives for the EU energy system to our cost-optimal pathway.
Domestic green
power and H2
Cost optimal pathway
(focus of this report)
Carbon capture pathway
Green imports pathway
Other domestic Imports, e.g., biomass

solutions, e.g., CCS or carbon neutral fuels
Source: McKinsey
28 Net-Zero Europe
— Carbon-capture pathway: This Pathway ambiguities: In some cases,
route would rely more on CCS to there is ambiguity about the most cost-
reduce emissions from power and optimal decarbonization technology.
industry. Limiting the renewable Based on today’s cost projections,
power build-out to half the levels there’s a clear cost-optimal technology
in our cost-optimal pathway, this for reducing 80 percent of emissions.
alternative pathway would raise For the remaining 20 percent, there
transition costs by 15 percent. The are two or three options expected to be
marginal cost of power would go close in cost. Depending on technology
up by 50 percent, and hydrogen, developments in the next ten years,
primarily produced via the blue one of these options could become
route, would be 30 to 40 percent more affordable than another, making it
more expensive. This pathway would difficult to determine a clear winner now.
avoid many of the challenges of
The greatest cost uncertainty is
scaling up renewables. However,
whether it will be cheaper to reduce
it would come with its own
emissions by using biomass, hydrogen,
implementation hurdles, such
or CCS in some instances. More
as requiring over three times the
specifically, it’s unclear whether it will
amount of carbon-capture capacity
be cheaper to replace gas heating with
and developing extensive carbon
biomethane or hydrogen, using other
transportation and storage systems
heat sources such as waste heat, or
across the European Union.
implementing CCS for industrial heat.
— Green-energy imports pathway: In It’s also hard to decipher the most cost-
this scenario, green energy would optimal split of biofuels and synfuels in
be imported from abroad in the aviation and shipping and what solution
form of electricity, green or blue would provide the best long-term
hydrogen, or sustainably harvested flexibility in the power system (hydrogen
biomass. Limiting the renewable peakers, biogas peakers, thermal
power build-out to half the levels with CCS, or flexible demand options).
in our cost-optimal pathway, this The ultimate cost will vary by country,
alternative pathway would raise depending on local biomass prices
transition costs by 10 to 20 percent. and availability, the cost of hydrogen,
Whilst on the whole relying more and the proximity of low-cost storage
on energy imports leads to higher for carbon capture. In a hydrogen
costs, some local opportunities, breakthrough scenario, where costs
e.g., importing hydrogen via cheap of production fall more quickly, we see
pipeline transport, can actually be demand that is eight-times higher than
cost beneficial. Importing fuels would today, compared to five-times for the
of course also fail to produce other base case.
benefits such as job creation and
Unexpected technology breakthroughs
increased EU energy independence.
in nuclear and other areas might also
occur, which could also influence what a
cost-optimal decarbonization pathway
looks like.
Net-Zero Europe 29
The socioeconomic This amounts to 27 percent of the
implications of decarbonizing annual capital investments currently
Europe made in the European Union, or
4 percent of the current EU GDP. The
The transition to net-zero emissions
European Union would also have to
would have significant socioeconomic
allocate an additional €5.4 trillion
implications, from capital re-allocation
(an average of €180 billion a year) to
and employment to trade and production.
clean technologies and techniques
Capital re-allocation: Achieving (Exhibit 10). This is the equivalent
climate neutrality would require of increasing the EU’s current total
redirecting roughly a quarter of annual investments by 7 percent, or by
current investments and increasing 1 percent of current EU GDP.
capital outlay by 1 percent of GDP but
result in lower operating costs.
Reaching net-zero would require
investing an estimated €28 trillion in
clean technologies and techniques
over the next 30 years (Exhibit 9).
About €23 trillion of this investment—
an average of €800 billion a
year—would come from redirecting
investments that would otherwise fund
carbon-intensive technologies.
Exhibit 9
Reaching net-zero would require an estimated €28 trillion in investments over

the next 30 years.
Total CAPEX in EU-27, bn EUR (total within time bracket)
10,000 Total CAPEX by sector

9,400 2021-50, %
8%
8,400 12%
14 9
7%
Power
3
1 Transportation
45%
38% 44% Buildings
100% = 27,800
Industry
43 Agriculture
30
Infrastructure
36% 28%
27%
4% 1%
3% 1% 3%
3%
15% 14% 11%
2021-30 31-40 41-2050
Source: McKinsey
30 Net-Zero Europe
Of that €5.4 trillion, about €1.9 trillion
would be invested in the buildings sector
(29 percent), €1.8 trillion would be used
for power (33 percent), €410 billion
for industry (8 percent), €76 billion
for agriculture (about 1 percent), and
€32 billion in transportation (less
than 1 percent). About €1.5 trillion
(28 percent) would fund infrastructure
to improve energy transmission and
distribution in all sectors.
Exhibit 10
About €5.4 trillion of the €28 trillion is incremental, compared to no climate action.
Additional CAPEX in EU-27, Bn EUR (total within time bracket)
1,900 Total additional CAPEX required

1,900 per sector 2020-50, %
1,600
44%
13% 40% Power
28
33
12% Transportation
2% Buildings
100% = 5,400
31% Industry
24% 32% 1
Agriculture
8 1
4% Infrastructure
2% 4%
1%
14%
29
2%
39% 29%
19%
-10%
2021-30 31-40 41-2050
Source: McKinsey
Net-Zero Europe 31
Although implementing clean Mobilizing capital: Roughly half of For example, car buyers usually look
technology would require additional the necessary investments require more at the upfront purchase price than
investment, it would ultimately lower interventions the total ownership cost. The share of
operating costs. From 2021 to 2050, the The pathway we lay out optimizes net capital expenditures without a positive
EU would save an average of €130 billion system-level costs under a societal investment case varies by sector.
annually in total system operating discount rate. However, individual For industry, 95 percent of capital
costs (Exhibit 11). By 2050, these stakeholders will make spending expenditures lack positive business
measures would reduce total system decisions based on their cost of capital cases; for buildings, it’s 85 percent; for
operating expenditures by €260 billion and payback period expectations. So, power 46 percent; for transportation
per year, more than 1.5 percent of the without targeted intervention, these 36 percent; and for agriculture
current EU GDP. Most of the operating- businesses and consumers would likely 11 percent (Exhibit 12).
expenditure savings would come from make decisions different from those
domestic transportation. However, laid out in our cost-optimal pathway.
operating expenditures in sectors such About half of the required €28 trillion
as international aviation and industry capital outlay would not have positive
would increase on top of the additional investment cases. This may be
investments. because of differences in the cost of
capital or because the stakeholder
doesn’t consider the investment’s
long-term benefit.
Exhibit 11
Implementing clean technology would lower the EU’s operating costs.

Total OPEX1,2 in EU-27, Bn EUR p.a.
0 30 Power
Transportation
-40
Buildings
-110 Industry
Agriculture
-60 -230 Average 2021-50:

-130
-150
-70
-10
-260
2020 30 2050
1. Fuel and feedstock OPEX

2. Excluding OPEX reduction in refining sector (which is mainly due to reduction of the refining activity)
Source: McKinsey
32 Net-Zero Europe
Exhibit 12
About half the required investments do not have positive investment cases for
their stakeholders.
Emissions-reduction investments by type of investment case for individual stakeholders

Total CAPEX in EU-27, Bn EUR (total within time bracket)
10,000 Share of total investments by type

9,400
of investment case, 2020-50, %
8,400
36%
14
46%
No standalone
61% investment case1
47
100% = 27,800 47 Standalone
investment case1
49% 40 Infrastructure2
43%
24%
15% 14% 11%
2021-30 31-40 41-2050
Emissions-reduction investments by type of investment case for individual stakeholders by sector

Total CAPEX1 in EU-27, total for 2020-50, Bn EUR
100% = 2,500 11,800 8,400 350 930

11%
36%
46%
85%
95%
89%
64%
54%
15%
5%
Power Transportation Buildings Industry
Agriculture
No standalone case Standalone investment case
1. Investment cases that are NPV positive. For assumptions (including WACC and lifetime expectancy) see technical appendix
2. Profitability of infrastructure investments are not modelled as business model is often unclear and asset base is often regulated
Source: McKinsey
Net-Zero Europe 33
Mobilizing financing for these Long-term investors could see products. For example, the cost of steel
investments would require viable business cases in at least may rise by 25 percent, but the price
interventions, particularly in subsectors 10 percent more of the total capital of a car produced with this steel would
with high abatement costs, such as expenditures than individual increase by less than a percent.
aviation, shipping, and heavy industry. stakeholders would.
The labor market: A net gain of
There are many ways to do this, The sustained low-cost capital
5 million jobs, but reskilling and
including: available from capital markets
support needed
today may be an opportunity to
— Direct financing interventions. The net-zero transition would create
significantly lower the cost of
We estimate that closing gaps an estimated 11 million jobs while
the transition. Capital market
to positive investment cases for eliminating 6 million, resulting in a net
innovations such as asset-backed
individual stakeholders through gain of 5 million jobs. Many of the new
securities, utility and corporate
direct public financing such as jobs would be in renewable energy
power purchase agreements,
carbon contracts for difference (1.5 million), agriculture (0.1 million), and
government incentives, and risk
or feed-in-tariffs would require buildings (1.1 million). For example, in
guarantees could accelerate
€4.9 trillion by 2050. the buildings sector, the EU would need
decarbonization by reducing the
1.1 million skilled workers to retrofit
— Price measures such as carbon cost of capital through securitizing
homes and other structures with higher
prices or cap-and-trade systems. decarbonization projects.
insulation and to install green heating
A carbon pricing or emissions
Increased costs could also be passed and cooking systems. Meanwhile,
trading scheme could create
on to end customers through regulatory the biggest job losses would be in oil
incentives for individual
backstops such as banning gas boiler & gas (1.3 million) and transportation
stakeholders to reduce emissions.
installations after a specific date (0.2 million).
At a carbon price of €50 per tCO2e,
or establishing portfolio standards
an additional 21 percent of required Although regions may experience
that require a minimum share in the
capital, on top of the 40 percent different levels of job displacement, most
renewable power sector.
already in the calculation, could would see net employment increases.
be unlocked through 2050. A Impact on households: middle- and
Although the number of job
carbon price of €100 per tCO2e lower-income households would see
displacements from emissions
could unlock another 10 percent, lower costs
reduction is expected to be much
giving more than 80 percent of all If consumption patterns remain
smaller than that caused by other trends
capital expenditures a standalone the same, and the cost increases
such as automation, reaching net-zero
investment case. The remainder and savings of decarbonization are
emissions could still require retraining
would require carbon prices of over directly passed through to consumers,
up to 18 million workers. Training and
€100 per tCO2e to create a positive the aggregate cost of living for an
reskilling are especially relevant for
investment case. average household in a climate-
workers in jobs that currently do not
neutral European Union nation would
— Commercial derisking and bringing exist (almost 3.4 million by 2050) and in
be roughly the same as today. Power
in long-term investors. Capital positions that would entirely disappear
and heating/cooling bills would be
could be mobilized by reducing (2.1 million by 2050). This is not an
somewhat lower, and mobility would be
investment risks and employing impossible challenge. Some of the new
more affordable, while the cost of food
new financing models and products jobs would require skills similar to those
and flights for vacation would increase.
such as adding insulation costs to that disappear. For instance, oil and
Middle- and lower-income households
house mortgages. This could help gas engineers could transition into the
would see slight decreases in costs,
bring more long-term investors into CCS industry. Also, many of the sectors
whereas high-income households
markets dominated by short-term with high job losses such as coal mining
would see no real change.
decisions, like the heating system or often have an older workforce.
auto market. It is worth noting that cost increases
due to decarbonization are often much
higher for intermediate than final
34 Net-Zero Europe
So, retirements could reduce Although the EU would no longer automotive sector. At the same time,
the amount of job changes and depend on fossil fuel imports, it the EU has a significant opportunity to
retraining required. At the same time, might develop new dependencies on accelerate R&D across sectors, retain
it is important to look beyond the imports of technologies vital to a zero- leadership in clean technology, and
statistics and recognize that every job emissions economy. Today, for example, expand into new export segments.
displacement may cause worry and solar panels are primarily imported into For example, exporting heat pumps,
hardship for those affected, no matter the EU, and some critical raw materials, electric furnaces, electrolyzers, and
their number. Therefore, care needs such as cobalt for batteries or iridium zero-emission agriculture technologies
to be taken to offer people support for electrolyzers, have a limited supplier could generate more than €50 billion a
and create new opportunities, with base. These new dependencies would year by 2050.
particular attention given to regions need to be monitored and managed.
Finally, Europe’s industrial topography
with concentrated job losses.
The shift to zero-emissions could be reshaped as production
Trade and production: energy technologies could also influence locations for products such as
independence, new risks and competitive dynamics and lead to ammonia, cement, or steel gravitate
opportunities shifting production locations. As clean to European regions where zero-
As a result of decarbonization, the technology innovation continues to emissions inputs or enablers, such as
EU could become effectively energy accelerate globally, the innovators hydrogen, renewable electricity, and
independent. Between 2020 and 2050, continue to gain market share from CCS, are least expensive.
oil, gas, and coal demand would decline those that fall behind. Navigating the
80 percent, from 43 exajoules (EJ) to transition and making the strategic and
6 EJ, and reducing the fossil fuel trade operational adjustments to thrive in a
deficit by two-thirds (Exhibit 13). zero-emissions world is no easy task
for many incumbents. This threatens
engines of the EU economy such as the
Exhibit 13
As a result of decarbonization, EU fossil fuel imports could decline more than 80%.
Million TJ
Trade balance of fossil fuels in 2017 and evolution under

cost-optimal pathway in EU-27
59
Own 16 Imported energy mix, 2050, %

49
production (27%)
-86%
18 4
(37%) 31 19 Nuclear
Oil
100% = 6 49 Coal
Net 43 29
imports1 (73%) Natural gas
(81%)
31 29
(63%)
6
(19%)
2017 30 2050
1. Assumption: 85% of fossil fuels is imported by 2030; 100% by 2050. All nuclear remains imported
Source: McKinsey, UN Comtrade (2016)
Net-Zero Europe 35
Charting a way forward — Mobilize green capital and 1. Rapidly scale cost-competitive
investment. Much more public technologies and business models
Although the case for decarbonization
and private money would need to reduce near-term emissions.
and the pathway are clear, it will take
to be invested in precommercial Expediting the scale-up of available
decisive action to achieve the European
technologies and rapidly deploying mature and early-adoption zero-
Union climate goals. Stakeholders
commercially mature infrastructure. emissions technologies is crucial to
would need to address five hurdles to
Investors that provide meeting near-term reduction targets.
accelerate the transition:
environmental, social, and corporate These include solar and wind power,
— Shift social norms and consumer governance (ESG)-aligned funding EVs and charging infrastructure,
and investor expectations to make mandates that require businesses better building insulation, and district
climate-neutral the new normal. to quantify their exposure to climate heating systems.
Consumers and business leaders risks and emissions could also play
2. Accelerate next-generation
would need to make decisions in an important role.
technologies and invest in enabling
their expectation and in support
— Accelerate net-zero technologies infrastructure to reduce emissions
of a shift to net-zero instead of
along their learning curves. after 2030. To boost industry-wide
business-as-usual as the public
Achieving the necessary innovation, funding mechanisms for
and business default.
technological breakthroughs to deploying early technology should
— Create secure and stable policy reduce emissions in hard-to-abate encourage collaboration. Policy
frameworks and regulatory sectors and accelerating their makers could create regulatory
environments. Successful progress to market would require certainty with CO2 and hydrogen
decarbonization depends on consistent public and private price floors, regulated returns on
public sector leaders who adopt investment. It would also require infrastructure, and the like to mobilize
robust regulatory frameworks greater willingness among business capitalfor essential infrastructure such
proportionate to the emission- leaders and policy makers to adopt as carbon and hydrogen pipelines.
reduction goals rather than new technologies.
3. Invest in R&D and negative
incremental policies. This would
Successful decarbonization requires emissions to close the gaps to
provide stable planning and
deploying and scaling net-zero net-zero by 2050. Over the long
investment signals that would
technologies. The journey for any one term, increasing public and private
create incentives for low-carbon
technology from early-stage R&D and investments in R&D that drive
technologies and business models.
proof-of-concept to early deployment down the cost of things like direct
— Encourage constructive industry and commercial competitiveness air capture technologies will be
dynamics. Business leaders depends on a complex system of critical for achieving net-zero. It
that lean into the transition and support models and stakeholders. will also be essential to invest in
demonstrate a commitment to Accelerated innovation is critical, reorganizing land use to generate
overcoming transition hurdles along with commercial pilots and negative emissions through efforts
through collective action rather capturing industrial scale effects to like reforestation. Lawmakers can
than worrying about first-mover drive down costs. Achieving net-zero also start passing legislation that
disadvantages will be critical. by 2050 would require the following creates glide paths for each sector
immediate actions: to reach net-zero emissions, such as
automotive emissions standards now
in effect in the transportation sector.
36 Net-Zero Europe
Actions for CEOs and policy makers Engage stakeholders to shape the Lean forward on capital and
Achieving net-zero within 30 years transition investments
will require governments to set a clear — Constructively shape regulation. — Mobilize capital. Policy makers
direction and provide adequate support Dialogue between business leaders can help mobilize capital for
while business becomes the engine of and policy makers will be critical green initiatives by removing
innovation and delivery. to creating win-wins in the green process barriers that introduce
transition. Business leaders will costs, standardizing contracts,
Here, we explore some of the actions
need to consult with policy makers providing carbon price floors and
that business and public sector leaders
to determine what’s required to public guarantees, and offering
could consider to achieve this.
accelerate emissions reduction and tax incentives. Policy makers can
CEOs how they can help meet climate also incorporate green principles
Create strategic alignment targets. They can also influence into government procurement
— Value climate risk. Establish how environmental performance is processes. Public investment
processes and governance to measured and reported while setting in R&D to pursue breakthrough
measure and assess climate the bar on reporting and disclosures. technologies could also reduce
risk exposure and integrate that transition costs.
— Form coalitions for action. To make
assessment into strategic and
their efforts and investments go — Lean forward on infrastructure
capital planning. Quantify the
further, business leaders can also spending. The lack of infrastructure
business’ exposure to physical,
form alliances with peers at the needed for switching to clean
transition, and liability risks from
industry and value-chain level. This technologies and techniques often
climate change.
would enable companies to create requires public intervention in the
— Align strategic narrative. Craft a mass demand for green products form of regulation, direct investments,
strategic narrative that includes and accelerate the innovation and or public-private partnerships.
a clear stance on the risks and scale-up of green technologies.
Do not leave the vulnerable behind
opportunities arising from climate
Policy makers — Address distributional challenges.
change and the role the organization
Strengthen interventions and Although the transition to net-
aims to play in the transition.
cooperation zero would be cost neutral at an
Reallocate capital and people — Strengthen interventions. Policy aggregate level, it will impact some
— Pivot capital. Review the business makers can accelerate and reduce people more than others. These
from a zero-emissions budget the cost of the transition to net- socioeconomic disparities would
perspective, co-optimizing for “Return zero by influencing corporate need to be carefully managed.
on Carbon” (determining where and consumer behavior. These
— Provide financial and in-kind
each ton of emissions adds the most interventions could include extending
support to developing countries.
business value). Reduce portfolio subsidies, enacting stricter emission
Working together can yield better
exposure to climate risk and deploy standards, and banning sales of
outcomes than individuals acting
capital to capture opportunities from higher-emissions products.
alone. Providing support across
the green transition.
— Resolve agency issues. Throughout borders can generate better
— Invest in reskilling. Enhance this process, policy makers will need results for society as a whole while
productivity by anticipating labor to address agency issues across reducing global emissions.
shifts brought by new technologies, sectors, technologies, and regions
and consider reskilling, outsourcing, that could slow decision-making
and replacing talent where and action.
necessary. Conduct workforce
— Create internationally harmonized
planning with long time horizons, and
commitments. Policy makers
consider collaborating with others
can strengthen international
on reskilling, including organizations
cooperation to decarbonize the
developing digital talent.
aviation and shipping industries
— Invest in R&D. Capture with measures such as harmonizing
opportunities in the green transition technology standards and
by investing in next-generation refueling infrastructure at airports
technologies that would help enable and harbors. Common product
a net-zero future. Derisk capital standards could help reduce the
investments through commercial, cost of the transition.
technical, and policy innovation.
Net-Zero Europe 37
1. Getting to net-zero by 2050
38 Net-Zero Europe
Net-Zero Europe 39
1.1 Aiming for climate Although the EU accounts for only
neutrality 7 percent of global GHG emissions, the
In December 2019, the European benefits of a net-zero Europe would
Commission (EC) announced the far exceed having fewer heat-trapping
European Green Deal, a new policy molecules in the atmosphere.
framework intended to accelerate
A Europe on net-zero trajectory
greenhouse gas (GHG) emissions
would accelerate investment in green
reduction across the European Union. 5
technologies, test and refine global
Among the policies under consideration
industrial strategies and market designs,
is a law that would require the bloc to
and provide lessons from which the rest
reduce GHG emissions by 55 percent
of the world could learn. By taking the
relative to 1990 by 2030 and reach
lead on this issue, the European Union
net-zero by 2050.
would encourage other countries to
The European Union has a history of make their own climate change goals
meeting its decarbonization targets. more ambitious. At the same time, EC
When it signed the Kyoto Protocol in climate change proposals, such as
1997, the European Union committed to imposing a carbon border tax, would
reducing its GHG emissions by 8 percent influence the carbon footprint of supply
by 2012. It over-delivered, reducing chains around the world.
them by 18 percent. In 2010, the EC set

another target: reducing the continent’s
emissions by 20 percent by 2020. The
EU surpassed that goal by 2018.
5
In this document, the European Union refers to the 27 member states that will together constitute the European Union after Great Britain leaves. We use “emissions
reduction” to refer specifically to “GHG emissions reduction” and may also use these terms interchangeably with “decarbonization.” “Net zero” or “net-zero
emissions” refers to net-zero GHG emissions.
40 Net-Zero Europe
1.2 The situation today
1.2.1 EU GHG Emissions 1.2.2 The EU energy system
In 2017, the European Union’s total GHG Although the European Union’s total
emissions were 3.6 GtCO2e (including primary energy demand has remained
0.3 GtCO2e negative emissions, constant, emissions have declined
excluding international transportation).6 slightly since 1990 because its energy
Although this accounts for just 7 percent efficiency improvements have offset
of global GHG emissions and is much economic growth (Exhibit 14). 8 However,
lower than the continent’s 20 percent the underlying energy mix has changed
contribution to the global GDP, it’s since 1990, with coal demand declining
slightly higher than the European Union’s by 2 percent a year and biomass and
6 percent share of the global population.7 other renewable energy sources
increasing by 4 percent annually and
About 80 percent of the European
3 percent annually, respectively.
Union’s greenhouse gases are
CO2 emissions from fossil fuel Energy uses vary considerably by
combustion. The remaining 20 percent sector. Transportation consumes mostly
are other types of GHG, such as oil and almost no other fuel. Power
methane and nitrous oxide emitted in the draws on a wide variety of energy
industrial and agricultural sectors. sources, using nuclear, solar, and wind
for electricity generation in addition to
At a high level, these emissions
fossil fuels. Industry and buildings use
originate from five sectors: power,
a mix of fossil fuels. Natural gas is more
industry, buildings, transportation, and
prevalent in the buildings sector for
agriculture. Since 1990, emissions in
space heating and cooking purposes. In
these sectors have declined by 1 to
the industry sector, oil is mainly used in
2 percent a year, except in transportation
the chemicals sector.
where, despite energy efficiency
improvements, emissions have This profile of fossil fuel consumption
increased by 0.8 percent a year. Industry is similar across the EU. The biggest
is the largest source of emissions today, differentiator of fossil fuel dependency
followed by power and transportation. A between regions is the power generation
sixth sector, land use, land-use change, mix. For instance, the energy system’s
and forestry (LULUCF), absorbs CO2 and fossil fuel share in France and the
partly offsets emissions from these Nordics is lower than in other regions
other sectors. because they use more nuclear and
hydropower. In the other sectors, the
When looking at GHG emissions by
percentage of fossil fuel consumption is
country, we see, as expected, that
similar across countries (Exhibit 15).
emissions strongly correlate with a
country’s GDP. Some exceptions to this
rule are the Nordic countries, which have
lower net emissions than other high-
GDP countries because of their vast
stretches of land that absorb CO2. Some
Central European countries have higher
emissions than their GDP would suggest
because of their higher dependence on
coal for power generation.
6
We use 2017 as the base year for our pathways because it is the most recent year for which good data are available. In our calculations, we follow the established
practice of using a production-based rather than consumption-based emissions measurement. We only include emissions in the EU-27. One exception is our
inclusion of the implied emissions from fuel use for international aviation and marine vessels bunkered in the EU even though they aren’t necessarily emitted there.
7
In 2017, global emissions were 55 GtCO2e, and EU-27 emissions were 3.9 GtCO2e (including LULUCF and international transportation). We excluded international
transportation from our modeling, leaving 3.6 GtCO2e for the EU-27. Global GDP was $80.3 trillion in 2010 and the EU’s GDP was $16 trillion in 2010 (World Bank).
The global population was 7.5 billion, and the EU population was 0.45 billion (World Bank)
8
The demand for energy in its raw form, before it has been converted to secondary energy such as electricity or district heating.
Net-Zero Europe 41
Exhibit 14
The bulk of Europe’s emissions are generated by five sectors.
Historic emissions by sector

MtCO2e
5,000 2017 CAGR,

percent
4,500
1990-2017
4,000
3,500
Power -1.0
3,000
2,500 Transportation 0.8
2,000 Buildings -1.0

1,500
Industry -1.5
1,000
500 Agriculture -0.8
0 LULUCF1 0.0
-500
1990 95 2000 05 10 2015 Net emissions
Emission baseline by sector and region

MtCO2e, 2017
Germany 890
France 433
Iberia2 409 Emissions

MtCO2e
Germany
Benelux3 380 1,000
Italy 379
Iberia France
Benelux
Southeast Europe4 336 Poland Italy
Southeast Europe Central Europe
Central Europe5 323
Nordics
Nordics6 248
Ireland
100
Poland 137 100 1,000 10,000
Ireland 67 GDP,
EUR Bn
42 Net-Zero Europe
Emission baseline by sector Emissions shared with
MtCO2e, 2017 non-EU countries
Direct EU emissions
100% = 930 820 490 1,140 470 -250 260

Other Other
Aviation
Shipping Cement
Manure
Light duty trucks Other land
Other non-metallic minerals
Commercial
Iron & steel Equipment

Aviation
Heavy duty trucks

and buses Non-ferrous
metals
Ammonia
Ethylene
Other chemicals
O&G upstream Soils

Power
O&G refining
Forest land
Forest
Mining
land
Residential
Pulp & Paper
Food
Passenger cars
Shipping
Other industry
Enteric
fermentation
Waste management
Power Transportation Buildings Industry Agriculture LULUCF International

Transportation
Emission Absorption
1. Land Use, Land Use Change and Forestry entails all forms in which atmospheric CO2 4. Bulgaria, Greece, Romania
can be captured or released as carbon in vegetation and soils in terrestrial ecosystems 5. Austria, Croatia, Czech Republic, Hungary, Slovakia, Slovenia
2. Spain & Portugal 6. Denmark, Estonia, Finland, Latvia, Lithuania, Sweden
3. Belgium, Luxembourg, Netherlands
Net-Zero Europe 43
Exhibit 15
As of 2017, fossil fuel use varied widely across EU-27 regions in the power sector, but every
region relied heavily on fossil fuels for non-power sectors.
Historic total primary energy demand by source

Million TJ
70 2017 CAGR,
percent
60 1990-2017
50
Renewable power1 3.1
40 Bioenergy 4.1
30 Nuclear 0.2
20 Natural Gas 1.2
Oil -0.1
10
Coal -2.0
0
1990 95 2000 05 10 2015
Total primary energy demand by sector

Million TJ, 2017
100% = 24 14 8 12 1
1 1
3
2
2
4
4
13
1
4 5
6 2
2
Power Transportation Buildings Industry Agriculture
Power sector Non-power sectors
44 Net-Zero Europe
Sectoral fossil fuel use
Percent
Power sector Non-power sectors
Poland 92 91
Ireland 81 97
Southeast Europe2 74 88
Italy 69 92
Germany 60 93
Benelux3 53 98
Iberia4 51 93
Other central Europe5 48 87
Nordics6 18 77
France 9 93
Fossil fuel use in total energy mix
% fossil fuel (2017)

40 100
1. Includes solar PV, wind power and hydro power 3. Belgium, Luxembourg, Netherlands 5. Austria, Croatia, Czech Republic, Hungary, Slovakia, Slovenia
2. Bulgaria, Greece, Romania 4. Spain & Portugal 6. Denmark, Estonia, Finland, Latvia, Lithuania, Sweden
Net-Zero Europe 45
1.3 The road ahead
From 1990 to 2017, the EU’s GHG
emissions dropped 19 percent, driven
by greater energy efficiency and
renewable electricity use. Despite
this progress, the EU would need
to decarbonize three to four times
more quickly to meet its emissions-
reduction targets (Exhibit 16). Regional
differences in today’s energy systems,
such as the carbon intensity of the
power grid and the industrial landscape,
will require different local approaches.
There are easy ways to decarbonize in
some places, but the overall gap to the
2030 and 2050 targets is much larger
than the emissions reductions the EU
has achieved before.
Exhibit 16
The EU will need to reduce net GHG emissions much faster to meet 2030 and 2050
climate targets.
Emission development, indexed at 1 = 1990 level1
1.6 Total emissions
1.4 Benelux2
France
1.2
Germany
1.0
Iberia3
0.8 Ireland
-19%
0.6 Italy
-55% -100%
Nordics4
0.4
Poland
0.2
Southeast Europe5
0 Other central Europe6
1990 2000 10 20 30 40 2050
Yearly emission -35 -130 -110

reduction
MtCO2e
1. Includes impact of land use, land-use change, and forestry (LULUCF) on GHG emissions. 4. Denmark, Estonia, Finland, Latvia, Lithuania, Sweden
2. Belgium, Luxembourg, Netherlands 5. Bulgaria, Greece, Romania
3. Spain & Portugal 6. Austria, Croatia, Czech Republic, Hungary, Slovakia, Slovenia
Source: McKinsey, Eurostat, EEA
46 Net-Zero Europe
Net-Zero Europe 47
Our methodology, and what this And we did not account for the value of It also is primarily a “macro” view.
report is and is not the non-monetary benefits of reducing Our scenario minimizes net system
There are many paths to achieving emissions, such as reduced air pollution costs using a societal discount rate.
European Union climate neutrality by and associated health benefits or It is important to bear in mind that the
2050. In this report, we outline and reduced physical climate risks. The perspective of individual stakeholders
explore one particular pathway that is result is a pathway that outlines how and the decisions they would take in the
feasible from a technology and supply member states could work together absence of changes in regulation and
chain perspective and cost-optimal in across sectors to reduce the European incentive structures may differ, both
aggregate, based on current outlooks. Union’s overall emissions by 55 percent because there are disparate impacts on
(compared to 1990) by 2030 and individual stakeholders and because
To arrive at this societally cost-optimal
100 percent by 2050. For more details they may apply different costs of capital
pathway9 to net-zero emissions, we
on our methodology and assumptions, and payback expectations in investment
applied more than 600 decarbonization
refer to the Technical appendix, Section decisions; for an investigation of the
lever business cases across
6, and for a view on the uncertainties latter point and how capital could be
75 subsectors in 10 regions to minimize
in our modeling, refer to Pathway mobilized, see Bridging the finance
the overall cost to the European Union of
ambiguities, Section 2.4. gap, Section 4.1.3. While we explore
achieving the 2030 and 2050 targets.
macro-level socioeconomic implications
To create a sector pathway, we split EU This is not a forecast. Achieving the EU
such as employment displacements,
emissions into more than 100 segments climate goals would require a substantial
impacts on household costs, structural
and projected the demand for the departure from the current trajectory.
cost changes on the sector level, and
product (such as cement) or service Since the impacts of the transition
risks and opportunities for trade and
(such as passenger kilometers travelled) would be unevenly distributed and
production, we do not investigate
for each segment. We identified create challenges for many individual
the specific challenges that the
the emission-reduction levers for companies and actors, significant
zero-emissions transition creates for
each segment and incorporated changes in regulation and incentives
individual companies. These can be
regional commodity price trends and would be required. And while we lay out
significant. And while we explore some
developments. In this optimization, a pathway optimized for net costs, in
of the potential actions that business
we accounted for many EU-wide and reality, other factors would undoubtedly
leaders and policy makers can take to
regional constraints, such as the amount impact the decarbonization pathway
navigate and shape the transition in
of sustainably available biomass, the European Union ultimately takes.
Section 5.2, detailed perspectives on
supply chain constraints limiting the Nonetheless, we believe investigating
how players in each sector can navigate
ramp-up rates of EV production, and this pathway is valuable for two reasons;
and thrive in the transition are not
the total available land for generating first, it provides a helpful roadmap based
within our scope. These sector-specific
renewable power. We did not constrain on current best understanding, and
company-level “micro” views will be the
economic growth or consumption, and second, it is a valuable tool to explore
subject of future publications.
we assumed that production locations the magnitude of the challenge and the
do not shift. resulting socioeconomic implications.
9
We define the “societally cost-optimal” pathway as the most cost-efficient way in which society as a whole can achieve net-zero emissions by 2050. In technical
terms, we minimize the sum of the net present values (NPVs) of all measures/investments, with individual NPVs calculated for the point in time the first associated
investment is made. We use a common societal discount rate and reflect the total cash flows borne from the investments needed in the net-zero transition,
irrespective of how the costs and benefits are divided between different stakeholders.
48 Net-Zero Europe
How to read this report COVID-19’s impact on long-term
The high-level results of our pathway emission-reduction pathways
modeling, from the primary abatement During the writing of this report, the
measures to the required redesign of societal and economic impacts of the
the energy system, are discussed in COVID-19 pandemic on EU countries
Chapter 2. remained unclear. For many reasons,
we don’t believe the pandemic will
Each sector has a different starting point
result in long-term changes in energy
and faces unique challenges in reaching
consumption; the challenges that
climate neutrality. We present the
governments and businesses face in
cost-optimal pathways for each sector
getting to net-zero remain the same.
in Chapter 3, and discuss the roles of
hydrogen, CCS, and biomass. For example, even though energy
consumption in the transportation
Reaching net-zero by 2050 will have
sector plunged during lockdowns, when
significant socioeconomic implications
people resumed driving their cars, there
such as financing challenges, changes to
was no difference in fuel consumption
the labor market, transforming trade and
or emissions per kilometer. That would
production, and shifting land use. We
require more permanent behavioral
discuss these implications in Chapter 4.
changes, such as drivers switching to
The road to net-zero emissions starts electric vehicles.
today. We provide recommendations
Instead, the impact of the pandemic on
on how to overcome the barriers to
the pathways will likely depend on its
achieving the EU’s ambitious climate
secondary effects, such as companies
targets in Chapter 5.
and consumers delaying investments in
We provide more details on our modeling lower-emitting technologies because
approach in the Technical appendix. they are cash-strapped; government
stimulus programs that accelerate
investments in infrastructure, R&D, and
supply chains; and businesses that decide
to permanently adopt remote working.
Net-Zero Europe 49
2. The EU pathway to
climate neutrality
50 Net-Zero Europe
Net-Zero Europe 51
2.1 Net-zero emissions at Overall, the total decarbonization For example, the savings from
net-zero cost of the power sector would be cost- introducing solar thermal and district
Net-zero emissions by 2050 should be neutral by 2050. heating in densely populated areas
achievable at a net-zero cost without could offset the increased costs of
With an average net savings of €120 per
compromising overall economic growth using ground-sourced heat pumps,
tCO2e, the transportation sector
or prosperity. electric cooking, hydrogen, and
would see the largest structural cost
biomethane blending elsewhere. The
On the pathway we present, which decreases. The electrification of cars,
average abatement cost in buildings is
does not constrain GDP growth or buses, and trucks reduces the total cost
€5 per tCO2e.
consumption, the net cost of achieving of road transportation, along with the
net-zero emissions is €0 per tCO2e. proposed switch to hydrogen-fueled Industry is the most expensive sector to
Cost increases in sectors such as heavy road transportation after 2030. decarbonize because of the challenge
industry, with average abatement Decarbonizing aviation and shipping of reducing emissions without
costs of €85 per tCO2e, are offset would be more expensive because it wholesale changes to manufacturing
by net savings in sectors such as requires using advanced biofuels and processes. High-cost options such
transportation, with average savings of synfuel instead of fossil fuels, which as electric boilers and bioenergy
€100 per tCO2e. would cost more than €100 per tCO2e. with carbon capture and storage
(BECCS) are only marginally offset by
2.1.1 The costs of emissions- Decarbonizing agriculture and buildings
cost-negative measures such as heat
reduction by sector would require a mix of low- and high-
cascading. The average abatement cost
Up to 2040, our analysis indicates cost actions. Agricultural emissions
in the industry sector is €85 per tCO2e.
that decarbonizing the power system can be reduced through cost-saving
could reduce the average cost of measures such as switching to electric
electric energy compared to today’s farming equipment and low-tillage
system cost with grid expansion costs practices, which would cancel out more
offset by the cost savings of switching expensive measures such as giving feed
to renewable power. The final leg to additives to livestock. Abatement in
decarbonization—that is, eliminating agriculture saves an average of €25 per
the last 15 percent of power emissions tCO2e. Similarly, cost-saving abatement
from 2040 to 2050—would require options for buildings would nearly
more flexibility and cost more than cancel out more expensive measures.
€120 per tCO2e.
52 Net-Zero Europe
2.1.2 The pace of emissions- because they have fewer scalable emissions are offset with BECCS on
reduction by sector low-carbon alternatives and would processes like ammonia or cement
The cost-optimal decarbonization need to rely on the more expensive production. As a result, industry
pathway follows a specific order in option of switching to biofuels or emissions could be reduced by more
which sectors reach net-zero. This order synfuels to decarbonize by 2050. than 95 percent in 2050. The residual
is based on the interdependencies emissions would be offset outside
Decarbonization of the buildings
between and among sectors, relative the sector, for example by natural
sector is likely to be slow but steady. Its
costs, and the maturity of the carbon sinks such as reforestation.
potential is limited in the short term, but
technology required in each sector.
full decarbonization can be achieved Agriculture has the most limited
Based on these factors, the first sector
by 2050. potential for reducing carbon emissions
to reach net-zero would be power, then
and cannot achieve net-zero by 2050.
transportation and buildings, followed — The technologies required to
by industry and agriculture. decarbonize the buildings sector, — By 2030, only 5 percent of
Decarbonizing power could be achieved such as better home insulation and agricultural emissions would be
quickly because most of the technology heat pumps, are already widely abated because the most effective
for generating renewable power is available. However, long renovation ways to reduce emissions require
already mature. turnaround times and the need for changes in human behavior and
skilled labor would limit the pace other developments that take time.
— By 2030, the power sector
of change. By 2030, buildings may The projected rise in agricultural
could reduce emissions by over
only be able to reduce emissions by activity in the future would also
60 percent through low-cost
30 percent. increase the abatement challenge.
options such as using wind and
solar to generate electricity. — After 2030, decarbonizing the — The agriculture pathway we outline
buildings sector would steadily reduces carbon emissions only
— As this capacity grows, power could
continue while requiring more costly 40 percent by 2050. The sector
abate 90 percent of emissions by
measures such as hydrogen and would still emit 300 MtCO2e a year
the early 2040s.
biomethane heating. Towards the without, for example, a significant
— Eliminating the remaining 15 percent end of the 2040s, the sector could reduction in the amount of livestock
would be challenging because it achieve 95 percent decarbonization. raised for food.
requires implementing expensive
Industry would be the most expensive Once these five sectors have reduced
measures to cover long-term
sector to decarbonize because most all possible emissions by 2050, the
seasonal flexibility needs.
of the emissions-reduction options are remaining emissions would have to be
Ramping up decarbonization in either cost-prohibitive or unavailable offset by negative emissions generated
transportation would take time. The at scale. by afforestation and emission
amount of emissions that can be reduced absorption technologies like CCS. By
— From 2021 to 2030, industry could
by 2030 depends on how fast EVs can 2050, energy system emissions would
reduce emissions by 35 percent,
replace petroleum-fueled vehicles. be negligible compared to agricultural
more than 75 percent of which
emissions. So, although the pathway to
— In road transportation, the required would cost €50 per tCO2e to
net-zero emissions would depend on
technologies are already in the €150 per tCO2e. Because supply
switching to low-carbon technologies,
early-adoption phase. However, side constraints would limit the
sustaining climate neutrality beyond
scaling supply chains that transportation and buildings
2050 would hinge on establishing a
could support the transition to sectors’ contributions to the
new approach to land use. (Exhibit 17)
100 percent EV sales, from mining 2030 reduction target, industrial
the raw materials for batteries companies would have to implement
to assembling EVs, is at least a more expensive decarbonization
decade-long process. This limits technologies, such as electric
the sector’s short-term abatement boilers and CCS, to get the EU to the
potential to 30 percent by 2030. 55 percent reduction target.
— After 2030, EV and hydrogen — After 2040, when power,

supply chains could be at scale, transportation, and buildings
accelerating decarbonization. By reach almost their full abatement
2045, more than 95 percent of potential, industry would need to
today’s transportation emissions abate another 40 percent of its last,
could be abated. Aviation and most expensive emissions. Part of
shipping are the exceptions the very hard-to-abate industrial
Net-Zero Europe 53
Exhibit 17
The power sector would reach net-zero emissions before the others.
Total emissions per sector in cost-optimal pathway for EU-27
MtCO2e, excluding international aviation and shipping
5,000
4,500
4,000
3,500
3,000
A
2,500
2,000
B
1,500
1,000
500
-500
1990 95 2000 05 10 15 20 25 30 35 40 45 2050
Power Transportation Buildings Industry Agriculture LULUCF

Emission absorptions techs Net emissions
Current emissions Decarbonization cost1 Emissions evolution

MtCO2e, 2017 EUR/tCO2 MtCO2e
2020-30 30-40 40-2050
1,000
900
Power 930 -31 18 145
800
700
Transportation 820 -92 -149 -70
600
Buildings 490 -66 37 40 500
400
300
Industry 1,140 30 86 120
200
100
Agriculture 470 -27 -121 35
0
2020 25 30 35 40 45 2050
54 Net-Zero Europe
A: 2030 abatement cost curve
Abatement cost, EUR/tCO2e
700 Induction cooking

Biofuels aviation
600 Cement + biomass
Electric industrial boiler
500
Heat pump (apartments)
400 Ground heat pump
Ammonia blue hydrogen
300 H2 based steel making
Heat pump (commercial)
200
District heating (high cost)
100 Enhanced fertilizers
Heat pump (houses)
0
-100 EV SUVs
Power (first 55%)
District heating (low cost)
-200
Insulation
-300 Heat cascading in industry
EV sedan car
-400 BEV agricultural equipment
EV city cars
-500 EV light commercial vehicles
-600 Solar thermal heating
-700
0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200
Abatement, MtCO2e
B: 2050 abatement cost curve
Abatement cost, EUR/tCO2e
Synfuels aviation
700 Biofuels shipping
Ammonia biomethane BECCS
600 Power (last hard 15% part)
Cement + BECCS
500 Biofuels aviation
Electric naphtha cracker
400 Heat pump (harder part)
Electric industrial boiler
300
Heat pump (intermediate part)
200 Hydrogen based steel making
District heating (harder part)
100 Power (middle 30% part)
Heat pump (easy part)
0
CLT replacing cement
-100 Power (easiest 55% part)
District heating (easy part)
-200 Heat cascading in industry
H2 fuel cell trucks
-300 EV SUV
EV agricultural equipment
-400 EV sedan cars
H2 fuel cell buses
-500 EV city cars
-600 EV light commercial vehicles
Solar thermal heating
-700
0 500 1,000 1,500 2,000 2,500 3,000 3,500
Power Transportation Transportation Buildings Industry Agriculture Abatement, MtCO2e

international
1. Weighted average
Source: McKinsey, UNFCCC
Net-Zero Europe 55
2.1.3 Key geographic differences in cost of solar power. As a result,
emissions-reduction pathways the solar thermal penetration in
The mix of cost-optimal measures for our pathway for Southern Europe
reaching net-zero varies by country is more than double that of
depending on the following four factors: northern regions. And more than
1. Proximity to CO2 storage locations. 60 percent of the total 1,200 GW
Because most of the European of added solar installations would
Union’s known CO2 storage be in Southern Europe. Access to
locations are in the North Sea, CCS low-cost renewable power is also
is expected to be less expensive expected to make green hydrogen
in the adjacent regions. This production costs lower in the
would make CCS a more attractive south than in the north. Lower
decarbonization option for industrial hydrogen costs in the south
clusters in Northern Germany, would lead to faster hydrogen fuel
Benelux, and the Nordics than those adoption, especially for building
in the south. As a result, according and industry heating.
to the pathway we outline, more
• Wind speeds. Onshore and
than 70 percent of CCS would be
offshore wind speeds are
located in Northern Europe (See
generally higher in Northern
section 3.7).
Europe than in the south, resulting
2. Climate. The weather in each EU in lower wind-generation costs.
member state determines the Consequently, over 70 percent
decarbonization potential of heating of the European Union’s wind
technologies, renewables, and generation capacity additions
hydrogen, including: through 2050 would be located in
the north.
• Heating degree days. Countries
with more heating degree 3. Agricultural decarbonization
days (those in which buildings opportunities. Although agriculture
need to be heated because is a difficult sector to decarbonize,
the temperature is below 18o C) there are cost-effective carbon
can better justify large capital abatement opportunities,
expenditures such as better particularly in regions like the Nordic
insulation and district heating. countries, as well as in Iberia and
That’s why 75 percent of all highly Southeast Europe, where farmers
insulated houses and 65 percent can use new crop-management
of the district heating proposed techniques to reduce emissions.
in our pathway would be located
4. Available land for carbon
in Northern European countries.
sequestration. Land that can
District heating would be used in
be repurposed for carbon
densely populated areas close to
absorption could help offset
industrial clusters within these
other, more expensive abatement
countries to take advantage of
implementations. Some regions
waste heat.
have significant opportunities to
• Solar irradiance. The amount of increase GHG absorption through
sunlight an area receives would afforestation, including Iberia
determine the effectiveness of (38 MtCO2) and France (29 MtCO2).
solar thermal heating and the
56 Net-Zero Europe
Member states can better achieve emissions since 1990, would lower heating emissions instead of waiting
EU climate targets together overall transition costs. for electric furnaces to become more
Because of the differences in each affordable. But after 2030, electric
By 2050, those positions could reverse
country’s starting point and their furnaces are expected to be cheaper
as Iberia begins to capitalize on
decarbonization options, taking a than CCS for decarbonizing industrial
afforestation and low-cost hydrogen
collective approach would be the most heating. So, countries that invested in
from its abundant solar resources.
affordable way to achieve a climate- CCS to meet short-term targets run
Just as Germany’s decarbonization
neutral European Union (Exhibit 18). the risk of missing out on these kinds
efforts could offset Iberia’s through
of opportunities. With inter-regional
For example, it would be more 2030, Iberia could then offset residual
optimization, industrials can buy a few
challenging for Iberia to meet a national emission from German industry to
more years to decarbonize, allowing
2030 reduction target of 55 percent ensure the entire European Union
them to choose what may eventually
because the region’s emissions have achieves its 2050 target.
prove to be less expensive technology.
risen by 28 percent since 1990. Iberia
Aside from being costlier, taking an
would have to reduce its emissions by
individual-country approach to meeting
65 percent to reach the 2030 target,
decarbonization targets could result in
which would require expensive
lock-ins on sub-optimal technologies in
technologies. In the near-term, focusing
regions with more difficult abatement
instead on lower-cost decarbonization
challenges. For example, regions with
opportunities in countries such as
larger gaps to the 2030 target would
Germany, which has already reduced
likely invest in CCS to reduce industrial
Exhibit 18
The cost-optimal path involves some countries exceeding decarbonization targets to

compensate for shortfalls in others.
MtCO2e over/under EU-wide decarbonization targets
2030 2050
Germany -14 52
France 39 15
Iberia1 56 -41
Benelux2 22 22
Italy 7 -5
Southeast Europe 3 -67 -13
Central Europe4 13 7
Nordics5 -74 -59
Poland 41 13
Ireland 8 9
Decarbonization target -55% -100%
Under emissions target Over emissions target
Source: McKinsey
Net-Zero Europe 57
2.2 Technologies and efficiency and electrification. The
techniques required to third category of levers, demand-side
reach net-zero emissions measures and circularity, such as modal
shifts in transportation and reusing
Reaching net-zero emissions by
waste heat in buildings and industry,
2050 would require significant changes
would reduce emissions an additional
in all five sectors. These changes can
15 percent. The remaining 20 percent
be grouped into eight categories (or
would come from four other levers:
levers) that range from reducing energy
ramping up hydrogen use, increasing
or resource use to switching to zero-
biomass use, land-use changes, and
carbon fuels or changing land-use and
other innovations such as switching to a
agricultural practices (Exhibit 19).
non-fossil fuel feedstock to make cement.
Each of the eight levers contains
As we move toward 2040, direct
several specific measures, and some
electrification opportunities would
of those measures span more than
start to reach their maximum potential,
one category. For example, BECCS is
and other solutions would need to be
an abatement technique that involves
implemented to meet the 2050 target.
using biomass as fuel (one lever) and
By 2050, 45 percent of the EU’s
CCS to capture and store the resulting
total emissions would have been
CO2 emissions (another lever).
abated by switching from fossil fuels
From 2021 to 2030, more than to electrification, and 30 percent
65 percent of the European Union’s would have been eliminated by using
decarbonization would be achieved hydrogen, biomass, and CCS (Exhibit 20).
using two levers: increasing energy
Exhibit 19
The EU could use eight decarbonization levers to reach net-zero emissions by 2050.
Demand-side measures Energy efficiency Electrification and carbon Carbon neutral hydrogen
and circularity Decreasing the energy neutral power as fuel or feedstock
Lower the demand for intensity of equipment or Replace fossil fuel with Replace carbon-intensive
primary resources by infrastructure, e.g., building renewable electricity, e.g., fuel or feedstock with
increasing circularity of insulation or heat recovery from wind and solar farms carbon neutral hydrogen,
products, e.g., reuse, improvements e.g., in ammonia production
recycling
CO2
Biomass as fuel or Carbon capture and Land use or agricultural Other innovations
feedstock storage or use (CCS/U) practice changes Innovative processes e.g.,
Replace the fuel or Use of technology to Change land use or electrochemical production
feedstock with sustainably- capture the CO2 emitted in agricultural practices to process
produced biomass or processes or fuel reduce net emissions, e.g., Non-fossil fuel feedstock
biogas, e.g., bio-based consumption for storage through afforestation (for change, e.g., change in
feedstock in chemicals (CCS) or use (CCU) negative emissions) or cement feedstock
production changing livestock feed
Source: McKinsey
58 Net-Zero Europe
Net-Zero Europe 59
Exhibit 20
Achieving net-zero GHG emissions by 2050 on the cost-optimal pathway depends on a mix
of decarbonization technologies.
GHG abatement, relative reduction of CO2e vs 1990 in EU-27
-19%
2017-30 2017-50
Demand-side
15% 7% measures and
circularity
17% 11% Energy efficiency
-55% Electrification and

(1990-2030) 47% 44% carbon-neutral
power
Carbon-neutral
7% 13% hydrogen as fuel
or feedstock
Biomass as fuel or
5% 9%
feedstock1
Carbon capture
2% 6% CO2 and storage or
use (CCS/U)
Land use or
3% 7% agricultural
practice changes
4% 3% Other innovations
-100%
(1990-2050)
100%
0
2020 25 30 35 40 45 2050
1. Of the total of the emissions reduced by Bioenergy Carbon Capture and Storage (BECCS), half are attributed to biomass and the other half to CCS
Source: McKinsey
60 Net-Zero Europe
A large proportion of abatement
could be achieved using only a few
technologies. The top 15 decarbonization
technologies would eliminate 70 percent
of the European Union’s emissions
by 2050. The top four alone—using
onshore wind and solar photovoltaic
(PV) technologies in power, switching
to battery electric vehicle (BEV) for
passenger transport, and installing heat
pumps in buildings—would account for
one-third of decarbonization (Exhibit 21).
Exhibit 21
Onshore wind, solar power, and battery electric vehicles make the biggest contributions to
reaching climate-neutrality on the cost-optimal pathway.
Percent of total MtCO2e abatement for EU-27, 2020-50
Onshore wind
10%
Solar PV
9%
Other
8% BEV cars
100% = 3,6001 70%
6%
Heat pumps
1%
Anaerobic digestors 1%
Electric furnaces 1%
2% 6%
District heating
Solar thermal heating 2% BEV heavy transport
Electric industrial boilers 3% 5%

Biofuels for aviation & shipping 4%
5% 5% Offshore wind
H2 fuel cell heavy transport
Post-combustion CCS DRI- EAF H2
1. Net emissions after negative 0.3 GtCO2e impact of LULUCF on GHG emissions
Source: McKinsey
Net-Zero Europe 61
Behavior change and The behavior changes we investigated
consumption shifts in the buildings and transportation
One uncertainty over the next 30 years sectors would reduce emissions an
is how human behavior will impact the additional 120 MtCO2e a year by 2030,
European Union’s emission-reduction which would allow industry more time
efforts. We did not include behavioral to develop new technologies and
changes in our pathway because pursue lower-cost solutions. This
they are more difficult to influence would decrease the average cost of
and predict. However, these kinds of abatement by one-third through 2030.
behavioral shifts, such as reducing
Increasing LULUCF absorption by
meat consumption and car usage, could
130 MtCO2e per year would also help
reduce the European Union’s emissions
eliminate the need for costlier measures
by up to 15 percent. And these types of
to decarbonize the industry and
behavioral changes are typically much
agriculture sectors. When we include
more cost-effective than technology-
these behavior shifts, the average
driven ones. Encouraging people to
cost of decarbonization decreases
change their behavior to reduce the
by 15 percent to €55 per tCO2e from
demand for fossil fuels and other
2040 to 2050. When we factor them
GHG-emitting processes would make
into the entire transition from 2021 to
reaching the decarbonization target
2050, they generate a cost savings of
far less dependent on more expensive
€15 per tCO2e.
measures, such as implementing CCS
in the industry sector. To explore the
potential impact of these behavior
changes, we analyzed 12 consumption
shifts across sectors, ranging from
replacing cement with CLT to people
driving less and eating less meat
(Exhibit 22).
62 Net-Zero Europe
Exhibit 22
12 behavioral changes not included in the cost-optimal pathway model could lower EU
emissions another 15 percent.
Power 1 Enhanced demand flexibility

Over 10% of additional power demand from transportation and
buildings are flexible intra-day
Transportation 2 Reduced car usage in urban areas

Shift 20% of urban car PKT1 to buses
3 Last-mile delivery interventions

Reduce LDT/MDT2 trucks VKT3 by 15%
4 Modal shift from air to rail

Shift 95% of short-haul flights PKT to rail
Buildings 5 More attentive energy use

Lower room temperatures by 2° Celsius; reduce electricity demand by 10%
6 Increased uptake in smart meters

Over twice as many smart meters by 2050 (90% vs 40% in base)4
7 Shift to independent energy sources

25% of detached houses move off-grid
Industry 8 Wood displacement of cement

Over 65% of cement demand replaced by CLT
9 Higher plastics recycling rate

Up to 70% plastics recycling
Agriculture 10 Diet shift away from meat

50% of EU citizens become flexitarian5
11 Reduce food waste by half

(5-15% wasted today in different categories)
12 Additional LULUCF
Using 12 Mha of land freed up from productivity gains and 15 Mha from
above two levers for LULUCF
1. Passenger Kilometers Travelled (PKT)

2. Long-Distance Truck (LDT); Medium-Distance Truck (MDT)
3. Vehicle Kilometer Travelled (VKT)
4. Expected to lead to reduction in energy use as heating turns off when you are not at home
5. Eating meat once per week and roughly 70% lower dairy consumption
Source: McKinsey
Net-Zero Europe 63
Although a large share of emission aviation, shipping, and long-haul road
reductions could be achieved with transport, and long-term flexibility
only a few mature technologies, solutions in power (Exhibit 23).
accelerated innovation across the full
To meet the 2050 target, continued
technology portfolio will be critical to
R&D in these emerging technologies
reaching complete climate-neutrality.
would be critical. It may turn out that
Over half of abatement by 2030 could
these technologies do not pass the
be achieved using already mature
R&D stage (or only with significantly
(but not necessarily commercially
smaller applicability), so alternative
competitive) technologies, such as heat
solutions would be needed.
pumps in buildings, heat cascading in
industry, and onshore wind adoption in Although most abatement would
power. Over a third would come from come from already mature and early-
scaling technologies now in the early- adoption technologies, it will be
adoption stage, such as EVs. To reach essential to accelerate innovation
the 2030 target, the last 10 percent of and industrialization across the entire
abatement would come from proven zero-emissions technology portfolio to
technologies like CCS. enable at-scale deployment and drive
down transition costs. For example,
By 2050, those mature and early-
solar panels have become much
adoption technologies would reach
cheaper due to continued innovation
their maximum market penetration,
and the industrialization of production.
accounting for 60 percent of total
In the next 20 years, products such as
abatement. Demonstrated technologies
EVs and electrolyzers could undergo
such as CCS and low-temperature
analagous price drops.
hydrogen heating would need to be
rapidly scaled after 2030 to reduce
emissions an additional 27 percent.
The last 14 percent of decarbonization
would depend on the successful
development of technologies such as
electric and fuel cell technologies for
64 Net-Zero Europe
Exhibit 23
More than 85 percent of cost-optimal GHG abatement can be achieved with technologies
that are mature, in early adoption, or already demonstrated.
GHG abatement, relative reduction of CO2e vs. 1990 for EU-27
-19%
Current
state of
2017-30 2017-50 develop. Examples
39% 28% Mature Industrial heat
cascading,
solar, EAF steel
recycling,
-55% district heating
(1990-2030)
34% 32% Early Electric cars,
adoption solar thermal,
heat pumps,
biofertilizer,
electric
industrial boiler
22% 27% Demon- CCS, hydrogen

strated blending, GHG
focused
breeding cattle
5% 14% R&D Electric furna-

ces, carbon
absorption
tech, industrial
mid tempera-
-100% ture heat pump
(1990-2050)
100%
0
2017 25 30 35 40 45 2050
Source: McKinsey
Net-Zero Europe 65
2.3 Redesigning the EU other sectors (Exhibit 24). More than
energy system and changing 75 percent of the total primary energy
land use consumption would come from power,
most of which would be supplied by new
2.3.1 Transforming the EU
wind and solar energy. The final energy
energy system
consumption mix would be 55 percent
Today, the European Union depends
electricity, supplemented by 10 percent
on fossil fuels to meet 75 percent of its
hydrogen, 20 percent bioenergy in hard-
primary energy demand. To reach climate
to-abate sectors, and 15 percent other
neutrality by 2050, more than 80 percent
fuels, such as fossils plus CCS or heat.
of demand would need to be satisfied by
zero-emissions alternatives. However, Phasing out fossil fuels
this transition would require more than In our pathway, the use of coal and oil
just switching primary fuels. The new would steadily decline from now until
energy system would rely much more on 2050. Most coal reduction would occur
the power sector. before 2030, as coal power plants
continue to close throughout the EU.
Today, 40 percent of the European
The remaining coal that’s used to
Union’s demand for primary energy
make steel and generate heat would
comes from the power sector, which then
be phased out over time, as electricity,
supplies energy in the form of electricity
hydrogen, and bioenergy consumption
to other sectors. Those sectors—
increase. Oil consumption would also
industry, transportation, buildings,
drop significantly, falling 27 percent by
and agriculture—account for the other
2030 and 91 percent by 2050, as oil
60 percent of the primary demand.
consumption in sectors such as road
As we get closer to 2030, the power transportation is replaced by electricity
sector would start consuming a larger and hydrogen.
proportion of primary energy as the
As coal use phases out in the power
other sectors switch to electricity. For
sector, natural gas use would rise in the
example, reaching net-zero emissions
short term to cover the gap that cannot
in the transportation sector would
yet be supplied by renewables (Exhibit
require shifting from petroleum-fueled
25). This would slightly increase the
cars to electric. In the buildings sector,
demand for gas to generate power until
houses would need to switch from oil
2030. However, this increase would
and gas for space and water heating
ultimately be offset by a drop in demand
to electricity, waste heat, and solar
for gas in the buildings and industry
thermal. The industry sector would shift
sectors, as gas heating and gas
from over 70 percent reliance on fossil
feedstock uses are converted to low-
fuels to a mix of electricity, hydrogen,
carbon alternatives. Over the long term,
and biomass for manufacturing
gas would serve as a flexible generation
processes. And in agriculture, farm
provider to ensure security of supply
equipment would become electric.
and renewables would replace gas for
As a result, the EU’s energy system most power production. As a result, the
would be almost entirely dependent EU’s demand for natural gas would fall
on the power sector by 2050. The more than 90 percent by 2050.
power sector would become the central
switchboard of the EU energy system,
channeling renewable power to the
66 Net-Zero Europe
Net-Zero Europe 67
Exhibit 24
The power sector would become the central switchboard of the climate-neutral EU energy system.
Total primary energy demand

Million TJ
2017
70
60
50
40
30
20
10
0
1990 95 2000 05 10 15 20
Primary energy demand to final energy consumption

Coal
Million TJ
Renewable power1 Industry Oil
Bioenergy Transportation
Gas
Nuclear Buildings
Renewables
Natural Gas Agriculture
Nuclear
Oil
Hydrogen
Coal
Other2
Hydrogen
Bioenergy Power and
Power and heat heat
Total final energy consumption Transportation

48
Million TJ international
Transportation
Coal Biomass Electricity

Oil Other2 Hydrogen
Buildings
Natural Gas Heat Hydrogen derivative
Industry
Agriculture
68 Net-Zero Europe
2030 2050
CAGR, percent
1990–2017 2017–50
Renewable
3.1 6.0
power1
Bioenergy 4.1 0.3
Nuclear 0.2 -8.6
Natural Gas 1.2 -2.8
Oil -0.1 -7.1
Coal -2.0 -10.7
25 30 35 40 45 2050
Industry
Transportation
Buildings
Agriculture
Power and Hydrogen Power and Hydrogen

heat heat
41
29
Transportation
international
Transportation
Buildings
Industry
Agriculture
1. Includes solar PV, solar thermal, wind power, and hydro power
2. Other miscellaneous sources, e.g. non-renewable waste
Source: McKinsey
Net-Zero Europe 69
Phasing in new fuels and technologies Using hydrogen instead of fossil fuels in amount used today. About 50 percent
Our pathway requires a much greater the hardest-to-abate subsectors such of this could come from energy crops
reliance on electricity, along with as iron and steel production, long-haul such as rapeseed and Miscanthus, which
hydrogen and biomass as replacements trucking, aviation, and shipping would would require the conversion of about
for fossil fuels in hard-to-abate reduce the European Union’s total GHG 30 Mha of low-value lands to bioenergy
subsectors such as aviation and emissions by 400 MtCO2e a year by production. On our pathway, the quantity
shipping. In even harder-to-abate 2050. Hydrogen consumption would of solid biomass used in the buildings
sectors like heavy industry, CCS would start to scale rapidly after 2030, with and power sectors is limited to enable
be critical for reducing GHG emissions transportation becoming the largest more liquid biomass consumption in
that couldn’t be eliminated without source of demand by 2050. (See Section aviation and shipping. Also, biogas is
overhauling manufacturing processes 3.6 for more on the role of hydrogen.) used to generate heat in the industry and
(Exhibit 26). buildings sectors. (See Section 3.8 for
Increasing the use of sustainable
more on the role of bioenergy.)
Decarbonizing the European Union’s bioenergy is critical to reaching net-
power supply would require building zero GHG emissions in the European CCS would play a dual role in
an additional 1.1 terawatts (TW) of solar Union, particularly in hard-to-abate decarbonizing the European Union’s
power and 0.7 TW of wind by 2050. This sectors, significantly reducing the cost energy system, capturing emissions
would reduce power sector emissions of delivering a climate-neutral Europe. from fossil fuels and the CO2 released
by 700 MtCO2e a year and provide Most of the biomass now used in the from biomass when burned primarily
3,000 terawatt-hours (TWh) per year of EU’s energy sector is solid biomass, in industrial processes. In the short-
additional electricity that would enable much of which is imported from other term, industrial sites would continue
1 GtCO2e per year of abatement through countries or not sustainably sourced. to use fossil fuels while implementing
electrification and 0.4 GtCO2 per year Over time, the demand for biomass CCS as a bridge towards using BECCS
through the use of hydrogen in the would be satisfied by sustainable, by 2050. For instance, the process of
industry, buildings, transport, and domestic sources. The EU has the making hydrogen to produce ammonia
agriculture sectors. (See Section 3.1 for potential to sustainably generate 9 EJ would continue to use fossil fuel
more on changes in the power sector.) of biomass annually, doubling the feedstock along with CCS to reduce
Exhibit 25
On the cost-optimal pathway, natural gas use would rise in the short-term, but low-carbon
renewables would replace nearly all fossil fuel usage by 2050.
Total primary energy demand for EU-27, million TJ
Oil demand Gas demand Coal demand

21.0
-5.5
12.4
9.2
-1.5
1.9
1.1 -6.3
-13.6 0.2
-9.9
-2.8
2017 17-30 30-50 2050 2017 17-30 30-50 2050 2017 17-30 30-50 2050
Power Transportation Transportation Buildings Industry Agriculture

international
Source: McKinsey
70 Net-Zero Europe
emissions through 2040, then would including switching from agriculture
switch to biomethane feedstock after to forestry and from unused and
2040, resulting in negative emissions. abandoned land to bioenergy production.
Although negative emission generation
Climate neutrality requires further
would play only a small role in reaching
changes in EU land use
net-zero, it would be critical for
The European Union has long
offsetting the hardest-to-abate heavy
shaped land use to support a range
industry emissions. (See Section 3.7 for
of policy objectives, including
more on the role of CCS.)
agricultural production, rural welfare,
2.3.2 An expanded view on and sociocultural and landscape
EU land use heritage. As we look towards a
Land use is critical to achieving and climate-neutral European Union,
sustaining a climate-neutral Europe. land would have to serve additional
Land has a vital role in carbon goals, including enhancing natural
sequestration and producing bioenergy, carbon sequestration, supporting
which enables and reduces the cost of climate-neutral energy production, and
reaching climate neutrality. Increasing increasing biodiversity (Exhibit 27).
sequestration and bioenergy production
levels would require land-use changes,
Exhibit 26
The cost-optimal pathway relies on the uptake of four key technologies.
Renewables capacity Hydrogen demand CCS deployment Primary biomass demand

GW installed TWh MtCO2 Million TJ
2,040 1,510 205 8.1
6.1 5.9
670
300 340
30
250
0
2017 30 2050 2017 30 2050 2017 30 2050 2017 30 2050
Wind Offshore Power Chemicals Gas

Wind Onshore Transportation Cement Liquid
Solar Buildings Other industry Solid
Industry Hydrogen
Power
Source: McKinsey
Net-Zero Europe 71
Of the 412 Mha of land in the European ongoing efficiency gains could be in the rural areas of Western Iberia,
Union, 40 percent is used for reforested to support a significant Southern Italy, and Greece.
agriculture and a third is forest. EU increase in the level of natural
Reconciling sequestration with other
forests, along with EU soils, today store carbon sequestration. This reduced
land-use needs
about 524 GtCO2e. Delivering these land demand for agriculture is in line
There are policy objectives, in addition to
additional policy objectives would with historical trends; from 2009 to
bioenergy and carbon sequestration, that
require two significant changes to land 2015, agricultural land shrank by
require land. With the right approach,
use (Exhibit 28): 6 percent (9 Mha) while forest land
these do not have to be at odds.
increased by 2 percent (2.5 Mha).
— From unused and abandoned land
The European Union’s Biodiversity
to bioenergy. Bioenergy supply We estimate that increasing
Strategy target is to increase the
could be expanded by growing sequestration and bioenergy production
proportion of protected land from
energy crops on 30 Mha of the levels could create an economic
26 percent to 30 percent. This could
62 Mha of low-value lands that opportunity of up to €50 billion per
be achieved alongside decarbonization
aren’t currently used for forestry, year, primarily benefitting structurally
with a mixed land-use approach. For
food production, feed, or biofuels disadvantaged rural regions. For
example, protected land could also be
and aren’t rich in biodiversity. example, a large share of the marginal
used as a natural forest or for grazing.
lands suitable for conversion to
— From agriculture to forest. About
expanded bioenergy production lies
12 Mha of land that would no longer
be required for agriculture due to
Exhibit 27
On the cost-optimal pathway, EU land-use policies have to balance multiple

competing objectives.
Additional focus themes
Focus of Common Enhance natural Support carbon-neutral Increase biodiversity

Agricultural Policy
carbon sequestration energy production Share of protected
MtCO2e Million TJ bioenergy land1
Approx. land
Maintain rural use demand 1.5x 1.7x 1.1x
welfare 353 5.5 30%1
With
existing 26%
measures
Support scenario
248
agricultural Refores- 3.1
production tation
Natural
forest
Maintain socio- manage-
ment
cultural and
landscape heritage Grazing
manage-
Today 2050 ment Today 2050 Today 2030
12 Mha 30 Mha N/A
Targets based on analysis of a cost-effective way for EU to Targets based on EU
deliver climate-neutrality by 2050 Biodiversity Strategy
for 2030
1. EU Biodiversity Strategy states that at least 30% of the land should be protected in the EU. This is a minimum of an extra 4% of land as compared to today.
Source: McKinsey, EU Biodiversity Strategy for 2030: Bringing nature back into our lives
72 Net-Zero Europe
The build-out of renewable electricity axis tracking solar PV or larger onshore
generation to reach a zero-emission wind turbines. Innovation would also be
electricity system would require 6 to necessary to support the expansion of
12 Mha, about 30 percent of which renewable power within existing land
would be for solar PV and 70 percent uses, such as integrating solar PV and
for onshore wind. This is equivalent onshore wind into agricultural land or
to 1.5 to 3 percent of the total EU making more extensive use of rooftop
landmass. Electricity generation and solar PV.
transmission infrastructure would
Improved community engagement
become more prominent in our habitats
could be achieved by reaching out to
and may provoke resistance from locals.
impacted communities and linking
This is likely to be a bigger problem in
the need for electric infrastructure
areas with high energy demand and
to the growing public support of
population density, such as in Germany
decarbonization. Another approach
or Italy. There is already some societal
may be to increase local communities’
pushback against solar PV and onshore
share of the financial return associated
wind developments.
with renewable power. Community
Resolving these challenges would energy projects in which citizens own
require technical innovation and or participate in sustainable energy
community engagement. On the generation already use this approach.
technical side, further innovation in
generation technology may improve
land-use efficiency. This could be
through bifacial, high efficiency, two-
Exhibit 28
The cost-optimal pathway involves a slight shift from agriculture to forestry, plus the
cultivation of energy crops on 30 million hectares of low-value, abandoned land.
EU land use Additional needs EU land use

2015 Mha Mha 2050 Mha
Agriculture 161 -12 149

Shift from agriculture to
forestry (~12 Mha)1
Forestry 141 12 153
Services and
27 27
residential area
Unused and
62 -30 32
abandoned areas2 Shift from unused and
abandoned land to
bioenergy (~30 Mha)
Bioenergy 6 30 36
Land use with heavy

14 0 14
environmental impact3
Other 2 0
Total 412 0 412
1. Aligns with 2019 Report of the FABLE Consortium on ‘Pathways to Sustainable Land-Use and Food Systems’
2. Eurostat, Based on current EU member states for which data was available at 2009 and 2015. Excludes unused and abandoned areas for which data was not reported in 2009
3. Includes mining and quarrying, energy production, industry and manufacturing, water and waste treatment, and construction
Source: Eurostat, Land use overview by NUTS 2 regions 2015 (accessed 10/06/2020)
Net-Zero Europe 73
The landscape of possible zero- wind and solar rollout to meet reduction 50 percent of the known capacity in the
emission futures targets in the power and industry sectors. North Sea for carbon storage. CCS has
also already faced public resistance in
The focus of this report is to present a An alternative pathway that would require
countries across the EU.
technologically feasible, societally cost- only half the rollout of renewable power
optimal pathway to achieve the European in our cost-optimal pathway would The green-energy import pathway.
Union’s emissions-reduction targets. significantly reduce the pressure on land Instead of relying entirely on domestic
However, many factors will undoubtedly use. But it would also be 15 percent more production, clean energy could also
impact the decarbonization pathway the expensive in aggregate, with the marginal be imported (Exhibit 29). However,
European Union ultimately takes. cost of power being 50 percent higher. The a scenario in which imports replace
additional costs would be generated by half of the renewable power in the
Under current cost projections and our
both the energy supply and demand sides. pathway could be 10 to 20 percent more
boundary constraints, the lowest-cost
expensive, depending on which fuels are
way to reach net-zero emissions would On the energy supply side, the
imported and in which way (e.g. pipeline
rely on a rapid rollout of renewable power decarbonization of power would need to
or ship). This is because the cost of
in Europe. By eliminating current power rely more on CCS and negative emission
transporting them to the EU would likely
sector emissions and enabling mass technologies such as BECCS, resulting
outweigh the lower production costs of
electrification and green hydrogen use, in a higher power price. The constrained
green fuels in other countries.
renewable power would contribute to supply of low-cost green power would limit
70 percent of total emission reductions. the uptake of green hydrogen. As a result, The most promising approach would likely
Although this would be feasible under the hydrogen would primarily be produced via be importing clean energy from regions
known technical and resource availability the blue route at a 30 to 40 percent higher close to the European Union, such as
constraints, implementing the changes price than green hydrogen. North Africa. For example, Spain could
to provide this level of renewable power import cheap wind and solar power from
On the demand side, higher power and
would be a significant undertaking. Morocco through a high-voltage direct
hydrogen costs would likely reduce the
current (HVDC) cable or as hydrogen via
It would require an annual deployment of amount of electrification and hydrogen
pipelines. Border regions of the European
20 GW a year of wind and 17 GW of solar use. Electrification would still occur in
Union could pursue cross-border projects
from 2021 to 2030. This is comparable transportation since the cost differential
to complement their energy mix, then scale
to the annual installation rate in 2019, between electric road transportation and
up to create large import corridors into
but the pace would need to double from the alternative zero-emissions options
Europe. Hydrogen could be transmitted
2030 to 2050. By 2050, he European would be significant even with higher
long distances through the European
Union would need to add more than power prices. But with higher power
Union’s gas-network infrastructure, while
1,100 GW of solar and 850 GW of wind. prices, the electrification levers we’ve
new HVDC lines could carry renewable
proposed in the buildings and industry
This level of deployment would also require power from outside the European Union
sectors would likely be replaced by lower-
a significant amount of land to be used. As deep into Europe.
cost alternatives. For high-temperature
renewable power continues to ramp up
processes, the industry sector would Another option is importing low-carbon
through 2050, more wind and solar farms
need to rely on more CCS or switch to hydrogen via ship from places like the
would need to be built closer to densely
biomethane if it’s available. The buildings Middle East. We estimate that this would
populated areas. If the public protests
sector would require more district heating result in a landed cost of €4 to €5 per kg
these developments, it could slow the
and solar thermal as heating sources, as of hydrogen in the short term and €2 to
build-out of renewable power required to
well as more insulation to lower the total €3 in the long term, compared to an
reach net-zero.
heating demand. estimated domestic production cost of
To explore the landscape of possible €2 to €3 per kg in the short term and €1 to
From an implementation perspective,
pathways, we also investigated two €2 in the long term. Hence, the additional
this decarbonization pathway would
archetypal alternative approaches cost of transportation would likely result
avoid some of the likely challenges
to achieve climate-neutrality in the in a landed hydrogen price that would
associated with developing renewable
European Union’s energy system by be almost double the local production
power at scale. However, the rollout of
2050. Those alternatives include: cost under the cost-optimal pathway in
CCS would come with its own technical
The carbon-capture pathway. most regions. That would likely motivate
and public perception hurdles. Setting up
Our cost-optimal pathway already uses the many potential hydrogen consumers to
a CCS network to reduce emissions by
European Union’s maximum potential of consider lower-cost alternatives.
700 MtCO2 a year by 2050 (instead of the
sustainable biomass production and most
200 MtCO2 a year in our pathway) would A third alternative is importing sustainable
of the available circularity and demand
end up being the size of the European biomass from places like Canada.
reductions. That leaves CCS as the primary
Union’s gas transmission system operators This would be no more than
alternative technology to a larger-scale
(TSO) network and require more than 5 to 10 percent more expensive
74 Net-Zero Europe
than domestic production and, in ports as well as pipeline and transmission import options. This could include
some cases, could even be cheaper corridors to neighboring regions of the requiring those pursuing CCS projects
depending on the production costs EU. To some extent, existing infrastructure to have a plan for how they can rapidly
abroad. However, sustainably could be reused, such as turning liquid expand the CO2 pipeline network beyond
sourced biomass would likely natural gas (LNG) port terminals into liquid the pilot. This would be similar to how the
become a scarce resource in a world hydrogen terminals. But in other cases, Rotterdam project included blueprints
increasingly pursuing sustainability and importing green energy would require new, for incorporating the Ruhr area into the
decarbonization. Estimates of global large-scale infrastructure projects. It would same CCS cluster. Those ports-and-
sustainable biomass production range diminish two critical benefits of the cost- border corridors could ensure they are
from 30 to 200 EJ a year, which already optimal pathway: job growth and greater “hydrogen-ready” by pursuing exploratory
makes the European Union’s domestic reliance on domestic energy sources. off-take agreements for green fuels from
biomass potential of 9 EJ a year more places like the Middle East. This would,
To account for possible delays in building
than its fair share based on population, in turn, encourage green investments
out renewable power and the significant
emissions, and GDP. Importing an beyond the European Union.
lead time required to pursue the alternative
additional 10 to 15 EJ biomass a year
pathways, a good strategy could be Although these measures would
may not only face objections abroad
investing in “pathway optionality” to create additional costs, they could be
but contribute to tightening the global
maximize the likelihood that the EU meets considered an insurance premium,
market for sustainable biomass and
its emission-reduction targets. allowing the rapid scaling of CCS or
driving up prices.
green energy imports to contribute to
In the short term, this would require
So, although importing green energy in the last 45 percent of decarbonization
making additional investments—beyond
various forms is possible, it likely comes with from 2030 to 2050.
those needed to meet renewables build-
cost challenges. A green-energy import
out targets—in CCS and low-carbon
pathway would also require expanding
Exhibit 29
There are two main alternates for the EU energy system to our cost-optimal pathway.
Domestic green
power and H2
Cost optimal pathway
(focus of this report)
Carbon capture pathway
Green imports pathway
Other domestic Imports, e.g., biomass

solutions, e.g., CCS or carbon neutral fuels
Source: McKinsey
Net-Zero Europe 75
2.4 Pathway ambiguities 1. Blending hydrogen versus 3. Applying CCS, blending low-
blending biomethane into the gas carbon gas into a furnace, or
Based on today’s cost projections, the
grid. Hydrogen and biomethane replacing the entire installation
technologies and techniques that we
prices may converge in some with an electric furnace. Industrial
outline in our pathway are the lowest-
regions so that they compete. Which high-temperature heating is
cost way to reduce 80 percent of the
fuel would be more affordable notoriously hard to decarbonize.
EU’s GHG emissions by a wide margin.
by 2050 would depend on the Options range from adding CCS
Even with significant price changes, the
availability and price of biomethane to a furnace, blending biomethane
second-best options would be much
compared to the local availability or hydrogen into the furnace fuel,
more expensive.
of cheap power to drive down the or switching to an electric furnace.
However, the most cost-effective way cost of producing hydrogen. This Depending on the region, the cost
to abate the remaining 20 percent of uncertainty affects 5 to 7 percent of each option would range from
emissions after 2030 is less certain. of the total emissions abatement. €70 to €120 per tCO2e abated. Site-
There are two or more similarly priced Some 10,000 terajoules (TJ) of specific CCS costs, the availability
abatement options for these emissions, final energy demand that would of a local CCS network, the success
and it will be hard to say which is be fulfilled by hydrogen in our of electric furnace R&D, and the
the lower-cost one until after 2030. pathway could be satisfied by availability of cheap local hydrogen
There are a number of reasons for this biomethane if local prices decline or biomethane would determine the
uncertainty. For instance, it’s difficult 20 percent further than our current most cost-optimal option.
to predict whether biomass, hydrogen, assumptions. Because biomethane
By and large, the favored solution for
or CCS would be the best choice in a supply is limited, the potential for
each region is evident. About 5 percent of
particular situation until we know how this to happen will depend on its
abatement in the optimal pathway is more
much the price of hydrogen will drop future availability.
ambiguous and may differ if local prices
in the next 10 years, how available
2. Reusing gas networks or building diverge substantially from our projections.
biomass will become, and whether there
new district heating networks.
is accessible CO2 storage for CCS. All Aviation and shipping have only a few
Buildings with gas connections
these factors would also vary by region. abatement options. Emissions can
can be decarbonized by blending
be reduced by switching to advanced
These known unknowns could result carbon-neutral gases, such
biofuels or synfuels, both of which
in deviations from our cost-optimal as hydrogen or biomethane,
would cost more than €100 per tCO2e
pathway in four areas: heating for into the system. But in some
abated. Our pathway anticipates
industry and buildings, aviation and neighborhoods, installing new
that most of aviation and shipping
shipping, the final 10 percent of power district heating networks could be
would switch to biofuels, which
decarbonization, and short-term the better option because waste
would be somewhat less expensive
hydrogen production. heat is much cheaper than hydrogen
than renewable synfuels. But faster
or biomethane, and the savings
Heating for industry and buildings development of the synfuel production
could offset the initial investment
accounts for up to 25 percent of process or more rapidly falling
of installing a new system. These
emissions today. Most of the abatement hydrogen costs could change the
two options are generally close in
technology pathway is clear. Coal and preferred fuel for 3 percent of overall
cost, and location specifics would
oil heating would be phased out in favor abatement. If synfuel costs fall more
determine the best choice.
of renewable power, and gas heating rapidly, roughly 60,000 TJ of final
could be replaced by district heating biofuels demand could be satisfied
in densely populated areas. However, instead by synfuels.
for part of the existing gas heating,
several abatement options have similar
costs, such as switching to gases like
biomethane or hydrogen, using other
heat sources such as waste heat, and
implementing CCS. The ambiguities are
particularly relevant for the following
three decarbonization decisions:
76 Net-Zero Europe
The last 15 percent of power In the short term, the optimal mix of
decarbonization will likely be technologies for producing hydrogen
expensive and technically complicated. is uncertain. Over the long term,
Variable wind and solar power would green hydrogen production from the
need a flexible generation or demand electrolysis of water is expected to be
source to balance the surpluses and cheaper than blue hydrogen created
deficits over long periods. By 2040, by reforming natural gas and capturing
when the power system approaches the emitted CO2 with CCS. However,
climate neutrality, this could be it remains unclear which production
provided by low-carbon sources such route would be most cost-effective
as hydrogen or biogas peaker plants, from 2021 to 2030. That depends on
gas peaker plants with CCS, or flexible how quickly the cost of electrolyzers
demand options such as electrolyzers. declines, as well as local renewable
The preferred choice will depend on power prices and the proximity to
regional factors such as biogas and CO2 storage in various regions.
hydrogen prices, the proximity of
Finally, there are unknowns, such as
CO2 storage, and the type of flexible
potential innovation breakthroughs in
demand available. About 2 percent of
fusion power, that could materially alter
the total abatement would be affected
the picture.
by these choices.
Net-Zero Europe 77
3. Sector deep-dives
The next section presents the cost-

optimal pathway for each of the five
sectors and the role of hydrogen, CCS,
biomass, and carbon sinks in reaching
net-zero. To get the big picture of the
efforts required, it’s not necessary to
read all nine sections. You can read
those of greatest interest to you.
We chose to present the pathways by

sector rather than region because they
share more similarities than regions.
In the following sections, we follow the
same structure for each topic. First, we
discuss the baseline—the state of play
today—followed by a description of the
sector pathway to net-zero and close
with the uncertainties and enablers that
could impact those pathways.
78 Net-Zero Europe
Net-Zero Europe 79
3.1 Power
80 Net-Zero Europe
Exhibit 30
Power pathway in brief

Power demand may double by 2050, but renewable energy should provide more than 90 percent of the supply
5,895
Demand Power demand
Indirect demand -
TWh
Hydrogen (TWh)
1,125
Direct demand (TWh)
3,420
2,840 565
327
4,770
2,855
2,513
2,195
Renewable Renewable generation 160 Other renewable
generation capacity capacity (GW)
GW
Wind and solar
capacity (GW)
2,035
845
170
431
186 675
2451
2017 30 2050
Renewable generation
share of total production 31 62 91
%
1. In 2019, total installed wind and solar power capacity increased to 285 GW, accounting for about 35% of the total generation in 2019
Source: McKinsey, www.enerdata.net
Net-Zero Europe 81
3.1.1 Power emissions today 3.1.2 The role of power on the path
Europe is a global leader in low- to net-zero
emissions generation but still has a To reach the EU climate targets, the
way to go to reach full decarbonization. power sector is in a much different
The power sector emitted 935 MtCO2e position than the other sectors. Not
in 2017, accounting for 25 percent of only must power producers switch
total EU emissions.10 Since 1990, the to using more renewable sources to
European Union has reduced its power generate power, but they must also
emissions by 40 percent as power scale production volumes to meet
producers have diversified into more the rising demand for power as other
low-carbon energy sources (Exhibit sectors switch from fossil fuels to
30). As a result, the European Union electricity and hydrogen.
is a global leader in renewable energy
On our pathway, the demand for
generation, producing 35 percent of
electricity in the European Union
its power from wind, solar, hydro, and
is expected to nearly double in the
biomass in 2019, compared to China
next 30 years, from 2,840 TWh in
with 27 percent and the United States
201713 to 5,895 TWh in 2050. Direct
with 18 percent.11
electrification will account for 63 percent
At the country level, however, EU of this growth, with demand rising
member states vary in their dependence fastest in the transportation sector
on fossil fuels. For example, the as electric passenger cars and buses
emissions intensities of electric power become the norm. The other 37 percent
production in Poland, the Czech will come from increased demand for
Republic, and Bulgaria are much higher green hydrogen as a replacement fuel
than the EU average of 296 gCO2e per for use cases that can’t be electrified,
kilowatt-hour (kWh) because they still such as long-haul trucks and buses,
rely on a large share of coal and lignite as well as industrial processes such as
power plants.12 On the other hand, steelmaking, chemicals manufacturing,
France’s emissions are only one-fifth of and food production.
the EU average because France relies
on nuclear power plants (Exhibit 31).
10
The power sector’s GHG emissions in 2018 declined to 875 MtCO2e, according to latest available GHG inventory data from the United Nations (as of October 2020).
11
Historical actuals based on data from Enerdata.
12
“CO2 intensity of electricity generation,” European Environment Agency, latest available CO2 intensity of electricity production for EU member states (as of October 2020).
13
“Electricity in Europe 2017,” ENTSO-E, June 2018.
82 Net-Zero Europe
Exhibit 31
Since 1990, the renewable energy share of EU power generation has more than doubled,
leading to steady declines in CO2 produced per kWh.
Power sector baseline for EU-27
Electricity generation mix1 Electricity CO2 intensity

TWh gCO2/kWh
3,500 +1% p.a. 600
3,000 500
2,500 -42%
400
2,000
300
1,500
200
1,000
500 100
0 0
1990 2000 10 2017 1990 95 2000 05 10 15 2017
14% 17% 24% 31%
Renewable generation share
(incl. wind, solar, hydro & biomass)
Other RES Biomass Coal

Other Non-RES Solar Nuclear
Wind Offshore Hydro
Wind Onshore Gas
Electricity CO2 intensity and fossil generation share >=450

Regional CO2 intensity, g/kWh, 2017 <450
<250
<100
Outside EU 27
~15%, Nordics X% Fossil
~60%, Benelux generation
share in 2017
(incl. gas,
coal & lignite)
~55%, Ireland
~40%, Germany ~80%, Poland
~50%, Czech republic

~5%, France
~55%, South Eastern Europe

~40%, Iberia
~60%, Italy
1. Historical numbers up to 2016 from Enerdata, 2017 is based on model results which match well with Enerdata historical figures
Net-Zero Europe 83
Exhibit 32
With significant investments in wind and solar power generation, the EU power sector
could meet growing demand and still reach net-zero emissions by 2050.
Electric power demand

Net electricity demand in EU-27 (excluding grid loss and own consumption), 2017-50, TWh
5,895
2% p.a. 1,125
2x
3,415
2,840
4,770 Hydrogen
demand1
3,310
Direct
electricity
demand
2017 Direct demand Hydrogen 2030 Direct Hydrogen 2050
demand demand demand
15% 4% 48% 33%
Share in total growth from 2017-50
Evolution across sectors

TWh
Direct electricity demand Hydrogen production with electrolysis

4,770
3,310
2,840
1,125
0 105
2017 30 2050 2017 30 2050
Transportation Buildings Industry Agriculture
84 Net-Zero Europe
Capacity and generation mix in EU-27, 2017-50
Capacity Generation
GW TWh
6,785
2,695 2%
Other RES
7%
Other Non-RES
Hydrogen
11% 21% Battery
Wind Offshore
Wind Onshore
Biomass
Solar
24%
Hydro
Gas
Nuclear
< 1% 32% Coal
3,385
1,245 < 1%
2% 2,9602 8%
1% < 1%
5%
9102
46% 10% 25%
< 1%
1% 26% 6%
4%
11% 4%
15% 2%
14% 32%
4%
10% 24%
11%
17%
12%
6%
5%
2017 30 2050 2017 30 2050
47% 69% 87% 31% 62% 91%
Renewable share (incl. wind, solar, hydro and biomass)
NOTE: Share of capacity and generation shown only for renewable technologies
1. Excluding conventional Hydrogen demand used in refining and ammonia
2. Total installed capacity in 2019 was 955 GW and generation was 2905 TWh
Source: McKinsey, www.enerdata.net
Net-Zero Europe 85
Technologies to decarbonize the could reduce the cost of solar PV energy Rapidly phase-out coal while using gas
power sector are already available and another 65 percent. Similar results may as a transition fuel
are expected to become more cost- be attainable for onshore and offshore Many countries have plans to accelerate
competitive, especially compared to wind generation (Exhibit 33). the phase-out of coal-fired power
those available to other sectors of the stations, retiring them before the end
Under our cost-optimal pathway
economy. As a result, the power sector of their expected lifetimes. The most
to reach the EU climate targets,
could reach net-zero faster than other cost-effective decarbonization pathway
62 percent of the European Union’s
sectors, reducing emissions 75 percent would require retiring 70 percent of
electricity would come from
by 2030 and 100 percent by 2045. existing coal capacity (105 GW) by
renewables by 2030. Most of this
Getting there will require significant 2030, which is 32 GW more than EU
would be generated by onshore
investments in wind and solar power countries have planned so far.17 This
wind (25 percent), solar (15 percent),
generation, finding ways to ensure would require countries such as Poland,
hydro (11 percent), and offshore wind
that power grids fueled by renewables Slovenia, and Romania to set agendas
(8 percent). Achieving this level of
can handle demand fluctuations, and to phase out coal, and countries such
growth in renewables generation would
greater inter-regional connection of as Germany that already have these
require some countries to go beyond
power systems (Exhibit 32). agendas to advance their timelines.
their current national energy and
The most cost-effective pathway to climate plans (NECP).14 For instance, In the short term, natural gas usage
reaching net-zero would require the Germany would need to reach total would rise to cover the gap from coal
following: capacity of 210 GW of wind and solar retirements that cannot yet be supplied
1. Increase the proportion of power by 2030, which is 20 GW more by renewable power.
electricity produced from than its planned target of 189 GW.15
After 2030, as the supply of renewables
renewables to 91 percent, up from
To fully decarbonize by 2050 on increases, gas will be used primarily to
31 percent in 2017.
our pathway, the European Union provide flexibility and security of supply.
2. Rapidly phase-out coal while using would need to generate 91 percent This will cause the share of gas-based
gas as a transitional fuel. of its power from renewable energy power to drop from 15 percent today
sources. Solar power would account for to 1 percent in 2050.18 As a result, the
3. Balance and secure the power
32 percent, onshore wind 32 percent, utilization of gas plants would drop
supply with flexibility solutions
offshore wind 21 percent, and hydro from 30 percent in 2017 to 4 percent,
including low-emissions generation,
5 percent. The remaining 10 percent while hydrogen-fueled plants would
hydrogen, storage, and demand-
of power production would have to be run at 14 percent. Investments in
side management.
provided by nuclear power and systems the necessary gas plant additions
4. Triple the capacity of inter-regional such as gas-fired power stations with of 49 GW by 2030 and 84 GW by
interconnections by 2050 to ensure carbon capture. 2050 are not likely to happen under
the lowest system cost at the EU level. the existing market regime. Market
The cost-optimal pathway would
design would need to evolve to allow
Increase the supply of electricity require adding an average of 37 GW
the development of new power plants
produced from renewables of renewable power every year from
and the operation of existing ones at
In the last decade, the cost of solar 2021 to 2030, with 17 GW of solar PV,
these significantly lower utilization
and wind power has fallen faster than 15 GW of onshore wind, and 5 GW of
levels. This would include, for example,
has been forecast. In many European offshore wind, later increasing to an
mechanisms similar to the capacity
countries, the lifetime benefits of average of 68 GW per year from 2030 to
market introduced in Italy to maintain
renewable technologies already 2050. This would mean almost doubling
the required capacity while developing
outweigh the investments required in the 17 GW per year pace of capacity
up to 5.5 GW of new thermal capacity.19
new systems, and they are expected to expansion of the last five years from now
become even more cost-competitive. until 2030 and increasing capacity even
For example, declining costs for faster from 2030 to 2050.16
balance-of-system equipment and the
installation of next-generation solar
14
“Final National Energy Climate Plans, as of September 17, 2020,” European Commission, Accessed Nov 11, 2020.
15
“Integrated National Energy and Climate Plan: Germany,” European Commission, June 10, 2020.
16
Historical capacity installations are based on Enerdata database.
17
A total of 72.8 GW of coal power capacity is located in countries that have announced they will phase out coal by 2030 or earlier. For more information, see “Overview:
National coal phase-out announcements in Europe,” Europe Beyond Coal, October 2020.
18
Historical actuals based on Enerdata.
19
“Capacity market,” Terna, Accessed Nov 11, 2020.
86 Net-Zero Europe
Exhibit 33
Capital expenditure costs for renewable power systems may drop dramatically by 2050.
LCOEs1 of renewable new builds vs. SRMC2 of Renewable capex

existing gas plants EUR/kW
EUR/MWh, 2020
60 4,500
3,000
Gas -45%
45
1,500
-25%
-65%
30 0
Solar Wind Wind 2020 25 30 35 40 45 2050
onshore offshore
Max
Wind onshore Solar PV (utility scale)
3rd quartile
Wind offshore
Median
2nd quartile
Min
1. LCOEs for new build renewables in 2020, excluding grid connection costs and power export infrastructure for offshore wind
2. SRMC - Short Run Marginal Cost of existing gas power plants
Source: McKinsey
Net-Zero Europe 87
Balance and secure energy generation — In the short term: Between now and As a result, battery storage use would
with a mix of flexibility solutions 2030, the power system would initially rise to help integrate renewables
The need for system flexibility will rise require flexibility for periods of less into the grid and improve power
as the power system becomes more than six hours. Battery storage could quality characteristics such as
dependent on renewables, as many provide the needed balancing if the ramp rate, frequency, and voltage
countries have already experienced. In installed capacity increased to 25 GW stability. Existing gas assets, pumped
the long term, the system would require by 2030 and 170 GW by 2050. To hydro storage, and demand-side
the flexibility to provide power for enable such an increase, the battery response in the buildings industry and
weeks and months because renewable storage cost of a four-hour lithium- electrified transport sectors would
generation surpluses and deficits ion system would need to decline to also help provide short-term flexibility.
would occur more often. This can be half of the €185 per kWh it is today by
addressed in various ways, including 2030 and drop further by 2050. This
making grid improvements, adding would make battery storage cheaper
flexible generation, expanding demand- than new and existing gas power
side management, and installing energy plants and progressively cheaper
storage systems (Exhibit 34). The most through 2050.
cost-optimal flexibility solutions include
the following:
Exhibit 34
As they become more dependent on renewables, power systems will need to become more
flexible to cope with surpluses and deficits.
Three representative daily generation and load profiles, Southern European country, 2050
Renewable conditions
Most favorable (Jun.) Average favorable (Sep.) Least favorable (Jan.)
Gener-
ation
Load
DSR1 Gas Net transmission flow Wind Onshore Bulk load

Battery Hydro Solar Fuel creation
1. DSR – demand side response which includes V2G (vehicle to grid ) and flexible industrial load in this study
Source: McKinsey
88 Net-Zero Europe
— In the medium term: As the wind turbines in the Netherlands,
penetration of renewables while cloudy skies over Italy could
increases after 2030, power prevent solar power generation there.
systems would need to become Managing these imbalances most cost-
more flexible to cope with surpluses effectively would require EU member
and deficits that last from days to states to increase the interconnectivity
weeks. The system would rely on of their transmission systems—a
gas plants to cover the shortages significant change from the current
and use hydrogen production practice of balancing power generation
via electrolysis during periods of fluctuations mainly at the individual
oversupply or as an additional form country level. Countries would rely
of demand management. more on each other for the security of
their power supplies in the most cost-
— In the long term: To cover seasonal
effective scenario.
balancing from weeks to months
after 2040, the last 5 percent of To integrate the systems, interregional
demand would have to be provided by transmission flows would need to
zero-emissions flexibility solutions. more than triple in the next 30 years,
Even the most cost-effective zero- from approximately 435 TWh in 2017.20
emission technologies, such as That would require increasing the
natural gas power stations with interconnection capacity 40 percent
carbon capture, hydrogen as a fuel, by 2030 from approximately 85 GW
and BECCS, are more expensive than today,21 in line with European Network
other energy sources. They would of Transmission System Operators
increase the average system cost, for Electricity (ENTSO-E) ten-year
but more cost-effective solutions development plans,22 and then more
may emerge in the interim. than doubling it by 2050 (Exhibit 34).
Triple interregional power Strong interconnections between EU

flows by 2050 member states would enable the most
The future power generation mix will cost-efficient pathway for climate
differ by region, depending on each neutrality but require a fundamental
country’s natural resources. It will also change from managing power systems
depend on how willing EU member at the level of individual countries. Unless
states are to connect their power this approach changes significantly, the
transmission systems to compensate system could evolve as a sum of national
for local weather changes that impact systems with higher investments and
their ability to generate renewable operational costs in generation capacity
power from day to day. For example, and flexibility, rather than an optimized
the wind may be blowing hard enough Europe-wide system.
in the North Sea to power offshore
20
Historical, based on ENTSO-E. Total future interconnection flows are assumed to grow at the same pace as major interconnection flows between regions.
21
ENTSO-E, Mid-term Adequacy Forecast
22
ENTSO-E, Mid-term Adequacy Forecast
Net-Zero Europe 89
The required investments and power Because of the cost competitiveness
generation cost changes of wind and solar generation compared
Decarbonizing the power sector would to the current mix, the average cost of
require an investment of €6 trillion power generation is expected to drop
from now through 2050, an average 20 percent by 2050. But these savings
of 1 to 1.5 percent of EU GDP. About may be partially reduced, particularly
55 percent of that investment would from 2040 to 2050, by an increase
go toward improving the grid, while in grid costs on end consumers.
40 percent would go toward enabling However, greater digitization and new
the system to run on renewables. technologies such as smart substations
could offset the increase (Exhibit 35).
In the next 30 years, the total annual
Countries with more natural resources
investment that EU member states
like solar radiation and wind will benefit
would make in the power sector would
from even higher cost savings.
rise to an average of €200 billion a year,
more than double the average €85 billion
investment they’ve made in each of the
past ten years.23 After 2030, these costs
would include conversion-capacity
investments, including battery storage
and electrolysis, flexibility, and fulfilling
the demand for green hydrogen.
23
Estimations prepared by Trinomics based on several studies. For more information, see Luc Van Nuffel, Koen Rademaekers, Jessica Yearwood, and Verena Graichen,
“European energy industry investments,” prepared for the European Parliament ITRE Committee, February 2017.
Exhibit 35
By 2050, power generation costs could fall nearly 20 percent, but higher transmission and
distribution costs may offset these savings.
Electricity costs, EUR/MWh, EU-27, indexed to 2020 = 100
105
100
98
93
-20%
Additional T&D costs

(vs. 2020)
System generation costs
2020 30 40 2050
Renewable share 34% 62% 80% 91%
(incl. wind, solar,
hydro and biomass)
Source: McKinsey, „A Clean Planet for all”, https://ec.europa.eu/clima/sites/clima/files/docs/pages/com_2018_733_analysis_in_ support_en_0.pdf
90 Net-Zero Europe
Although the savings from decarbonizing
the EU’s power sector would more than
offset the cost of reducing 85 percent
of its emissions, eliminating the last
15 percent would be expensive because
they are the hardest to replace with
renewable energy sources. Based on
current technology, these emissions
would have to be abated using more
costly solutions such as CCS, BECCS,
and power-to-gas (Exhibit 36).
Exhibit 36
Savings should exceed decarbonization costs for 85 percent of the EU’s power sector
emissions, but eliminating the last 15 percent would be expensive.
Average abatement costs, EUR/ton CO2 abated , EU-27
200
150
100
50
Contribution -50 55% 30% 15%

to total CO2
reduction 2020 30 40 2050
Renewable 34% 62% 80% 91%

penetration
Source: McKinsey
Net-Zero Europe 91
3.1.3 Key uncertainties and enablers Nuclear generation might — Evolving demand and economic
Key uncertainties: Technology, social also develop differently than shifts. Electrification and
preferences, and demand shifts assumed in the pathway. technology changes in every sector
Many factors could delay or accelerate Potential breakthroughs in fission of the economy and large industry
GHG reduction in the European Union technology, such as step-changes players relocating businesses or
and change what today appears to be in engineering or construction reconfiguring their supply chains to
the most cost-effective pathway for the efficiency or small modular reactors localize production could change
power sector, including: or advances in fusion, could improve the overall power demand, move
the competitiveness of nuclear it geographically, and change
— Faster-than-expected technology
power in the long run. the optimal pathway. Evolving
advancement. Accelerated
energy prices could influence
cost reduction, performance — Social preferences. Building
where power producers make
improvements, and innovative enough wind and solar capacity
new investments over the next
solutions such as floating offshore to decarbonize the power sector
30 years, creating a feedback loop.
wind farms could expedite the will likely require dedicating more
Overall economic conditions and
uptake of renewable power. If land to the greater public good. But
differences in collaboration levels
new flexibility solutions such if people resist making way for a
among companies, governments,
as compressed air storage, wind farm or grid interconnection,
and investors could also make it
aqueous storage, and molten-salt it will increase the cost or slow
challenging to obtain the capital
batteries mature more quickly than the process. Public resistance to
they need for decarbonization.
expected, the cost-optimal mix of potential job losses in the oil, gas,
technologies would also change. and mining industries could also
Breakthroughs in CCS solutions, delay the transition to renewable
such as more efficient capture power, as could concern among
membranes, could displace some government leaders about
hydrogen use, reducing the volume increasing their dependence
of renewable power required. on neighboring countries for
Ultra-high-voltage direct-current renewable power. Nuclear
interconnectors could make cross- technology would also need to
regional energy flows cheaper. Also, attract public support to play a
innovations such as distributed more significant role
energy resources management in decarbonization.
systems (DERMS) and other non-
wire alternatives could lower grid
costs by reducing investments in
physical assets. New technologies
would need to emerge in the next
decade for them to scale and make
a meaningful contribution by 2050.
92 Net-Zero Europe
Key enablers: Regulation, new development and deployment of new makers in many countries would
market design, and cross-regional technology solutions. need to simplify the regulations
cooperation for authorizing and permitting
— New market design for the long
Governments, regulators, market new power and grid installations,
term. Some decarbonization
operators, associations, and investors closures, and conversions. Leaders
investments, such as renewable
would all have important roles to play in countries most impacted by the
generation plants and power
in creating a feasible, cost-effective transition would also need to focus
transmission lines, are expected to
pathway to decarbonizing the on reskilling the workforce and
be profitable under existing market
European Union’s power sector. The developing new branches of the
mechanisms. Others, such as
key enablers include: economy in the most affected areas.
battery storage, gas- and hydrogen-
— Mechanisms that drive and deploy fired power stations for backup — Stronger cross-regional
innovation at scale. Eliminating the capacity, and renewable plants cooperation. Minimizing the cost
last 15 percent of power emissions at high penetration levels, would of decarbonizing the power sector
will be difficult because there are require a new market design that would require countries to increase
currently no economically viable provides the right price signals and cross-border renewable energy
options for long-term, seasonal adequately remunerates for risk. flows. Building the necessary
flexibility of the power system. Long-term perspective and clarity interconnections, such as ultra-
Available technologies, such as on the strategic direction of the high-voltage direct-current
gas-fired power stations with CCS market would enable investments, transmission lines, would call for
or using hydrogen as a fuel, are private sector engagement, and the EU-wide collaboration at a much
expensive. However, a supportive necessary reskilling of the workforce. bigger scale than demonstrated
ecosystem with financing and piloting over the past few decades.
— Policy support. To accelerate the
opportunities could encourage the
shift to renewable power, policy
Net-Zero Europe 93
3.2 Transportation
94 Net-Zero Europe
Exhibit 37
Transportation pathway in brief

The low-cost pathway in the transportation sector depends on EV passenger car sales, carbon-neutral trucking,
and greater adoption of biofuels and synfuels.
EV passenger car sales1 2017 2030 2050

% of total HEV/PHEV 3 20 0
BEV/FCEV 1 >60 100
100
EV passenger car fleet1 BEV/FCEV
% of total VKT2
80 HEV
PHEV
60
40
20
0
2017 30 2050
Carbon neutral trucking ICE

% of total VKT2
EV/FCEV
85
100 100
15
455
Bio- and synfuel in
marine and aviation
MBOE
50
0
2017 30 2050
1. Includes plug-in hybrid EV and Fuel Cell EV

2. Vehicle Kilometer Travelled, excluding Light Commercial Vehicles and Buses
Source: McKinsey
Net-Zero Europe 95
3.2.1 Transportation emissions today the energy efficiency and fuel changes
Cars, trucks, and buses generate we propose for domestic aviation would
95 percent of domestic transportation reduce the emissions of those flights
emissions. as well.
Domestic transportation emits
Despite rising interest in EVs, they
820 MtCO2e a year, accounting for
account for less than 1 percent of the
21 percent of EU emissions. One-third
cars, less than 1 percent of trucks, and
of these emissions are generated by
less than 5 percent of buses in the EU.
the bloc’s largest economies, Germany
Most vehicles have internal combustion
and France. Passenger cars account for
engines (ICE) powered by diesel or
60 percent of these emissions, followed
gasoline, although 5 percent use
by heavy-duty trucks and buses with
biofuel. Nearly all planes and marine
25 percent and light-duty trucks with
vessels also run on fossil fuels. Rail is
10 percent. The remaining 5 percent is
the only sector that is already 80 to
emitted by railways, domestic aviation,
90 percent electric.
and domestic marine vessels (Exhibit 38).
Without intervention, the EU’s
International transportation, such as
transportation emissions would rise
refueling international planes and
30 percent by 2050. This is because
ships within the European Union, emits
transportation activity is expected to
260 MtCO2e a year—an additional
grow 1.5 percent per year until 2030,
5 percent on top of the European
slowing to 0.7 percent a year from
Union’s domestic emissions. Although
2030 to 2050 as population growth
we excluded international emissions
stagnates. In terms of kilometers
from our analysis because they are not
traveled, aviation is expected to grow
included in the EU climate targets, they
the fastest as the propensity to travel
would also be reduced by the domestic
increases with consumers’ growing
decarbonization efforts in our pathway.
disposable income.
For example, 45 percent of international
flights are between EU countries, so
96 Net-Zero Europe
Exhibit 38
The transportation sector accounted for more than 20 percent of EU GHG emissions in 2017.
Emissions by sub-sector and country/region, 2017, MtCO2e
100% = 3,8601
2 Germany
5
Power 24% 7 19 France
Iberia
7
Transportation 21% Benelux
Emissions Italy
Buildings 13% 8
by country/region 15 Central Europe
Poland
Industry 30% 11 Nordics
Southeast Europe
14
Agriculture 12% 13 Ireland
Emissions by sub-sector and country/region

15 15
100% = 475 85 210 5 15 120 140
Cars Light duty Heavy duty Rail Int. Int. marine

trucks trucks & buses aviation
Domestic aviation Other transportation
Domestic marine
Road transportation: ~70% Other: ~30%
1. Total EU-27 emissions excluding international aviation and marine

Source: McKinsey
Net-Zero Europe 97
3.2.2 The role of transportation on 3. Increase the use of hydrogen and
the path to net-zero alternative fuels
For the European Union to become net- At least 15 percent of aviation and
zero, transportation emissions would marine would need to use biofuel
need to be reduced at least 30 percent or synthetic fuels by 2030 and
by 2030 and 95 percent by 2050. 60 percent by 2050.
This is a significant departure from the
4. Electrify remaining railways
current path. Today’s EU emissions
Catenary infrastructure would need
standards call for reducing emissions
to be installed on the remaining
from new vehicles by 37.5 percent for
high-use train routes. The remaining
cars and 30 percent for trucks by 2030.
lines would use fuel cell or electric
Together, these efforts would only
trains with battery extenders.
reduce emissions by 15 percent.
5. Drive modal shifts to lower
Key transportation levers
emission transportation through
1. Electrify cars, buses, and trucks
regulation and growth of
At least 80 percent of new cars
consumer options
would need to be electrified
Transportation would need to shift
(HEV, PHEV, BEV, or FCEV)
from using planes and heavy-duty
by 2030, reaching 100 percent
trucks to move people and goods to
by 2035 (compared to less
using more rail.
than 5 percent today). At least
90 percent of new short-haul buses
People may need to be offered
and trucks and 30 percent of long-
incentives to switch from driving
haul trucks and buses would need
cars to using higher density
to be battery electric or fuel cell
transportation modes like buses
electric by 2030 (compared to less
and trains as well as e-hailing,
than 3 percent today).
micromobility, and car sharing.
Hybrid electric vehicles (HEV) and The cost-optimal pathway for

plug-in hybrid electric vehicles transportation uses similar abatement
(PHEV) could serve as transition levers across EU countries (Exhibit 39).
technology. By 2030, 20 percent of However, the transition would need to
the cars on the road would need to move faster in some regions than others
be hybrid, up from 3 percent today. to make up for the greater challenges
This would help reduce emissions that some countries face in reducing
in the next decade as the auto transportation emissions. For example,
industry builds the capacity to be Nordic countries would have an easier
fully electric. time switching to EVs than those in
Southeastern Europe because their
2. Improve energy efficiency
electricity prices are lower and they
The energy efficiency of ICE
import fewer secondhand cars.
vehicles, aircraft, and ships would
need to increase by 10 percent to
30 percent by 2030.
98 Net-Zero Europe
Rapid adoption of electric and a significant acceleration from the However, as the TCO for fully electric
fuel cell vehicles current path. However, BEV sales cars drops below that of hybrids,
It’s well established that electrified and are already picking up, with 143 new switching to fully electric cars would
fuel cell vehicles will be essential to EV models launched in 2019 and an keep society on the lowest cost
reducing global emissions. Depending additional 450 models announced decarbonization path, growing to
on the type of vehicle, EU regulations for 2022. Second, the total cost of 60 percent of new car sales. In places
require 15 to 50 percent of new buses, ownership (TCO) of EVs would need with conditions that would make
commercial vehicles, and cars to be EVs to become less than ICEs, which is electrification difficult, such as those
by 2030, which would reduce emissions expected to occur in the EU by 2025. with long distances between charging
by 15 percent.24 In the cost-optimal As battery prices continue to drop, it will points or colder climates that limit
pathway, road transportation emissions be €250 cheaper per year to own a BEV battery capacity, hydrogen and biofuels
would need to decrease at least than an ICE car by 2030.25 could also play a role in decarbonization.
34 percent by 2030, more than double
Hybrid vehicles (i.e., HEV and PHEV), Among commercial vehicles, electric
the amount under current policies.
now 3 percent of EU vehicles, short-haul trucks and city buses are
Reducing emissions by 34 percent in would play an important role in expected to reach TCO parity with their
the next decade would require two decarbonization in the next ten years diesel counterparts by 2026. For long-
critical actions. First, 80 percent of car as the auto industry transitions to an haul trucks and buses, battery-electric
and light commercial vehicle sales and electric value chain, which will require or fuel cell electric vehicles (FCEV)
30 percent of long-haul truck sales scaling battery capacity and building would be the best option because both
would need to be electric or fuel cell by new infrastructure. By 2030, hybrid are expected to reach TCO parity with
2030, which would reduce emissions vehicles could grow to 20 percent of ICEs by 2030. For FCEVs to become
by 20 to 25 percent. This would require new car sales. the lowest cost choice, pump prices
24
Current European Union regulations require that EVs account for 40 to 50 percent of new car sales, 25 to 30 percent of light commercial vehicle sales, and 15 to 25
percent of truck and bus sales by 2030.
25
Assuming the car is owned for five years by the first owner, driven 13,000 km per year and has a residual value proportional to the remaining full vehicle lifetime.
Exhibit 39
Electrification and hybridization account for half of the emissions abatement in transportation.
Domestic transportation emissions for EU-27, MtCO2e
Domestic transportation base case emission reduction 2017-50

MtCO2e
820
-405
-200 30
-125 -45 -15
2017 2050
Key levers Electrification Energy Hydrogen Demand Alternative

& Hybridization efficiency reduction fuels1
Description Electrification of cars, Improved energy Fuel cell vehicles, Demand reduction Alternative fuel
urban/regional trucks efficiency through predominantly in and behavioral shift (bio- and synthetic)
and city buses vehicle design (e.g., long-haul truck and driven by e.g., ICE use in aviation and
engine efficiency) bus applications bans, congestion marine
and operational charging and smart
efficiency (e.g., parking solutions
speed reduction,
higher utilization)
Share of 51% 25% 16% 6% 2%

emission
reduction Levers can be combined in multiple ways and the most cost-optimal reduction path is uncertain.
1. Includes domestic marine and aviation transportation

Source: McKinsey
Net-Zero Europe 99
for hydrogen would need to drop lifetimes, innovation and development (IMO) has also set 50 percent reduction
significantly, while the attractiveness cycles are long, and alternative fuels targets for the industry and implemented
of BEVs depends on how much aren’t likely to become competitive regulations that limit the sulfur content of
battery prices decline. FCEVs have the with fossil kerosene before 2050. The fuels, which reduces airborne pollution
advantage of faster refueling times and use of aviation is also expected to grow from ships.
higher energy density than batteries. 25 percent by 2030.
However, to reach the IMO target and
Small BEVs like cars would become In the short term, emissions-reduction ultimately net-zero, marine would
price competitive first, followed by efforts would continue to focus on need to continue pursuing energy-
larger vehicles like heavy-duty trucks. improving energy efficiency and using efficiency improvements while adopting
They are both expected to reach TCO advanced biofuels. Today’s aircraft can new technologies and fuels. Energy
parity more quickly in regions with low already use up to 50 percent blend-in efficiency could be increased at least
electricity prices and high fossil fuel advanced biofuels, and 100 percent 10 percent by 2030 through measures
prices such as the Nordics, and more could be possible without significant that enhance vessel technology, such
slowly in regions with high electricity aircraft design changes. as propulsion and hull design, and
prices like Germany. EV adoption is also operations, such as speed limitations
In the midterm, smaller short-haul
expected to be faster in countries with and just-in-time arrival. New propulsion
aviation could be powered by batteries
a higher percentage of new car sales, technologies, advanced biofuels,
or fuel cells.27 For larger aircraft, using
such as Germany and France, and and synthetic fuels are likely to be
hydrogen turbines or direct hydrogen
slower in countries with high demand expensive, costing an additional
propulsion could be technically feasible
for used cars, such as Poland and the €100 per tCO2.
but would take longer to develop and
Czech Republic.
scale.28 The longest flights would likely Reducing emissions in vessels ranging
In the meantime, making ICEs more continue to use high-energy-density from the largest ocean-faring cargo
energy efficient would be critical to fuels such as advanced biofuels and ships to short-range ferries would
bridging the transition to electrification. synthetic fuels. require multiple solutions. Smaller
Implementing fuel-saving technologies ships and those traveling shorter
Although using advanced biofuels
that reduce an ICE’s emissions by just distances can already use hydrogen
or synfuels would cut aviation’s
2 percent a year would cut total car and electricity, such as the fully electric
CO2 emissions to zero, it wouldn’t
emissions by 5 to 10 percent by 2030.26 Ampere ferry in Norway. In the short
reduce the emission of nitrous
term, larger vessels could use blend-in
Increase efficiency in aviation, use gas, water vapor, and contrails that
advanced biofuels because they don’t
sustainable fuels and new propulsion also contribute to global warming.
require significant equipment changes.
technology Switching to biofuels and synfuels
In the cost-optimal pathway, domestic would reduce the full climate impact by In the long term, large ships could also
aviation emissions would need to be 30 to 60 percent, but using hydrogen start using hydrogen-based fuels, such
reduced 90 percent by 2050. Aviation would have an even greater effect.29 as pure hydrogen, synthetic marine
has historically reduced its emissions Using hydrogen turbines could gas oil, ammonia, and methanol, as
through efficiency improvements. reduce the climate impact by 50 to they become affordable. At a sufficient
However, reaching the 50 percent 75 percent, and using hydrogen fuel scale, hydrogen-based fuels could
reduction target set by the International cells could decrease the impact by 75 to become competitive with advanced
Air Transport Association (IATA), let 90 percent. biofuels between 2030 and 2040.
alone net-zero, would require additional
Increase energy efficiency in marine, Electrify remaining rail
measures, such as using alternative
switch to alternative fuels long-term Although only 65 percent of the
fuels and new propulsion technology.
In the cost-optimal pathway, domestic European Union’s railway is electric,
Reducing aviation emissions is marine emissions would need to be 80 to 90 percent of trains use those
particularly challenging because planes reduced 65 percent by 2050. The marine electric lines. However, emissions could
transport high payloads over long industry has significantly improved its be cut further by electrifying more lines
distances, and the industry is by nature energy efficiency in recent years, and in densely populated areas. In lower
international, which makes it difficult today’s ships are much more efficient use areas where the cost of electrifying
to create an equal playing field. It than the ones sold a decade ago. The the lines is prohibitive, electric trains
doesn’t help that planes have 25+ year International Marine Organization
26
Corresponding to 15 to 25 percent efficiency improvement in new cars by 2030 compared to 2017; key improvement levers include downsizing, turbo-charger, and
electrifying auxiliary engine components (mild-hybridization).
27
500 km to 1,000 km for batteries and 2,000 km to 3,000 km for fuel cell (dependent on passengers carried).
28
For example, Airbus recently announced development of a hydrogen A320 to be launched by 2035.
29
For more information, see “Hydrogen-powered aviation—A fact-based study of hydrogen technology, economics, and climate impact by 2050,” McKinsey &
Company for the for the Clean Sky 2 JU and Fuel Cells and Hydrogen 2 JU, May 2020.
100 Net-Zero Europe

with battery extenders or fuel cell trains and using electric scooters instead Dynamic shuttle services, a form of
could be used instead. of cars. That’s why increasing the ridesharing that groups passengers
efficiency of these transportation by travel time and destination, would
Drive modal shifts to lower emission
systems through well-designed MaaS also reduce transportation emissions
transportation
would be another critical lever for by increasing the number of people
The cost-optimal pathway requires
reducing emissions. using high-density transportation.
a shift to higher density transport
Today’s dynamic shuttle services and
low-emission modes, such as rail and According to our 2019 global mobility
pooled e-hailing would get an additional
shared mobility. In the last ten years, the survey, more than 20 percent of
boost with the adoption of autonomous
rise of mobility as a service (MaaS) has consumers say they frequently use
vehicles. By 2030, autonomous EV taxis
allowed consumers to choose from new micromobility services, such as the
and shuttles could cut private car usage
transportation modes such as e-hailing, bike, moped, and electric scooter share
by up to 20 percent in a city like Berlin.
car sharing, and shared micromobility. programs in major cities. By 2030, our
There’s a risk that MaaS offerings could modeling forecasts that micromobility
tap into latent. demand, encourage could cover 20 to 30 percent of last-
modal shifts away from public mile trips in a city like Munich if local
transport, and increase the total vehicle governments create incentives for it
kilometers traveled due to multiple and citizens adopt it. In the case of
passenger pick-ups, which could Munich, this could reduce emissions
increase transportation emissions. by 80 ktCO2e per year, the equivalent
On the other hand, micromobility and of the annual CO2 emissions of
pooled MaaS services could create 10,000 Germans.
greater efficiency by replacing large,
low-fill-rate buses with smaller shuttles
The path to net-zero would also 400,000 deaths each year, making the most particulate matter and
improve air quality and save lives it the largest environmental cause of sulfur dioxide. By 2030, the cost-
In addition to greenhouse gases, premature deaths. optimal pathway would reduce the air
industry sectors emit pollutants pollutants from road transportation
A pathway to net-zero emissions
such as sulfur dioxide, lead, nitrogen by at least 30 percent. This would
would not only reduce greenhouse
oxide, carbon monoxide, and benzene improve air quality and, in turn, reduce
gases but also many of these
that damage air quality. Although air asthma, respiratory problems, and
pollutants. For example,
quality in the European Union has premature deaths.
transportation is the biggest emitter
improved over the last few decades,
of nitrogen oxide, and power emits
it still contributes to more than
Net-Zero Europe 101

3.2.3 Key uncertainties and enablers — Technology and fuel price who choose ridesharing over public
Key uncertainties: Prices, technology developments could change the transportation, increasing emissions.
advancements, and behavior cost-optimal pathway for aviation
— Shifts in consumer preferences
Many uncertainties could change what and marine. If advanced biofuel
such as greater interest in EVs
now appears to be the cost-optimal prices don’t drop over time,
beyond government incentives
pathway for transportation, including: hydrogen-based fuels like ammonia
could speed up EV adoption.
could become the cheapest option
— Oil prices below $40 a barrel could Emission reductions would
by the early 2030s. If synthetic
delay the TCO parity of EVs and ICEs also accelerate in line with the
fuel prices decrease more than
by up to five years. An 80 percent power sector’s decarbonization.
55 percent by 2040, synthetic
increase in electricity prices by For example, during the
kerosene and marine gas oil could
2030 would have a similar effect. 2020 pandemic, EV purchases
also become less expensive than
proved more resilient than
— Rapid battery price declines using biofuels. And if hydrogen
traditional ICEs, signaling the
could alter the pathway for trucks prices drop 80 percent by 2030,
beginning of a potential shift in
and buses. If battery prices drop it could give hydrogen propulsion
consumer preference.
80 percent by 2030 instead of for mid-haul large aircrafts a more
the 45 to 50 percent we forecast, significant role in the transition. — Technological advancements
BEVs would become less expensive within private non-electric vehicles
— More rapid adoption of MaaS could
than FCEVs for long-haul trucking. could reduce road transportation
speed up emission reduction and
Technological innovations such as emissions. Efficient routing would
lower the transition costs of our
high-density battery chemistries reduce CO2 emissions by enabling
cost-optimal pathway. If 30 percent
and longer battery lifetimes could drivers to avoid traffic jams.
of the annual kilometers driven
make BEVs even more affordable. Advanced analytics could be used
by passenger cars switched
for traffic or parking management,
— A faster drop in hydrogen, fuel cell, to MaaS offerings by 2030,
which would also reduce emissions.
and hydrogen tank prices could passenger car emissions could drop
There is also ongoing research
make FCEVs more competitive than another 25 percent. And scaling
on using synfuels in non-electric
BEVs. For example, if hydrogen autonomous EV shuttles could
vehicles during the transition period.
prices drop to €3.4 per kg at the cut transition costs an additional
pump, and fuel cell stack costs fall to 5 to 10 percent. However, the
€130 per kW by 2030, FCEVs could convenience of low-cost rideshare
also become the lowest cost option and autonomous vehicles could
for regional trucks and buses. also increase the number of people
102 Net-Zero Europe

Key enablers: Government policies electric and fuel cell vehicles. The be developed. Continued battery
and collective investments affordability of hydrogen is also chemistry innovation and greater
Several things must happen to make highly dependent on having a low- recycling could help reduce
this pathway feasible and cost- cost renewable electricity supply. the risk of these metal supplies
effective, including: becoming constrained.
— Significant build-out of EV and fuel
— Ambitious policy support. The cell infrastructure. Switching to EVs — Investment in alternative
cost-optimal pathway is highly would require scaling new charging fuels and new technology. To
dependent on regulators setting and refueling stations with better reach net-zero emissions, the
targets for the adoption of zero- EV charger density, speed, and transportation sector would
emission technologies and fuels. interoperability. Enabling FCEV usage need at least 100 million tons of
For example, the rapid EV adoption would require building a hydrogen alternative fuels a year by 2050.
of cars, trucks, and buses requires distribution network of trucks Fulfilling this demand would
much more ambitious targets and and pipelines that could transport require investments in feedstock
other regulatory support. New hydrogen gas and liquified hydrogen collection infrastructure, zero-
policies accelerate EV adoption by throughout the European Union. emission electricity supply,
incentivizing their use in car fleets production facilities, storage, and
— Major investment across the
or within mobility-as-a-service so transportation infrastructure.
value chain of electric and fuel
that EVs are owned by those that It also calls for funding the
cell vehicles. The transition to
drive the most. They could also development of new powertrain
zero-emission cars would require
create incentives for retiring old technology and airport and port
retooling auto manufacturing
ICE vehicles in favor of EVs and infrastructure. Policymakers could
and building new recycling
encourage higher use of lower make these investments more
facilities. For example, increasing
emission transportation modes, attractive with better CO2 pricing
battery production capacity to
such as public transportation and and incentives that enable aviation
750 gigawatt-hours (GWh) a year
shared mobility. and marine players to get a fair
by 2030 would require expanding
return on their investment and
— Large-scale increase in renewable the supply of lithium, nickel, and
stimulate R&D in equipment and
electricity generation. The cobalt to make them. Producers
fuel supply infrastructure.
European Union would need at would need to enter into offtake
least an additional 200 TWh a year agreements at prices and time
by 2050 to support the influx of horizons that allow new mines to
Net-Zero Europe 103

3.3 Industry
104 Net-Zero Europe

Exhibit 40
Industry pathway in brief

Renewable heat generation and carbon capture could help EU industry cut emissions 96 percent by 2050
2.0
Average carbon intensity
Iron and
Ton CO2e emitted by ton 1.5 Steel
product produced
1.0 Cement
0.5 Ethylene
Ammonia
0
-0.5
-1.0
100
100
Heat renewably Low and
generated1 90 medium
% of total temperature
80
High
70 temperature
60
60
50
40 35
30 28
20
10
0
0
2020 30 2050
205
Carbon capture2
BECCS
Mt of CO2 per annum
CCS
30
0
2017 30 2050
1. Share of heat from renewable fuels (e.g. biogas, electricity)

2. Technologies includes CCS, BECCS and other carbon sinks. Demand includes power
Source: McKinsey
Net-Zero Europe 105

3.3.1 Industry emissions today
Nearly half of industrial emissions come
from heavy industries such as cement,
steel, ethylene, and lime production.
In 2017, industry emitted 1,140 MtCO2e,
accounting for 30 percent of EU
emissions (Exhibit 41).30 The industry
sector consists of numerous processes,
including the production of industrial
materials such as cement and steel,
chemicals such as ammonia and
plastics, fuels like gasoline and coal,
and consumer products such as food,
clothes, and paper. The largest industry
segments are iron and steel (accounting
for 13 percent of emissions, followed
by waste management (10 percent),
petroleum refining (10 percent) and
cement (7 percent) (Exhibit 41).
30
Share of total emissions including international transport and LULUCF sector.
106 Net-Zero Europe

Exhibit 41
Heavy industry accounts for nearly half of EU-27 industry GHG emissions.
Emissions by sub-sector for EU-27, 2017, MtCO2e
100% = 3,8601
Power 24%
Transportation 21%
Buildings 13%
Industry 30%
Agriculture 12%
Emissions by sub-sector
100% = 190 170 160 220 165 115 120
Oil and gas

Ammonia Pulp and paper
upstream and
midstream
Food, beverage
and tobacco
Cement
Iron and steel Oil and gas

Other downstream Other
chemicals industrial Waste
process Management
emissions
Lime Other industrial

emissions from
fuel combustion
Glass
Mining
Processing of
Other non-metallic ferrous metals Ethylene
minerals Non-ferrous
metals
Non-metallic Metals Chemicals Mining, Oil & Gas Other industrial emissions Waste
minerals management
46%

Source: McKinsey, Eurostat, UNFCCC National Inventory Reports, EEA ETS
Net-Zero Europe 107

About half (52 percent) of industrial — Oil, gas, and mining account for
emissions comes from the fuel 19 percent of industry emissions.
combustion used to supply process About 25 percent of these
heat for manufacturing. The other emissions are from methane
half (48 percent) is GHGs emitted in leakage, primarily from the pipelines
chemical reactions while processing that transport natural gas. Most
feedstocks, such as natural gas CO2 emissions come from producing
processing for ammonia production or the heat required to crack and distil
preparation of iron ore to make steel. petroleum—processes that require
Process emissions include fugitive GHG temperatures up to 400°C for
emissions, such as methane leakage fractionated distillation.
from natural gas pipelines (Exhibit 42).
— Pulp and paper, and food,
The industrial sector comprises beverages and tobacco and several
segments that use a variety of other industrial sectors account for
production techniques that can be 14 percent of industrial emissions.
grouped based on their process These come primarily from fuel
characteristics and the types of GHGs combustion to generate medium
they emit. They include: temperature process heat or to
drive machinery. The main exception
— Heavy industry accounts for
is the lime production step in pulp
46 percent of industry emissions. 31
and paper that releases process
Within its segments—non-
emissions.
metallic minerals, metals, and
base chemicals—manufacturers — Other industrial process emissions
specialize in making basic products and waste management account
such as cement, glass, steel, for 20 percent of industrial
and plastics that require high emissions. About half of these
temperatures to produce. For emissions are industrial process
example, the blast furnaces used to emissions which consist for the
make steel must reach 1,800°C, and largest part of fluorinated gases
the kilns used to calcinate limestone that escape during refrigeration
to make cement reach temperatures and from cooling systems in
above 1,600°C. Nearly half of various industries. By 2050, the
the emissions produced in these EU aims to reduce these emissions
segments are CO2 process by 80 percent through its own
emissions, such as those emitted 2015 regulation to minimize the
while heating the limestone to use of hydrofluorocarbons and by
turn it into lime to make cement. 32 complying with hydrofluorocarbons
Eliminating these emissions would consumption limits imposed by
require changing the feedstock and the Montreal Protocol. 33 The other
redesigning the production process. part of these emissions is fugitive
Both the high temperatures methane from landfills. By 2050, the
required and the process emissions EU plans to reduce these emissions
they produce make these segments by up to 73 percent through
hard-to-abate. legislation that would require the
waste treatment sector to increase
its recycling of municipal waste and
limit the amount of municipal waste
allowed in landfills to 10 percent.
31
For more details on emission reduction of these sectors, see “Decarbonization of industrial sectors: the next frontier,” McKinsey & Company, June 2018.
32
Other process emissions in the heavy industry sectors are nitrous oxides, methane, and other gases from various chemical production processes, including nitric acid
and ammonia production.
33
The Montreal Protocol on Substances that Deplete the Ozone Layer
108 Net-Zero Europe

Exhibit 42
Industrial GHG emissions are almost evenly split between fuel combustion emissions and
process emissions.
Industry emissions for EU-27, 2017, MtCO2e
Share per type of emissions

9%
2% Fuel CO2
Fuel CH4
14%
Fuel N2O
Process CO2
100% = 1,140 52% Process CH4
Process N2O
Process other GHG
23%
(including fluorinated
gasses)
Emissions by end usage
100% = 190 170 160 220 165 115 120
10
85
100 105
145
110
165
100
20
105
50
70
55
5 10
Non-metallic Metals Chemicals Mining, oil and gas Other – Other – Waste
minerals fuel1 process2 management
46% 19% 14% 20%
‘Heavy industry’ segments About 25% methane Most emissions from Strictly regulated
with ~50% CO2 process (CH4) process emissions fuel combustion for emissions mostly from
emissions and process heat from venting and fugitives process heat demand leaking of refrigerants
up to 2000 oC up to 500 oC and landfills
1. Includes pulp and paper, food, beverage and tobacco, and other industrial emissions from fuel combustion
2. Includes other industry process emissions
Net-Zero Europe 109

Although each sector is present in
each of the regions, the size and
relative shares vary. For example,
Germany is the largest industrial hub
in the European Union and the biggest
emitter of industry GHGs (22 percent).
Regions with a larger share of heavy
industry sites will face higher costs
to lower their industrial emissions. 34
(Exhibit 43)
Since 1990, industrial GHG emissions

have decreased 2 percent a year,
which is twice as fast as the decline
in total EU GHG emissions. However,
this pace is not enough to reach the
2030 decarbonization targets, or net-
zero by 2050. Without intervention,
the EU industry sector will balance
an increase in emissions from the
growing demand for industrial products
with reductions from gradual energy
efficiency improvements, likely
maintaining the same net level.
34
Not all products used in the EU-27 are produced within the member states. Emissions from imported products are not included in the discussion in this chapter.
110 Net-Zero Europe

Exhibit 43
Germany has the highest industrial GHG emissions of any EU region, emitting nearly as
much as the next two regions combined.
Industry emissions in EU-27, 2017, MtCO2e
Share of total
10%
17%
Non-metallic minerals
Metals
24% Chemicals
100% = 1,140 15%
Mining, oil and gas
Other industrial emissions
Waste management
14%
19%
Emissions by region and segment
100% = 250 135 130 130 125 105 100 95 60 10
Germany Italy Central Europe France Iberia Poland Benelux South- Nor- Ire-
east dics land
Europe
Net-Zero Europe 111

3.3.2 The role of industry on the The transformations would include
path to net-zero making production process changes at
On our cost-optimal pathway to net- 25 percent of sites, such as rebuilding
zero, 15 percent of emissions would coal-based steel production sites to sites
be abated by a reduction in demand for direct-reduced iron production. About
for fossil fuels, which will drive down 20 percent of the sites would need to
activity in the mining and oil and gas install carbon capture equipment. Half
sectors (Exhibit 44). But to achieve of these sites would switch to bioenergy
the EU’s net-zero ambition using our fuels as well, to generate negative
pathway, industry emissions would emissions. A further 36 percent would
need to drop by almost 40 percent need to switch to alternative fuels, such
by 2030 and around 96 percent by as bioenergy, electricity or hydrogen. Only
2050 (including about 7 percent 18 percent of the sites would require little
negative emissions from industrial or no change.
processes). Because industrial
Aside from these technical changes,
equipment often has a lifetime of more
industry emissions can also be reduced
than 50 years, emissions-reduction
by product substitution; for instance,
efforts would need to focus on
replacing cement for construction
retrofitting or rebuilding existing sites.
with CLT or new plastics with recycled.
About 80 percent of those sites would
Emissions can also be reduced by
require significant changes to reach
changes in consumer preferences such
net-zero by 2050.
as switching to public transportation,
thereby reducing the need for steel for
car manufacturing.
Exhibit 44
CCS, hydrogen, and electrification would contribute nearly half of all industry sector
emissions abatement through 2050.
% share of total emissions abatement per technology until 2050, EU-27
3 2 1
10
Carbon capture and storage
18
Carbon neutral hydrogen as fuel or feedstock
Electrification and carbon neutral power of
15 process and heat
Reduced demand for fossil fuels1
100% = 1,095
Regulated emission reductions2
Bio-based fuel or feedstock
18 Other innovations (fuel and process) 3
15 Energy efficiency
Demand-side measures and circularity4
17
1. Includes emission reduction from mining and O&G

2. Includes emission reduction from F-gasses, waste and non specified industrial emissions
3. Includes other technologies such as waste as fuel, inert anode technology in smelting, geothermal heating
4. Includes cross-laminated timber, recycling in ethylene and increased scrap steel ratios
Source: McKinsey
112 Net-Zero Europe

The most cost-effective pathway (Exhibit Electrification of processes and heat
45) to accomplishing emission-reduction generation (145 MtCO2e)
targets in the industry sector includes: — 35 percent of all low- and medium
temperature heat generation moved
Use bioenergy and/or carbon capture
to electric boilers and 26 percent to
storage for cement, ammonia, and
heat pumps by 2050
some steel production (abating
200 MtCO2e a year) — 5
5 percent of high temperature heat
— A quarter of cement production generation electrified by 2045
converted to BECCS by 2045,
— 72 percent of ethylene steam
rapidly increasing to more than
cracking electrified by 2050
55 percent by 2050
— 28 percent of conventional cement

kilns using CCS (without biomass)
by 2050
— Electrification in cement and lime

reaching only 6 percent by 2050
Exhibit 45
Average CO2 abatement costs for industry would rise sharply over the next three decades.
Total CO2 abatement per technology for EU-27, MtCO2e
1,140 445
Carbon capture and storage
Carbon neutral hydrogen
Electrification
180 Reduced demand for fossil fuels1
Regulated emission reductions2
470
Bio-based fuel or feedstock
Other innovation3
Energy efficiency
Demand-side measures4
45
2017 17-30 31-40 41-50 2050

Average abatement
29 85 118
cost, EUR/tCO2e
1. Includes emission reduction from mining and O&G

2. Includes emission reduction from F-gasses, waste and non specified industrial emissions
3. Includes other technologies such as waste as fuel, inert anode technology in smelting, geothermal heating
4. Includes cross-laminated timber, recycling in ethylene and increased scrap steel ratios
Source: McKinsey
Net-Zero Europe 113

Use bioenergy as fuel and feedstock Two types of bioenergy can play lower operational costs than post-
across sectors (103 MtCO2e) significant roles in industry emissions combustion capture technologies.
— 5 percent of high temperature heat reduction: solid biomass, produced The other CCS costs—transmitting
furnaces switched to biogas and from forest residues and energy crops, and storing CO2—vary depending on
33 percent of low- and medium- and gaseous bioenergy, made by how far the industrial site is from the
temperature heat generated gasifying solid matter, such as waste storage facility.
from biomass from agricultural composting sites and
BECCS to generate negative
garbage at at waste treatment plants.
— 100 percent of conventional electric emissions
Innovative production processes could
arc furnaces using biogas instead of Using BECCs would reduce industry
create carbon-based chemicals, such
natural gas for preheating emissions by 10 percent (110 MtCO2e)
as plastics, from liquid or solid biomass
by 2050. With this approach, industrial
Use hydrogen for steel production instead of petroleum. Some industry
manufacturers can use bioenergy as
and some ammonia production segments, such as pulp and paper
feedstock or fuel and then employ CCS
(195 MtCO2e) manufacturing, already use biomass
to mitigate the resulting CO2 emissions.
— 56 percent of steel produced in as fuel. With time, more biomass is
This results in net-negative emissions
2050 from electric arc furnaces fed expected to be used for low- and
that can compensate for residual
with iron ore reduced by hydrogen medium-temperature generation.
emissions from sources where emissions
Gaseous bioenergy, on the other hand,
— 20 percent of ammonia production reduction is impractical or impossible,
can serve as a substitute for natural
using electrolysis as a way of such as waste or fluorinated gases.
gas in ammonia production or in high-
producing hydrogen
temperature gas furnaces. One of the best candidates for BECCS
Reduce consumer demand for is ammonia production because two-
CCS in heavy industry and refining
emission-intensive industrial products thirds of the emissions are a pure flow
Using CCS in heavy industry would
like cement and plastics (15 MtCO2e) of CO2. And its current feedstock,
reduce industry emissions by
— 10 percent of the current demand natural gas, can be easily substituted
8 percent (90 MtCO2e) by 2050.
for cement replaced by CLT by 2050 with biomethane without changing the
Implementing CCS will be critical to
process. In our pathway, 78 percent of
— 5 percent of the current demand reaching emission-reduction targets
ammonia plants would use BECCS by
for ethylene replaced with plastics in heavy industry segments such as
2050, at an average cost of €200
recycling by 2050 cement, steel, and oil refining, where
per tCO2.
current technology solutions can’t
Bioenergy as fuel and feedstock
eliminate process emissions. For Cement production is another good
Switching to bioenergy will be critical
example, CCS is the only way to reduce candidate for BECCS because
to reducing industry emissions in
process emissions when calcinating 60 percent of the GHGs produced while
regions where the average electricity
limestone to make cement. Depending making the base material for cement
prices are higher than bioenergy prices,
on the region and segment, it will cost are process emissions that can’t be
such as in Poland and Iberia. Those
€40 to €130 per tCO2 to implement. fully decarbonized without CCS. By
regions can electrify lower temperature
replacing fossil fuels with biomass
processes, such as rinsing, washing, The affordability of CCS depends on
and installing CCS infrastructure to
and evaporation, while switching to the cost of capturing, transmitting,
capture fuel and process emissions,
bioenergy for the boilers and furnaces and storing CO2 at different industrial
industrial sites could generate net-
needed for higher temperature sites. It’s more expensive to capture
negative emissions at an average cost
processes like annealing of steel or CO2 when it’s mixed with other exhaust
of €150 per tCO2.
ceramics production. gases than from a pure flow because
of the large volume of gas that must be
Using bioenergy instead of fossil
processed and the additional energy
fuels to heat boilers and furnaces
it requires. Some newer approaches
would reduce industry emissions
to manufacturing, such as the Hlsarna
by 10 percent by 2050. Because it
process to make iron and steel, have
doesn’t require process changes,
made CCS more affordable because
industrial sites can make this switch
it increases the amount of CO2 in the
quickly. And depending on the region
exhaust gas. In the cement industry,
and application, using bioenergy to
players are experimenting with
reduce emissions will cost an average of
innovative technologies to capture
€100 per tCO2.
the CO2 during combustion, such as
oxy-fuel carbon capture, which has
114 Net-Zero Europe

Electrifying process heat costs, such as offshore wind in Germany Changes in consumer demand for
Electrifying the boilers and furnaces and hydropower in the Nordics. fossil fuels
that now use fossil fuels would cut Fifteen percent of the industry
The role of hydrogen in steel and some
industry emissions by 13 percent. emissions reduction in our pathway
ammonia production
Electric boilers and some electric come from a change in demand for
Hydrogen produced from zero-
furnaces are already commercially fossil fuels in other sectors that pursue
emissions electricity accounts for
available, and some industrial sites decarbonization. Coal mining and oil
18 percent of the emission reductions
already use energy-efficient electric and gas upstream, midstream, and
on our industry pathway. By 2030,
heat pumps. downstream activity are expected to
zero-emissions hydrogen should
drop in line with the reduced demand
Electric heat pumps are a good become an affordable feedstock
for coal, oil, and natural gas. The
alternative for low-temperature alternative in steel production. That’s
remaining emissions from the oil, gas,
processes because they are relatively when its cost will come down, and the
and mining sectors can be reduced
affordable to install and can reach technology to produce steel at scale
by implementing other abatement
temperatures of up to 120° to 140°C. using the hydrogen-based DRI-EAF
measures. In coal mining, these include
Electric boilers and furnaces can process will be more developed. Zero-
electrifying or using hydrogen fuel cells
reach much higher temperatures of up emission hydrogen will also become a
for mining equipment and capturing
to 400°C and 1000°C, respectively. replacement for natural gas in ammonia
methane fugitives. In upstream and
Because the most expensive part production in regions where bioenergy
midstream oil production, measures
of owning a boiler or furnace over prices are too high and electricity prices
would consist of reducing fugitive
its lifetime is the fuel cost, whether are low.
methane emissions by detecting
manufacturers decide to switch to
However, some of the downsides of leaks and fixing pipes and electrifying
renewable fuels or buy new electric
using zero-emissions hydrogen are equipment. Oil refineries can achieve
boilers or furnaces will largely depend
the low heat emissivity of hydrogen close to net-zero emissions in 2050 by
on the difference between electricity
flames, which limits the amount of electrifying heat and using CCS.
and renewable fuel prices.
heat transferred to large industrial
Using electric boilers and furnaces will systems, the nitrous oxide emissions
be more financially attractive in regions from hydrogen burners, and the need
where renewable electricity sources can to manage the risk of explosions when
provide stable baseload power at low using hydrogen in large quantities.
Fuel production in refineries for a and hydrogen demand in the pathway from existing hydrogen production
net-zero emission EU can be produced with 5 to 10 percent capacity and new electrolyzer units.
A drop in refining activity could lead of present refinery capacity.
to a significant shift in the industry. Biofuels and bio-based oils would
Refineries can keep playing a role in be produced by hydrotreating units
producing zero-emissions fuels such formerly producing middle distillates,
as biofuels and hydrogen. The biofuel while hydrogen would be generated
Net-Zero Europe 115

3.3.3 Key uncertainties and enablers — Commodity prices. Because fuel — Environmentalist resistance to
Key uncertainties: Changes in demand, and feedstock are such a large bioenergy use. In regions like
fuel prices, and public concern share of industrial production costs, the Netherlands, environmental
Many factors could delay or accelerate price changes could make other groups have opposed importing
GHG reduction and change what now approaches to emissions reduction biomass and allocating land for
appears to be the most cost-optimal more financially attractive. fuel production. If this resistance
pathway for the industry sector, including: For example, the cost of using reduces the amount of available
renewable power or solid biomass in biomass needed for our pathway by
— Increased circularity. If the
cement kilns or in boilers is typically only 50 percent, it will be difficult
demand for industrial materials
lower than using biogas, hydrogen, to use BECCS to generate negative
drops below current projections,
and CCS. But if any of these price emissions. In that case, some
it would also reduce the amount
gaps narrowed within 20 percent of segments would have to resort to
of industrial emissions that need
each other, the most cost-efficient changing their heating sources to
to be mitigated. For example, the
pathway could change. hydrogen or electrification, which
industry sector could cut another
would increase annual fuel costs by
100 MtCO2e per year by 2050 by — Public concerns about CO2 storage
€2.1 billion to €8.5 billion. 35
stepping up plastics recycling to safety. Some regions in Europe
replace 70 percent of the current might not adopt CCS because of
demand for ethylene and replacing public concerns about the perceived
65 percent of the demand for risks of storing CO2 underground. If
concrete with CLT. This would this resistance prohibits CCS from
also reduce the capital costs of being used in the European Union,
emissions reduction in the industry the industry sector would not be
sector by 17 percent (€55 billion), able to reach net-zero. Nor would
mostly because it would eliminate it be able to generate negative
the need for cement manufacturers emissions using BECCS in the
to implement BECCS. hard-to-abate segments of making
ammonia and cement.
35
Electricity and hydrogen cost €1 to 4 more than biomass and biogas.
116 Net-Zero Europe

Key enablers: Incentives and — Scalable zero-emission technology fuels. This bioenergy will need to
infrastructure and business models. Most of the reach industrial sites across the
Several things must happen to make emissions-reduction options for EU. To facilitate the development
this pathway feasible and cost- industrial companies are either of the necessary supply chains,
effective, including: cost-prohibitive or not available at governments will need to have
scale. Future innovation is critical clear land use, production, and
— Encouraging product substitution.
to increasing the number of ways distribution systems in place in the
Most of the decarbonization
that industrial companies can next 5 to 10 years.
solutions that we present in this
reduce emissions at a lower cost.
report focus on maintaining the — Carbon storage regulation and
Both government officials and
status quo—producing the same infrastructure. CCS requires a
businesses need to drive these
materials but with a different type network of pipelines to bring
changes by:
of fuel or heating system. What the captured CO2 emissions to
would reduce emissions the most • Rapidly deploying proven storage locations, which makes it
is to completely change how we innovations, such as heat pumps attractive for large industrial sites
do things, such as using CLT to and waste heat recovery in low- because it captures emissions at
construct buildings instead of temperature processes and scale. However, current regulations
concrete. However, making these replacing cement with CLT don’t account for creating
wholesale changes would require by 2030. CCS supply chains. To reach
governments to incorporate 63 MtCO2 carbon storage levels by
• Accelerating proof-of-concept
these alternatives into a variety 2030, governments and businesses
for technologies now in the
of regulations, such as upgrading would need to:
development phase so that they
building codes to require CLT. It
can be deployed at scale starting • Implement a regulatory
would also require government
in 2030. These technologies framework that addresses cross-
support for R&D to find other viable,
include oxy-fuel systems that country transport and storage
net-zero alternatives to current
lower carbon capture costs, and alleviates current industry
industrial materials.
DRI-EAF steelmaking systems concerns about long-term
— Policies to accelerate emissions with hydrogen reductants, responsibility for CO2 storage.
reduction. Emissions-reduction electric cracking furnaces, and
• Outfit existing pipelines or
efforts will increase costs innovative bioplastics.
build new ones to transport
for industrial companies, so
• Investing in new business models CO2 from industrial sites to
governments and other stakeholders
and R&D-phase technologies that storage locations.
would need to provide incentives
result in breakthrough solutions,
to offset these investments. Those • Address public concerns about
such as the chemical recycling of
incentives could include providing the safety of CO2 storage.
plastics, electro-chemicals, and
long-term regulatory predictability
using non-carbon reductants in • Create CO2 reduction markets to
for taxation and greater access to
non-ferrous metal smelting. provide incentives for industrial
capital for initial costs. However,
manufacturers that have the
these measures should avoid — Bioenergy supply chain
potential to generate negative
limitations or requirements that development. By 2050, the
emissions, such as cement
could prompt companies to move industry sector will need 2.5 EJ per
manufacturers that implement
their industrial operations outside year of pellet biomass or biogas
BECCS, to adopt these alternatives.
the European Union. to make the switch from fossil
Net-Zero Europe 117

3.4 Buildings
118 Net-Zero Europe

Exhibit 46
Buildings pathway in brief

The building sector could reach net-zero cost by improving building insulation and switching to renewable
heating technologies.
100
100
Dwellings on renewable
heating 90
% of total dwellings
80
70
60
50
50
40 351
30
20
10
0
2017 30 2050
2.5
Insulation rate
% yearly insulated 2.0
1.5
4,800
4,600
Total buildings gaseous
fuels use -2002
PJ
2,000
-2,600
2017 30 2050
Of which carbon-neutral gas3

5 15 100
% of total gas
1. Share of heat from renewable fuels (e.g., biogas, electricity)

2. Reduction in building gas use over time period
3. e.g., hydrogen or biomethane
Source: McKinsey
Net-Zero Europe 119

3.4.1 Building emissions today An efficient way to decrease the 3.4.2 The role of buildings on the
Residential buildings account for 70 amount of GHGs emitted from buildings path to net-zero
percent of buildings emissions. is to reduce the heat demand. By To reach its climate targets, EU building
In 2017, buildings emitted improving building insulation and emissions will need to be reduced by
490 MtCO2e, accounting for 13 percent installing heat-control systems, heat 29 percent by 2030 and 100 percent by
of EU emissions.36 Residential buildings demand for poorly insulated houses 2050. Most of this reduction could be
accounted for 70 percent of these can be reduced by up to 80 percent, achieved by retrofitting and replacing
emissions, while 30 percent came from depending on the building type, the heating systems in existing
commercial buildings. Most residential insulation measures taken, and buildings, which will still account for
building emissions are generated by five climate conditions. To decarbonize the 75 to 90 percent of EU real estate in
regions: Germany, Italy, France, Poland, remaining energy use, owners would 2050. The most cost-effective pathway
and Benelux. These regions account for need to switch to electricity, district to reaching net-zero includes:
60 percent of the EU’s total residential heat, and renewable fuels for space
Improve energy efficiency
floor area, with higher emissions per heating, water heating, and cooking.
through insulation.
square meter generated by Germany,
More than half of Europe’s building — All new buildings highly insulated.
Poland, and Benelux because of their
stock is poorly insulated. This is
colder climates and higher use of fossil — 55 percent of existing building stock
primarily the case in warmer areas, like
fuel-based heating compared to regions has better insulation by 2050.
Southeast Europe, where three out
like the Nordics (Exhibit 47).
of four buildings are poorly insulated. • 75 percent of these buildings
Europe’s building stock is composed Also about two-thirds of EU homes would upgrade low insulation
of more than 200 million structures, are still heated by burning gas, coal, to medium or high insulation,
most of which are in Germany, France, or oil. 38 Boilers are the dominant depending on the climate.
Italy, and Iberia. By square meter, three- technology across regions, but the
• 25 percent would upgrade
quarters of EU buildings are residential. heating technology mix and share
medium insulation to high
The rest are commercial buildings of renewables vary by region. For
insulation, particularly in colder
such as shops, offices, schools, hotels, example, gas boilers are common in
regions such as the Nordics and
restaurants, and hospitals. In both Benelux (70 percent), coal boilers are
Central Europe.
residential and commercial buildings, more prevalent in Poland (33 percent),
most energy is used for space and and electric heating is popular in Switch to renewable technologies for
water heating (70 percent). The rest is France (24 percent). heating and cooking.
consumed by appliances (15 percent), — 60 percent of cooking would be
District heating is the predominant
lighting (5 percent), cooking (5 percent), electrified by 2050 (compared to
heating technology in the Nordics
and space cooling and other (5 percent). 40 percent now); the rest using
(50 percent), which is fueled by biomass,
We expect the proportion of energy biogas, hydrogen, or sustainably
power plants, and large heat pumps.39
used for space and water heating produced biomass.
Going forward, district heating that
could drop if the efficiency of heating
runs on renewable energy, such as — 9 percent of residential and
technologies improves. However, the
solar, geothermal, and excess heat from commercial buildings would
proportion of energy used for appliances
industry, may play a more significant role use heat pumps for space and
could increase as people buy more small
in heating buildings. This is particularly water heating by 2030, reaching
electric appliances and devices.37
true in areas with high building density, 40 percent by 2050 (compared to
such as city centers, and in places 2 percent now).
where other renewable solutions aren’t
technically feasible or affordable.
36
This number represents only direct emissions (i.e., emissions that occur from fuel combustion in a gas boiler to provide heating and cooking in buildings). Emissions
that occur indirectly, such as through the production of electricity that is transmitted for use in buildings, are accounted for in the power pathway [Section 3.1].
Emissions generated for building construction and renovation, such as the CO2 emitted while making cement, are covered in the industry section [3.3].
37
In the past 30 years, energy use for appliances in residential buildings has grown by nearly 1 percent per year, mainly because of rising purchases of large appliances
such as dishwashers, washing machines, and dryers. From 2010 to 2015, this usage dipped, likely because consumers made fewer household purchases during the
2011–2013 recession. After 2015, we assume energy use continues growing in line with pre-2010 figures because of increasing demand for small appliances and
electrical devices. We assume this trend will be partly offset by efficiency gains in large appliances.
38
Coal, oil, and gas boilers and 50 percent of district heating
39
In a district heating system, heat is distributed from a central location through a network of insulated pipes fed by various heat sources. Today, most networks use
heat from combined heat and power plants, excess heat from industries, and heat produced by fossil combustion. In the future, district heating can be fueled by
combined heat and power plants that run on sustainably-sourced biomass, excess heat from industries, and a combination of other renewable energy such as solar,
geothermal, or heat pumps.
120 Net-Zero Europe

Exhibit 47
Approximately two-thirds of EU homes are still heated by burning gas, coal, or oil.
Total space and water heating by source for EU-27, 2017, MtCO2e
100% = 3,8601
10%
Power 24%
2% Gas boiler
3% 2% Biomass boiler
Transportation 21% 37%
Oil boiler
12% Total space
and water District heating
Buildings 13%
heating Coal boiler
Solar thermal
Industry 30%
15% Heat pump
Other
Agriculture 12% 20%
Buildings by heating type and region

Million dwellings in EU-27, 2017
100% = 45 38 34 34 21 18 15 15 15 2
Germany France Italy Iberia Southeast Central Poland Ireland

Europe Europe Nordics Benelux

Source: Building Statistics Observatory – EU, Enerdata, Eurostat, Inspire, Hotmaps
Net-Zero Europe 121

— 23 percent of residential and The level of insulation also varies technology mix by 2050. Although they
commercial buildings would use across regions. More than 80 percent are expensive, the total cost of heat
district heating by 2030, reaching of homes in the Nordics, the coldest pumps is lower for building owners
33 percent by 2050 (compared to EU region, would need to be upgraded than other renewable solutions, such
12 percent now). to high levels of insulation, compared as biogas and hydrogen, with high fuel
with 40 percent of EU homes overall. prices (Exhibit 48).
— 15 percent of residential and
In Southeast Europe and Iberia,
commercial buildings would be District heating will also play a
where homes require heating only a
heated by biogas or hydrogen significant role in decarbonizing the
few months per year, we don’t see an
boilers by 2050 (compared to EU buildings sector, growing its share
uptake of high insulation at all (medium
0 percent now). from 12 percent today to 33 percent
insulation only).
of the total heating technology mix
— 7 percent of heating would be
Switch to renewable energy for by 2050. In areas with high building
provided by solar thermal as an add-
heating and cooking density and homes that are difficult
on technology by 2030, growing to
To decarbonize the remaining emissions to retrofit, district heating appears to
10 percent by 2050 (compared to
from space heating, buildings will need be the best replacement for existing
2 percent now).
to switch to heating systems that use fossil fuel-based heating systems.
Improve energy efficiency renewable energy instead of fossil Alternative green gas solutions, such as
through insulation fuels. The cost of this initial investment boilers that run on a blend of hydrogen
Improving energy efficiency by ranges from €1,500 for a biogas or and biogas, are expensive and have
upgrading building insulation is the hydrogen boiler to €20,000 for a limited availability. 40 Renewable energy
most cost-effective way to reduce ground-sourced heat pump, which is sources for district heating systems are
direct emissions in this sector. The why governments will need to offer available. In fact, the total amount of
average investment in retrofitting incentives to encourage widespread excess heat generated in the European
a poorly insulated home actually adoption. The total abatement cost is an Union matches the total energy that
saves money. It saves €35 per average of €60 per tCO2e per year. would be required to heat buildings
tCO2 and €5 per tCO2 to retrofit a poorly throughout Europe. The challenge
Switching to renewable technologies
insulated building with medium and is connecting that excess heat to
for heating would reduce building
high insulation, respectively. Better district heating networks, which isn’t
emissions by 21 percent (95 MtCO2e
insulation reduces the amount of heat always possible. In places where the
a year) by 2030 and by 73 percent
lost through walls, roofs, floors, and local waste heat supply is insufficient,
(334 MtCO2e a year) by 2050. Achieving
windows which, over time, decreases other renewable sources could fill the
these reductions will require a mix
the cost of heating a home or building gap, such as large-scale heat pumps,
of heat pumps, district heating, and
beyond the initial investment of geothermal, or using sustainably
boilers that run on biogas or hydrogen,
upgrading the insulation. sourced biomass.
with solar thermal as an add-on
By 2030, improving building insulation technology. The preferred solution will For cooking, shifting to renewable
would reduce emissions by 7 percent vary across regions and building types, technologies would reduce building
(32 MtCO2e a year). By 2050, it would based on the region’s climate, building emissions by 1 percent (4 MtCO2e
reduce emissions by 22 percent density, retrofitting possibilities, each year) by 2030 and 5 percent
(99 MtCO2e a year). For the European existing heating system infrastructure, (25 MtCO2e per year) by 2050.The
Union to achieve these reductions, all and access to renewable energy pathways for reducing those GHG
new buildings must be highly insulated, sources. For example, air-to-water heat emissions will look similar across
and 55 percent of existing buildings pumps may be more cost-effective for regions and building types. For
must be retrofitted by 2050. In our houses with central heating systems example, homes that use electricity
cost-optimal pathway, the number of using water, which homes in southeast for cooking will shift to more efficient
retrofits varies per region. In colder Europe and Iberia often don’t have. In induction technology in places like
regions with higher demands for heat, these regions, air-to-air heat pumps Germany, France, and Iberia. Then after
such as Poland, Central Europe, and may be the more affordable solution, 2030, building owners that still use gas
Benelux, a higher proportion of homes particularly since they can provide for cooking would need to transition
will need to be upgraded. At the same space cooling during the summer. to biogas. Overall, reducing emissions
time, only 20 percent and 40 percent from cooking will cost an average of
Heat pumps will play a significant role
of the houses in Iberia and Southeast €150 per tCO2e.
in decarbonizing the building sector,
Europe will need retrofitting.
growing its share from 2 percent today
to 40 percent of the total heating
40
Increasing the demand for biogas and hydrogen could also stress the limited supply and drive up already high hydrogen prices.
122 Net-Zero Europe

Exhibit 48
Heat pumps could play a vital role in the decarbonization of the EU building sector.
Space and water heating technology mix

Penetration level in %
100%
Other1
Solar thermal2
Heat pump
District heating
Biomass boiler
Coal boiler
Oil boiler
Hydrogen boiler
Biogas boiler
Gas boiler
CO2 emissions for space and water heating

MtCO2e
440
-100%
2017 20 25 30 35 40 45 2050
1. Direct electric heaters and electric boilers

2. A share of the total heat demand is provided by solar thermal; no stand-alone solution
Source: McKinsey
Net-Zero Europe 123

3.4.3 Key uncertainties and enablers — Lower hydrogen prices could give — National policies that favor one
Key uncertainties: Prices, policy hydrogen boilers a more significant solution over another could also
developments, and human behavior role in the final heating technology change the attractiveness of the
Many factors we don’t know yet could mix. If hydrogen prices drop below mix we propose in our pathway. For
delay or accelerate GHG reduction €25 per gigajoule, hydrogen could example, if national officials decided
and change what now appears to be become an attractive alternative that district heating was the best
the most cost-effective pathway for solution compared to heat pumps solution for all urban areas in the
buildings, including: and district heating. If hydrogen country, they could mandate or offer
prices drop below biogas prices, incentives for urban building owners
— Limited availability or higher prices
boilers that run on hydrogen could to choose this option, making
for biomass and other renewable
become cost-competitive with district heating more prevalent.
energy sources for district heating.
boilers fueled by biogas.
It could prove more challenging — Greater public awareness about
to connect excess heat sources — Differences in the size, location, the need for sustainable practices
to district heating networks or design, and construction of could lower energy consumption
be more expensive to run district buildings throughout the EU faster than we’ve projected. This
heating networks on renewable could lead owners to choose other awareness could inspire more
sources. District heating requires decarbonization solutions than the building owners to upgrade their
extensive stakeholder alignment mix we’ve proposed. Almost no insulation, lower their thermostats,
and sufficient capital for initial home or building is identical, and and unplug appliances they aren’t
investments. This could lead to therefore, retrofitting will require using. It could also motivate
lower adoption of district heating tailored solutions. For example, homeowners to choose self-
networks, which would mean that some houses have pitched roofs, sustainable heating solutions, such
heat pumps and green gas networks while others have flat roofs. Some as solar thermal and geothermal
such as biogas and hydrogen would have walls made of wood, and heat pumps, and become willing to
need to play a larger role in reducing others have walls made of bricks. pay a premium for them.
building emissions. Because of these variations, the
— Greater digitization could lower
pathway we’ve recommended as
— Lower gas and oil prices could energy demand beyond our
the cheapest option for the average
delay the adoption of renewable projections because technologies
building might not be the most
technologies without regulation that such as smart meters and smart
economical for all of them.
forces building owners to switch. appliances that provide users
with real-time data on energy
consumption can inspire them to
make adjustments.
124 Net-Zero Europe

Key enablers: Government policies average €280 a year for insulation changes we propose in our pathway
and incentives and in their heating systems. This would also increase the demand
Our pathway assumes that all new would need to increase by more than for insulation materials and labor
buildings in the European Union will be 50 percent to roll out new insulation by 30 to 50 percent. Meeting these
well insulated because of the European and heating technologies. These demands would require government
Union’s current Energy Performance costs will vary by region because initiatives that help expand supply
of Buildings Directive (EPBD). We of price differences for labor and chain capacity.
also expect that more new buildings materials, which will make these
— Standards and incentives for
will be constructed with renewable projects more expensive in places
building owners. Homeowners who
technologies because of stricter like Germany and the Nordics and
live in their properties are likely to
regulations in individual countries, such cheaper in southeast Europe and
be more motivated to pay for new
as the Netherlands’ law that prohibits Poland. To make these investments
insulation and heating technologies
new natural gas connections. Beyond attractive, governments and
because they will lower their utility
these directives, several things must financial institutions will need to offer
bills. Landlords may be less willing
happen to make our buildings pathway homeowners a combination of grants,
to do so without government
cost-effective, including: loans, and subsidies. Lawmakers can
incentives or regulation on minimal
also create incentives for banks to
— Policies to reinforce adaptation. required insulation standards.
create new financial instruments that
For the buildings sector to reach
link the loans to the building rather — Greater public acceptance. The
net-zero GHG emissions by 2050,
than the owner. changes we propose require the
governments will need to mandate
widespread adoption of higher
or offer incentives for homeowners — Significant public investment. For
building insulation and renewable
to upgrade to renewable heating homeowners to switch to renewable
heating systems. Marketing
systems and install higher levels of heating and cooking technologies
campaigns sponsored by public
insulation. This can include bans by 2050, current electric and
and private agencies that explain
on new gas boilers after 2030 that district heating networks will need a
the need for change and the cost
would force homeowners to replace major overhaul. Just installing new
benefits of taking actions such as
their current boilers with renewable district heating networks will cost
installing floor heating and roof
heating systems when they break €500 to €700 billion. To facilitate
insulation could inspire greater
down. Governments can also regulate the transition, governments would
willingness among building owners
insulation levels and dictate which need to make sure that building
to make these renovations.
buildings must use district heating. owners have the prerequisite
infrastructure to switch to
— Financially attractive solutions.
renewable technologies. Making the
Today, building owners invest on
Net-Zero Europe 125

3.5 Agriculture
126 Net-Zero Europe

Exhibit 49
Agriculture pathway in brief

The agriculture sector can decarbonize by electrifying farm machinery, turning manure into biogas, and breeding
animals that produce fewer GHG emissions.
100
Carbon neutral energy in
equipment
% of total
40
0
2017 30 2050
70 70
Anaerobic digestion
systems
% of captured manure 60
50
40
30 34
20
10
1
0
2017 30 2050
62
GHG-focused genetic
selection and breeding
programs
% of total herd
25
2017 30 2050
Variable rate fertilization

17 36 75
% of total hectares
Source: McKinsey
Net-Zero Europe 127

3.5.1 Agriculture emissions today In crop production, 50 percent of GHGs share of beans, nearly 40 percent
Half of agriculture emissions are from come from synthetic fertilizers because of agricultural emissions come from
cattle and other livestock. crops cannot absorb all that is applied, crop production. Because of the high
In 2017, the agriculture sector produced and the excess nitrogen is released into energy consumption in greenhouses in
470 MtCO2e, accounting for 12 percent the atmosphere as nitrous oxide. Other the Netherlands, energy use accounts
of EU emissions. Raising animals for significant GHG emissions come from for 30 percent of agricultural GHG
food generated 55 percent of these the cultivation of organic soils and from emissions in Benelux.
emissions, followed by crop production crop residues (Exhibit 50).
Without intervention, European Union
with 30 percent and energy used for
Agriculture emissions are distributed agriculture emissions are projected to
farming activities with 15 percent. In
among EU member states, with drop only 3 percent by 2050, according
animal protein production, 65 percent
the profile in each affected by its to the United Nation’s Food and
of GHG emissions come from
relative shares of livestock and crop Agriculture Organization.
enteric fermentation, a natural part
production. For example, 75 percent
of animal digestive processes that
of GHG emissions in Ireland are from
produce methane, and from manure
animal protein production. In Central
management, which also emits nitrous
Europe, where cereal and oil crops are
oxide. Nearly 90 percent of emissions
plentiful, and the Nordic countries that
from animal protein production comes
grow the European Union’s largest
from dairy and non-dairy cattle.
Exhibit 50
Animal digestion processes and manure are responsible for most agricultural GHG
emissions across the EU-27.
MtCO2e, EU-27
Emissions source Description 2017 Emissions

Part of the digestion process of ruminant animals, which
Animal Enteric fermentation releases methane gas as a by-product. Of this, 50% comes 170 CO2
from non-dairy cattle, and 37% come from dairy cows
CH4
Capture, storage, treatment, and utilization of animal
Manure management manure 70 N2O
Manure left on pasture Animal waste left on managed soils from grazing livestock 25
Direct emissions from denitrification, leaching, and
Crop Synthetic fertilizers volatilization of nitrogen applied to a soil to supply one or 65
more plant nutrients essential to the growth of plants
Manure applied to soils Animal waste distributed on fields to enrich soils 35
Nitrous oxide and carbon dioxide gases from the drainage

Cultivation of organic soils of histosols for cultivation purposes 20
Crop residues Returning to managed soils the residual part of the crops 20
Carbon dioxide, methane and nitrous oxide gases
Energy Energy use in agriculture associated with fuel burning and generation of electricity 60
used in agriculture
Methane gas from the anaerobic decomposition of organic
Rice Rice cultivation matter in paddy fields 5
Total emissions 470
Source: McKinsey, FAO 2019, PNAS: Schlesinger et al 2017: Natural Climate Solutions, Eurostat 2020
128 Net-Zero Europe

Global warming potential in But the lifetimes of greenhouse To be consistent with other sectors
20 vs. 100 years gases differ, which affects their and policy documents, our analysis
For the purposes of policy discussion GWPs. Because methane stays in the is based on 100-year GWP values.
and target setting, greenhouse gases atmosphere for only 12 years, its GWP However, many researchers have
are generally measured by their varies depending on the timeframe. argued that the impact of agriculture
global warming potential (GWP)—how For example, one ton of methane emissions should be measured over
much energy the emissions of one has 28 times the effect of one ton of shorter timeframes to reflect their
ton of gas will absorb during a given carbon dioxide when measured over more immediate impact and the
period compared to the emissions 100 years, but 84 times the effect urgency of curbing emissions.
of one ton of carbon dioxide. GWP is over 20 years.
calculated for a specific timeframe,
typically 100 years.
3.5.2 The role of agriculture on the 2018 report. The interquartile ranges
path to climate neutrality of these pathways suggest that limiting
Reducing agricultural emissions is warming to 1.5oC requires reducing
particularly challenging for three methane emissions by 24 to 47 percent
reasons. First, most emissions come and reducing nitrous oxide by 1 to
from natural processes that technology 21 percent (versus a 2010 baseline).41
today can’t fully abate. For example,
Our analysis shows that to achieve
there is currently no technology that can
climate neutrality, the European Union
fully stop enteric methane emissions
could reduce emissions from agriculture
from cows. The most advanced feed
by one-third, that is, 160 MtCO2e a
additives are expected to reduce
year. This reduction would be achieved
methane emissions only by up to
by eliminating emissions from farm
40 percent. Second, change needs to
energy use and reducing animal protein
happen at a very distributed level, there
production emissions by 26 percent
being more than 10 million farms that
and crop production emissions by
would need to change their practices.
27 percent. Reduced consumer demand
Changing the practices of millions of
for beef and dairy products could
farmers takes time given the need to
reduce these emissions further. For
create the right incentives and to build
example, if 50% of EU citizens were to
new capabilities or know-how. Third,
adopt a flexitarian diet, emissions would
agriculture has to balance a range of
fall by 16 percent (73 MtCO2e).
goals including production (to both
fulfill nutritional needs and ensure food Crop levers and feed improvements
security), rural welfare, biodiversity, and would contribute to reduced emissions
sociocultural and landscape heritage. immediately. On-farm machinery
Consequently, the EU likely cannot and GHG-focused breeding require
reach net-zero agriculture emissions further advancements in technology
by 2050, but CO2 emissions can be before they can contribute to reduced
eliminated while nitrous oxide and emissions, delaying their deployment
biogenic methane can be significantly and the majority of their benefits into
reduced in line with the pathways the 2030s and 2040s.
identified in the Intergovernmental
Panel on Climate Change (IPCC)
41
“Special report: Global warming of 1.5°C, summary for policymakers,” IPCC, January 2019.
Net-Zero Europe 129

Key agriculture levers additives to 38 percent of beef, dairy, annually. As nitrification inhibitors
1. Switch to zero-emissions and sheep animals and 75 percent aren’t applicable to all types of
on-farm machinery. of feed mix optimized by increasing fertilizers, this would apply to
100 percent of on-farm equipment dry matter percentage of fats would 40 percent of synthetic fertilizers
and machinery would use alternative abate 19 MtCO2e annually by 2050. used today.
fuels by 2050 to abate 61 MtCO2e.
4. Adopt GHG-focused genetic 6. Use of variable rate fertilization
2. Implement anaerobic selection and breeding programs. Utilizing variable rate nitrogen
digestion systems. 62 percent of animals bred to application on all applicable acres
70 percent of dairy and swine emit 15 percent less methane (75 percent of total nitrogen fertilizer
manure produced annually during enteric fermentation by use) would abate 8 MtCO2e annually
would be converted into biogas 2050 would deliver a reduction of through reduced application rates and
by 2050 to achieve 21 MtCO2e 17 MtCO2e annually. improved nitrogen-use efficiency.
abatement annually.
5. Use enhanced efficiency fertilizers.
3. Improve animal feed Exclusive use of N-inhibitors by
Increased utilization of animal feed 2050 would abate 15 MtCO2e
In agriculture, there are no silver-bullet fuels, along with the decarbonization of (about 70 percent)42 from dairy animals
technologies that could reduce the electricity, would reduce the European and swine. It would also require large
majority of emissions. The following Union’s agriculture energy use upfront investments of up to €1,000 a
levers have the greatest abatement emissions by 100 percent (61 Mt a year). head of livestock, depending on the
potential, yet each reduces total country and species. 43
Moving away from fossil fuels will also
emissions by less than 12 percent.
reduce costs for farmers. As battery Improve animal feed
Switch to zero-emissions prices continue to fall, the purchase Increasing the dry matter percentage
on-farm machinery price and operating costs of electric of fats from whole seeds, plant oils, or
The key to eliminating CO2 emissions machines will drop. dietary supplements by 2 to 3 percent
in the agriculture sector is to transition in cattle diets reduces methane
Implement anaerobic manure-
farm equipment now dependent production proportionally. Due to
digestion systems
on fossil fuels to alternative energy potential health issues and practical
Capturing methane using anaerobic
solutions. Although machines using aspects, there is a limit of 6 percent of
digesters could reduce GHG
these alternative fuels—such as total fat content. There are also some
emissions from dairy cow and hog
electricity, ammonia, and biomethane feed additives that have been shown to
manure systems by up to 85 percent.
compressed natural gas (CNG)— inhibit methane production in the rumen.
These devices, which promote the
aren’t yet widely available, there Propionate precursors—a class of free
decomposition of manure to simple
are prototypes that will likely be acids or salts including sodium acrylate
organics and biogases, are primarily
developed into marketable models and sodium fumarate—will likely be
applicable to animals maintained
in the upcoming years. Emerging widely applicable, as they directly inhibit
indoors. Germany already has an
market dynamics, such as increasing methane emissions from cattle without
advanced system of anaerobic
interest in the electrification of road affecting animal growth. Implementing
digestion plants that generate biogas
transportation by governments and these measures could abate 18 MtCO2e
that can be used on farms or sold back
consumers, also suggest that internal emissions, equivalent to 4 percent of
to the grid. But other regions such
combustion engines will be ripe for 2017 agriculture emissions.
as France and Iberia have untapped
mass displacement by 2050. And as
potential that could abate up to Adopt GHG-focused genetic selection
businesses in the power sector work
4.5 percent of agricultural emissions and breeding programs
toward reducing their emissions, the
(21 MtCO2e per year). About 20 percent of the methane a
electricity that farmers use for livestock
cow or sheep emits during digestion
and crop production will become zero- Reaching this potential would require
is determined by genetics, according
emissions. Switching to alternative the utilization of all collectible manure
to animal experts. Using genetic
42
Nicolae Scarlat Fernando Fahl, Jean-François Dallemand, Fabio Monforti, Vicenzo Motola, “A spatial analysis of biogas potential from manure in Europe.” Renewable
and Sustainable Energy Reviews, 2018, Volume 94, pp. 915–30.
43
“Bioenergy in Germany: facts and figures 2019,” Fachagentur Nachwachsende Rohstoffe e.V. (FNR), 2019.
130 Net-Zero Europe

selection that focuses on breeding Use enhanced efficiency fertilizers fertilizers (such as urea), and farmers are
animals that emit less GHG could Using enhanced efficiency fertilizers hesitant to adopt new products without
reduce EU agriculture emissions by such as N-inhibitors could reduce a long history of margin improvements.
3.5 percent (17 MtCO2e) by 2050. nitrous oxide emissions by 15 MtCO2e by
Use variable rate fertilization
However, achieving this reduction would 2050 (2 percent agricultural emissions).
Variable rate (VR) nitrogen application
require 50 percent of beef and sheep Because the nutrient requirements
on all applicable acres (75 percent of
breeders and 70 percent of dairy and of crops vary as they mature, slow- or
total nitrogen use) can abate 8 MtCO2e
swine breeders to adopt this practice. controlled-release stabilized fertilizers
annually. VR nitrogen application
Today, a major obstacle to investing can ensure that plants receive nitrogen
can drive down emissions through
in genetic selection and breeding when they need it most. This means
improved nitrogen-use efficiency and
programs is a lack of economic incentive less nitrogen will be released into the
reduce overall nitrogen application. VR
and the low maturity of breeding environment. N-inhibitors instead
fertilization adjusts application to real-
systems. Incorporating emissions- protect and slow down synthetic
time crop or soil needs. This practice
reduction traits into these animals is fertilizers from breaking down into
relies on the use of VR equipment for
time intensive and often has a limited smaller chemical compounds, leaving
application and sensors to monitor
financial return, as governments don’t more nitrogen available to crops and
in-field nitrogen rates and crop health.
currently support those investments less nitrogen to create other harmful
This VR rate is based on the 4Rs of
with market payments or credits for gases. Although slow- or controlled-
fertilizer management: right timing,
methane reduction. New breeding release fertilizers are often cost-
right product, right amount, and right
techniques, such as those using prohibitive for farmers who don’t grow
placement of nitrogen on the field.
CRISPR-Cas9,44 could lower the barriers specialty crops, N-inhibitors are more
to entry. Targeted investments by major affordable. Yet current adoption is
animal genetics companies could also low, as potential cost savings can be
accelerate this kind of innovation. highly variable, are not applicable to all
44
Clustered regularly interspaced short palindromic repeats (CRISPR); CRISPR associated protein 9 (Cas9).
Exhibit 51
On the cost-optimal pathway to climate neutrality, the European Union would achieve a
35 percent reduction in GHG emissions by 2050.
MtCO2 equivalent, EU-27
470
40 65
29
145 Crops 20 -35%
15
Variable rate
fertilization Animal 60 305 Other animals
Protein
60 Enhanced Beef
efficiency Anaerobic Energy
105 Dairy
fertilizers manure On-farm
digestion Swine
machinery
GHG-focused decarboniza- Sheep
breeding tion Crop
265
Feed improve- Energy
200
ments Animal
X Emissions
reductions
2017 Crop Animal Energy Remaining
emissions 2050
-28% -25% -100%
Source: McKinsey
Net-Zero Europe 131

3.5.3 Key uncertainties and enablers are already reducing their meat
Key uncertainties: Consumer demand, consumption, as is illustrated by the
food waste, and technology increasing numbers of vegetarians
Many factors we don’t yet know could and vegans.46
delay or accelerate GHG reduction
— Advancements in farm-related
in agriculture and change what now
technology. It’s difficult to
appears to be the most cost-effective
predict future advancements
pathway. Those factors include:
in technologies that could
— The current impact of climate reduce agricultural emissions.
change. The global warming we’ve However, they could prove to be
already experienced is expected to highly effective. For example,
change many aspects of agriculture DSM’s next-generation feed
over the next 30 years, including additives are expected to reduce
crop yields and the types of crops enteric fermentation emissions
that can grow in certain regions. For by 30 percent.47 Other future
example, by 2050, Europe could advancements that could make
face a 15% reduction in yields from a difference include gene editing
maize in 20 percent of growing for disease resistance, enhanced
seasons versus 6 percent of seasons carbon sequestration, plant and soil
currently.45 At the same time, the microbiome technology, vaccines
chance of a 10 percent higher than that reduce methane emissions from
average wheat yield will likely increase enteric fermentation, direct methane
by 30 percentage points, from capture from beef and dairy cattle,
5 percent to 35 percent by 2050. and perennial row crops.
Whether these predictions come to
— Impact on competitiveness.
pass will impact farming-related GHG
Given advancing technologies
emissions because it will affect the
and changing consumer demand,
amount of land that’s needed to grow
it remains uncertain what impact
the same amount of food and the
emissions reduction will have on the
quantities of fertilizer required.
competitiveness of the European
— Consumer demand for meat Union’s agriculture sector.
and dairy products. Because the Delivering emissions reduction
methane emitted by cows and sheep without negatively impacting
during enteric fermentation accounts competitiveness will require the
for nearly half of agriculture’s policy, consumer, and technology
GHGs, reducing meat and dairy enablers set out below.
consumption would have the most
significant impact on lowering
agriculture emissions. Europeans
45
McKinsey Global Institute, “ Climate risk and response: physical hazards and socioeconomic impacts;” MGI analysis.
46
Emily Scott, “Germany is leading a vegaluation—vegan revolution—in Europe,” US Department of Agriculture, Foreign Agricultural Service, January 13, 2020.
47
DSM website: https://www.dsm.com/corporate/solutions/climate-energy/minimizing-methane-from-cattle.html; accessed 08/07/2020
132 Net-Zero Europe

Key enablers: Policy, consumer could help farmers make these businesses can encourage them
education, and new equipment and changes. In the European Union, to make healthier choices through
business models it is particularly important that all marketing campaigns and policy
Several things must happen to make EU departments and executive changes, such as national food
this pathway feasible and cost- agencies (including Agriculture pyramids endorsed by individual EU
effective, including: and Rural Development, Climate member states.
Action, and Environment) take
— Policies that support — Development of new farming
an integrated and coordinated
environmentally friendly products and business models.
approach to supporting a climate
farming practices. Most climate- Emerging technologies at various
neutral agriculture sector.
change policies don’t focus on stages of development could
reducing agricultural emissions. — Consumer education to shift the significantly reduce GHGs in the
Commitments made under the demand for meat and dairy. If half agriculture sector. Considering the
Paris Agreement cover only of the EU population ate healthier, European Union’s increased focus
38 percent of current global more balanced diets (e.g., flexitarian on the environment, developing
agriculture emissions. 48 Policy shifts diet) by 2050, this change alone these technologies should become
are vital to speed up technology would reduce agricultural emissions more attractive. Companies in the
development and the adoption of by 16 percent (73 MtCO2e) while agriculture sector could be offered
environmentally friendly farming also decreasing premature deaths incentives to contribute to R&D
practices. For example, financing by 9 to 11 percent. 49 Although efforts and redesign their business
mechanisms for new technologies, dietary decisions are ultimately up models to prioritize environmentally
such as anaerobic digestion plants, to consumers, governments and friendly outcomes.
48
Rita Strohmaier, et al., “The agriculture sectors in the intended nationally determined contributions: Analysis,” Food and Agriculture Organization of the United
Nations, 2016.
49
Marco Springmann, Keith Wiebe, Daniel Mason-D’Croz, Timothy Sulser, Mike Rayner, Peter Scarborough, “Health and nutritional aspects of sustainable diet
strategies and their association with environmental impacts: a global modelling analysis with country-level detail,” Lancet Planet Health, October 2018, Volume 2,
Number 10, pp. e451–61.
Net-Zero Europe 133

3.6 Cross-sector: Hydrogen
134 Net-Zero Europe

Exhibit 52
Hydrogen pathway in brief

As hydrogen demand increases, green hydrogen production costs should fall 70 percent by 2050
1,515
Hydrogen demand
Total TWh
305 335
2017 30 2050
Percent of which is low-carbon

(blue or green) 0 56 100
%
~5.5
Cost of low-carbon (blue or
green) hydrogen production
EUR/kg
~2.0
~1.5
2017 30 2050
Source: McKinsey
Net-Zero Europe 135

3.6.1 Hydrogen use today Lower-carbon hydrogen could be cheaper. Regions with a healthy supply
Hydrogen can fill many roles in the supplied using various production of renewable power would see even
net-zero transition, including enabling processes. Green hydrogen is made bigger price drops.
renewable power to be integrated by separating the hydrogen molecules
Blue hydrogen is usually made from
at scale, providing flexible power from the oxygen molecules in water
natural gas through steam methane
generation, distributing energy using electrolysis powered by
reforming (SMR) and mitigating the
between sectors and regions, and renewable electricity. It tends to be
CO2 emitted with CCS. Blue hydrogen
decarbonizing end uses. Today, expensive because of the investment
can be produced by retrofitting
hydrogen mainly is used as a feedstock cost of electrolysis, storage, and
existing gas refineries or building
for ammonia production and oil refining. the operating costs of generating
new SMR and auto-thermal reformer
The European Union produces more renewable power.
(ATR) plants. Production costs include
than 300 TWh a year of captured
However, green hydrogen prices are the initial investment in retrofitting
hydrogen for chemical sites (mainly
expected to drop across the European refineries for CCS and the operating
ammonia) and refineries. This hydrogen
Union, from a high of €5 per kilogram costs of the natural gas, electricity,
is made by reforming natural gas, a
today to €2 per kilogram by 2030 and and transportation and storage of
process that emits 81 MtCO2e a year.
€1.5 per kilogram by 2050. As the CO2. ATR technology is more effective
New technologies are emerging that
production of green hydrogen ramps than SMR because it captures 90 to
can make hydrogen production cheaper
up, it should become less expensive 95 percent of CO2 emissions versus
and less carbon-intensive (Exhibit 53).
as renewable power also becomes 70 percent for SMR. ATR could also
Exhibit 53
Falling renewable power and electrolysis capital expenditure costs should make it much
less expensive to produce green hydrogen.
Green H2 production cost evolution
Cost drivers H2 production costs

EUR/kg
Electrolysis capex
EUR/kW
2.2
500 2.1
-40% 2.0
300
-7%
1.9
Electrolyzer capex
1.8 improvements
1.7
1.6 -30%
Renewable electricity cost1
EUR/MWh 1.5 Renewable
power cost
39 1.4 reduction
-37% 1.3
25 Green H 2
cost (EU
1.2
average)2
1.1
2030 40 2050
2030 2050 Range of green H 2 costs for different regions
1. Weighted average LCOEs of solar, onshore and offshore generation in EU-27

2. Renewable LCOE-based costs for green H2 production, which does not cover the real capture price and flexibility value of H2 in avoiding alternative flexibility
investments. Assuming a utilization factor 50%, lifetime 20 years, 5% WACC
Source: McKinsey
136 Net-Zero Europe

be more affordable than brownfield 3.6.2 The role of hydrogen on the
SMR technology over the long-term as path to net-zero
emissions trading scheme (ETS) carbon Hydrogen usage could reduce
prices rise. emissions by 470 MtCO2e per year by
2050 and satisfy 1,400 TWh of
Both green and blue hydrogen can be
new demand.
produced domestically or imported into
Switching from fossil fuels to green and
the European Union. The landed cost
blue hydrogen is critical to achieving
of imported hydrogen would include
net-zero, potentially reducing the
transportation and conversion. In our
European Union’s annual emissions
pathway, we assume that any imports
13 percent by 2050. As production
would come from regions with low
costs fall, this could create 1,400 TWh
renewable energy costs.
of new demand for hydrogen by
2050 for a total demand of 1,515 TWh
per year—a five-fold increase over
today’s consumption, and equivalent to
10 percent of final energy demand. In
the hydrogen breakthrough scenario,
15 percent of final energy demand is
met by hydrogen (Exhibit 54).
Exhibit 54
By 2050, hydrogen demand may be five-times to eight-times higher than today, depending
on how quickly costs fall.
Hydrogen demand, TWh, EU-27
Cost-optimal pathway Hydrogen breakthrough scenario1
2,365
Power
310
Buildings
Transportation
New industry energy
580 New industry feedstock
Conventional 2
1,515 8x
275 595
225
5x
445
595
395
335 305 15 15
305 65
15 115 320
90 240
305 305 225
225 115
115
2017 30 2050 2017 30 2050
1. Assuming hydrogen production cost is 30% lower by 2050 than in cost-optimal pathway
2. Captive hydrogen, e.g., hydrogen used in refining and ammonia production
Source: McKinsey
Net-Zero Europe 137

New consumption in multiple sectors In the transportation sector, hydrogen By 2050, 11 percent of building heating
would drive the growth in hydrogen would help reduce emissions by serving in the European Union would come
demand, including seasonal power as an alternative fuel for larger vehicles from hydrogen boilers, compared to
generation, residential heating, long- such as long-haul buses and heavy- 70 percent generated by heat pumps
haul transportation, iron and steel duty trucks. and district heating, with an average
manufacturing, chemical production, abatement cost of €100 per tCO2e.
In the industry sector, hydrogen would
and high-temperature heating (Exhibit
be the most economical alternative Most hydrogen technologies would
55). Also, processes that now use gray
in the metals segment, where it could become viable options after 2030 when
hydrogen, such as ammonia production
reduce those emissions by 80 percent the cost of fuel cell technology comes
and oil refining, would switch to blue or
of abatement. By 2040, hydrogen down and hydrogen production prices
green hydrogen.
could be used to decarbonize steel fall below €2 per kilogram. We forecast
Although most of the European Union’s production at an additional cost of the investment cost of electrolyzers to
power generation would come from €40 per tCO2e. decrease 40 percent, from €500 per
solar and wind by 2050, hydrogen kilowatt in 2030 to €300 per kilowatt
In the buildings sector, hydrogen
could be used to meet demand during by 2050. This, along with a 37 percent
uptake would begin after 2030, and its
times of the year when solar and decrease in renewable energy costs
adoption would vary by building type
wind outputs vary. For example, solar during this period, would cause a
and region. For example, we expect
production can drop to 20 percent of significant drop in green hydrogen prices.
some apartment buildings to switch
its potential during the darker winter
from gas to hydrogen boilers after
months, so the power grid needs an
2030 when there’s a sufficient supply
alternative source of renewable energy
of hydrogen and it becomes cheaper
to bridge the gap.
than biogas.
Exhibit 55
On the cost-optimal pathway, much of the growth in hydrogen demand would come from
fuel-cell trucks, synthetic fuel production, and long-term power storage.
Additional demand on top of existing hydrogen use1, PJ, EU-27
1,500
Long-term storage Power
Hydrogen furnace
Industry
Hydrogen boiler
1,000
DRI-EAF H2
Ammonia green H2
Refining green H2
FC trucks Transportation
500 Passenger cars

Buses
Synfuels
Residential heating Buildings

Commercial heating
Cooking
0
2020 30 40 2050
1. Existing hydrogen uses include refining, ammonia, and other chemicals.

Source: McKinsey
138 Net-Zero Europe

In the near term, brownfield SMR This domestic supply would be
and new-build ATR would be the complemented by 4 percent imported
most cost-competitive sources of hydrogen for seasonal balancing in the
hydrogen. However, green hydrogen winter when local renewable power
would approach total cost parity by generation is low. The estimated cost
2040 or earlier in regions with plentiful of imported hydrogen makes it a last
renewable resources. Realized green resort to satisfy new demand. Shipping,
hydrogen costs could be even lower if trucking, and other associated costs
electrolyzer operators could monetize are more than double local EU hydrogen
their ability to balance variable production costs and are not expected
renewables on the power grid. to decline over time.
On the cost-optimal pathway, 335 TWh If green hydrogen costs come down
of total hydrogen demand would be faster, total hydrogen demand could
satisfied by 20 percent green hydrogen, grow to over 2300 TWh of demand
35 percent blue hydrogen, and less than by 2050.
1 percent imported hydrogen by 2030. In addition to the cost-optimal pathway,
Approaching 2050, 85 percent of the we also analyzed the impact of a
1,515 TWh of total hydrogen demand “hydrogen breakthrough” scenario
would be fulfilled by green hydrogen. that assumes a faster decline in the
cost of green hydrogen production.
Blue hydrogen costs from brownfield
If electrolyzer costs fall to €180 per
SMR would increase slightly if ETS
kilowatt by 2050 rather than the
carbon prices rise because SMR with
€300 in our pathway, an additional
CCS only captures about 70 percent
850 TWh of demand could be satisfied
of the CO2 emissions. Although carbon
in the buildings and industry sectors.
pricing is not a factor for ATR because
of its higher CO2 capture capacity, its The production mix would be the same
uptake in the near term could be limited in this accelerated scenario. More than
by access to CCS infrastructure. 85 percent of the additional demand
would be met by green hydrogen by
Over the long term, given the
2050. However, this would require an
constraints on blue, green hydrogen
additional 15 percent in renewables
would account for the lion’s share of
generation per year—800 TWh from
the production mix. The cost-optimized
solar and 140 TWh from onshore and
pathway assumes a steep increase
offshore wind.
in electrolysis capacity to 18 GW in
2030 and 385 GW in 2050.
However, the development of

hydrogen production capacity could
go faster. Today, the European Union’s
hydrogen strategy already calls for the
accelerated introduction of electrolysis,
with a total capacity of 40 GW by 2030.
Supported by incentives, this level of
deployment would reduce the cost of
hydrogen faster than in our modeled
scenarios and lead to faster and higher
uptake of hydrogen.
Net-Zero Europe 139

3.6.3 Key uncertainties and enablers — Public and activist concerns. Public
Key uncertainties: Price developments, concerns about the risk of leaks
technology, and activism from underground CO2 storage
Several unknown factors could affect could hinder CCS adoption. This
the uptake of hydrogen, including: would limit the use of blue hydrogen
to meet anticipated demand.
— Price developments for bioenergy
and commodities. Low gas or — Renewable power capacity in
biomass prices could shift the cost- the European Union. The ability
optimal production mix to more blue to satisfy an increase in green
hydrogen than green hydrogen. It hydrogen demand would depend
could also delay the adoption of on the ability to scale up renewable
hydrogen for some applications power capacity.
entirely. It’s also unclear how much
the learning rate for electrolyzers
could increase to further reduce
green hydrogen capital costs.
— Technology breakthroughs.
Innovations in CCS could alter the mix
of gas with CCS versus hydrogen.
140 Net-Zero Europe

Key enablers: Funding, policies, and costs similarly to the significant trucking. So, creating clusters of
market design drop in solar PV prices in recent demand would be critical for making
Several things must happen to make years. Scaling renewable power a hydrogen rollout cost-effective.
hydrogen a feasible and cost-effective in many EU member states would Setting EU-wide standards and
part of the cost-optimal pathway, also require funding through a creating cross-border trade
including: combination of feed-in tariffs, direct opportunities would also ensure that
subsidies, and capital expenditure new and foreign players can enter
— Funding to bridge the economic
support to boost hydrogen uptake and invest in the hydrogen market.
gap. Transportation and production
and make it cost-competitive.
costs would account for most — Policy alignment across countries.
Likewise, further development of
hydrogen capital expenditures Hydrogen adoption would require a
CCS for the conventional production
through 2050. But its use in the streamlined policy across EU member
of hydrogen from natural gas could
industry sector would face the states. The climate strategies of EU
enable faster adoption in the near-
biggest challenges. For instance, member states would need to align
term.
in steelmaking, hydrogen would be with the international objectives and
more expensive than conventional — Market creation. The long-term approaches. Governments could
technology because of high fuel success of hydrogen depends on support this process by creating and
and feedstock costs and the site reducing the uncertainty of future aligning national and international
rebuilding required. Policy and demand. This could be achieved standards and regulations, such
investment support would need to with hydrogen vehicle targets, as those related to hydrogen
bridge the gap until hydrogen use feed-in tariffs, and long-term pressure levels at truck refueling
reaches the break-even point. We offtake agreements. Leveraging stations. Governments could also
estimate it would cost €60 billion local economies of scale could also work together to develop standard
to bridge the gap for hydrogen significantly reduce the cost of a hydrogen infrastructure. For example,
consumption in the transportation, hydrogen rollout. Although installing creating common policies to allow gas
industry, and buildings sector hydrogen infrastructure in a single pipelines to be reused for hydrogen
through 2050. Although the chemical plant is expensive, the distribution could help create an
business case for hydrogen in costs go down when costs can be EU-wide market for local players.
these sectors is negative today, shared across more applications, for

scale effects could rapidly reduce example with the use for heating and
Net-Zero Europe 141

3.7 Cross-sector: CCS
142 Net-Zero Europe

Exhibit 56
CCS pathway in brief

As CCS projects come online, they could capture and store more than 200 million tons of CO2 per year by 2050
205
Carbon capture1
BECCS
MtCO2 per annum
CCS
30
10.000
Amount of storage
capacity reserved2
MtCO2e
2.000
0
2017 30 2050
Share of total North Sea

0% 3% 17%
CCS capacity
1. Technologies include CCS, BECCS and other carbon sinks. Demand includes power.
2. Amount of capacity needed to be reserved to store 50 years worth of CO2 from CCS installations
Source: McKinsey
Net-Zero Europe 143

3.7.1 CCS installations today There are clusters formed in most EU
Today, most CCS projects have countries, with some, particularly in the
business models based on “Enhanced UK and Benelux region, having multiple
Oil Recovery”—injecting CO2 into a gas clusters centered on existing industrial
reservoir to extract more oil or gas from heartlands.
a well. This has allowed CCS technology
In addition, two CCS regional networks
to be demonstrated in many parts of the
are pursuing a common system for
world, particularly the US and Middle
transporting and storing carbon
East. Partly because of this, various
dioxide: the North Sea Basin Task Force
CCS technologies are already tested
composed of the UK, Netherlands,
and proven today, yet their use has so
Norway, Germany, and Belgium; and the
far remained local in scope and focused
Baltic Sea Region CCS network, which
on oil and gas. To contribute to the
includes Estonia, Germany, Finland,
decarbonization challenge in Europe,
Norway, and Sweden.
CCS would need to scale up and be
deployed at larger scales beyond the oil
and gas sector.
In Europe, only the Northern Lights

project in Norway is operational today
at scale, although several larger CCS
projects are under development. Across
Europe, and particularly around the
North Sea basin, numerous ‘clusters’ of
companies and carbon-intensive assets
are coming together to spread the cost
of infrastructure and enable CCS at
acceptable costs.
144 Net-Zero Europe

3.7.2 The role of CCS on the path other industries. Hence it’s unlikely that offset residual emissions from hard-
to net-zero all the cement plants in Europe could to-abate processes such as industrial
The European Union would by 2050 be grouped into industrial clusters waste management and raising
need to capture 205 MtCO2 per year to connected by pipelines. This means that livestock for food. Because our pathway
reach and sustain net-zero. other transport solutions for CO2 from already calls for the cement industry to
Until 2030 in the cost-optimal pathway, the plants outside the clusters may be install CCS infrastructure, a low-cost
CCS would be used primarily to needed . Under an alternative pathway way to create negative emissions is to
produce carbon-neutral hydrogen for where renewable power is more scarce, start blending biomass into cement
the chemicals sector. After that, the there would likely be a greater need for kiln fuels to produce carbon-negative
cement, power, chemicals and other CCS for power generation, additional blue cement. Similarly, the pathway includes
industrial sectors would ramp up CCS hydrogen production and iron & steel. negative emissions coming from blue
deployment too. Cement would grow to hydrogen producution with biomethane.
CCS is critical for generating negative
become the biggest CCS user because Other options pursued in the pathway
emissions that enable the EU to
it has few alternatives for abating the are negative emissions from biomass-
achieve net-zero emissions by 2050.
CO2 emitted during cement production fueled power or heat generation with
In the cost-optimal pathway, at least
(Exhibit 57). The cement industry is CCS.
55 MtCO2 of negative emissions would
more geographically fragmented than
need to be created annually by 2050 to
others, with many plants a long way from
Exhibit 57
Until 2030, CCS would be deployed mostly in the chemicals sector, but the cement sector
would become the major user by 2050.
Annual CO2 capture and storage in EU-27, MtCO2 p.a.
205
Other
Chemicals
Hydrogen
Non-metallic minerals
(incl. cement)
120 Power
70
65
30
2030 35 40 45 2050
Source: McKinsey
Net-Zero Europe 145

CCS would likely spring up around
existing industry clusters close to
storage locations in the North Sea.
Because of the extensive need for
carbon capture in the industry sector,
CCS clusters are expected to spring
up in regions with existing industry
clusters, such as the Benelux (Exhibit
58). Because of public resistance to
onshore CO2 storage, offshore storage
locations would likely be preferred, and
thus countries close to the North Sea
would be able to transport and store
carbon dioxide at a lower cost than for
those in the middle of the continent.
This could change if onshore storage
options, mostly aquifers in France,
Germany, Poland, and the Baltics, could
be used. For example, Poland has an
onshore storage capacity of more than
14 Gt, which is equal to one-quarter of
the North Sea’s storage potential.
146 Net-Zero Europe

Exhibit 58
CCS infrastructure would develop around existing industry clusters and in regions with
easy access to offshore storage locations in the North Sea.
Example of possible clusters for CCS
Example of potential CCS cluster,

Benelux and Ruhr Area
2,000 5
60,000 5
<5
Amsterdam
Rotterdam 10
1,000 25 15
Moerdijk
10
20 15
Ruhr area
Antwerp 10
Geleen 10 Size n/a
5 10
5 10 2,000
4,000 5
5
5
Size n/a
Offshore storage location, conservative

estimate of total MtCO2 storage available
Region with CCS demand, estimated

2050 CCS demand in MtCO2 per year2
Robustness of 2050 CCS demand

by region1
Low Light High
1. Based on robustness across pathways and proximity to storage

2. Using 2014 emissions data. These include emissions for production of cement, fertilizer, plastics, iron & steel and power
Source: McKinsey, EEA, Global CCS Institute, EU GeoCapacity, CO2StoP, country-level geological studies
Net-Zero Europe 147

3.7.3 Key uncertainties and enablers time, CCS could become the default — Prices of zero-emission fuels
Key uncertainties: Technology, “back stop” technology. On the could further increase or limit CCS
transportation infrastructure, and other hand, if the cost of alternative uptake. CCS will always be needed
fuel prices decarbonization options decreases to capture emissions that cannot
Several unknown factors could affect more quickly, or if new technologies otherwise be avoided, such as those
the uptake of CCS, including: become available, there will be less from the chemical reactions during
need for CCS. cement production. However,
— The trajectory of technologies
there are those areas where there
under development would impact — The timely roll out of a dedicated
is a choice between e.g., biofuels,
the demand for CCS. For example, if transportation infrastructure
hydrogen and CCS. If hydrogen or
electric furnaces or hydrogen-based to carry CO2 from the point
biomass end up costing some 20 to
steel production don’t take off, it of generation to the point of
30 percent more than we estimate,
would create a much greater need sequestration. In a decarbonized
CCS would become the lowest-cost
for CCS to meet reduction targets. Europe, methane will be displaced
decarbonization technology for
To achieve the 2030 targets, by CO2 and hydrogen as the
more industries.
decisions will need to be made in main gasses being transported
the next 12 to 24 months on the long distances. There will be
emissions-reduction pathways for opportunities to re-use both existing
many important industrial assets gas pipelines and also existing
such as steel and chemicals plants. If pipeline routings to lay new pipes, if
alternatives are not credible by that the projects can be phased correctly.
148 Net-Zero Europe

Key enablers: Economic incentives, in the event of CO2 storage leaks. — Develop the rules and oversight for
regulations, and stakeholder alignment Issues of accounting will also need to a formal CCS market. To reduce CCS
Although CCS is a proven technology, be addressed, for example, whether investment risk, lawmakers could
it hasn’t yet been implemented at the country of origin or country of outline the market design, define
large scale. Whilst Europe has enough end sequestration would be able to safety standards, assign CO2 storage
offshore storage space to store the count the ultimate CCS effects, and liability, and set carbon accounting
required volume of CO2 from CCS beyond how these would flow into, e.g., NDC rules. A CCS regulator, potentially at
2100, primarily in the North Sea 50, three commitments. the EU level, could be appointed to
challenges must be addressed first: oversee cross-border CCS supply
— Stakeholder alignment. The most
chains. It would also be helpful to
— Economic incentives. Implementing cost-effective way to implement CCS
create a task force that could resolve
CCS will be an added cost because is to form clusters of industrial sites to
project-specific regulatory issues on
it normally requires installing a maximize the amount of CO2 captured
short notice. It may also make sense
CO2 capturing plant at an industrial and minimize the cost of transporting
for one body to form a comprehensive
site. That investment won’t reduce it to storage facilities. In Europe
picture of EU carbon sinks and stores
operating costs like for some today, we see multiple clusters
and ensure that these are licensed and
other decarbonization measures, emerging, particularly around the
utilised in an effective, transparent
such as the lower heating bills that North Sea, with diverse memberships
and fair way, given the inherent local
homeowners enjoy after upgrading that are keen to come together
monopoly risks associated with this
their building insulation. In fact, to build shared infrastructure to
type of infrastructure.
CCS raises operating costs through manage both cost and risk to the
both operation of the plant and benefit of all. These projects could — Local orchestrators for industrial
downstream transportation and be challenging to orchestrate and will clusters. Each industrial cluster’s
storage of CO2. The lifecycle cost need innovative funding solutions to orchestrator could be responsible
of carbon capture ranges from access appropriate capital. for creating the master plan that lays
€30 per tCO2 for a pure CO2 waste out how the CCS system will operate.
The following steps can help
stream to €90 per tCO2 for heavily Each master plan needs to evaluate
stakeholders overcome these
contaminated streams. Transport its transportation options, such as
challenges:
and storage costs ranging from whether it’s more cost-effective to
€10 to €60 per tCO2, depending on — Raise carbon prices to close the gap transport captured CO2 to storage
location, come on top of this. The with CCS costs. If consumers aren’t sites through pipelines or ship it.
current EU ETS price of less than willing to pay more for decarbonized
— Develop a master plan for each
€30 doesn’t adequately support the products, it may be necessary to
industrial CCS cluster. Each
CCS business case, requiring €40 to raise the current EU ETS carbon
industrial cluster’s orchestrator
€150 to break even.51 price or introduce additional
could be responsible for creating
carbon incentives to increase the
— Reporting and liability regulations. the master plan that lays out how
attractiveness of CCS to industrial
Many governments have legislative the CCS system will operate. Each
manufacturers. Governments would
restrictions on CO2 storage, master plan needs to evaluate its
need to kick-start projects with new
particularly onshore. There is also no transportation options, such as
regulations, direct funding, subsidies,
existing national or EU wide regulator whether it’s more cost-effective to
and tax incentives.52
to set standards, ensure safety and transport captured CO2 to storage
determine how liabilities should work sites through pipelines or ship it.
50
Based on conservative estimates using available geospatial data, including the United Kingdom and Norway. Estimates of storage space in the Adriatic and
Mediterranean are limited.
51
Depending on CO2 stream purity and distance to storage
52
As applied by the United States, known as the 45Q Tax Credit
Net-Zero Europe 149

3.8 Cross-sector: Bioenergy
150 Net-Zero Europe

Exhibit 59
Bioenergy pathway in brief

The pathway demand for sustainably produced bioenergy will rise significantly after 2030
9,000
Primary biomass Gas
demand
8,000 Liquid
PJ p.a.
Solid
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2017 30 2050
200
Liquification and
gasification capacity
GW
55
40
2017 30 2050
Sustainably produced
N.a.1 100 100
% of total
Imported
4% <1% <1%
% of total
1. There is currently no unified EU system to track and trace sustainably produced biomass
Source: McKinsey
Net-Zero Europe 151

3.8.1 Bioenergy use today 3.8.2 The role of bioenergy on the
People have long used biomass as path to net-zero
a fuel source, such as firewood for Increasing the use of biomass is critical
heating and cooking, and corn and to reaching net-zero GHG emissions
barley for feeding livestock. The EU’s in the European Union, particularly in
demand for biomass is 6.2 EJ a year, hard-to-abate sectors. The European
primarily for heating in buildings and Union could generate 9.1 EJ of
industrial applications (60 percent), unprocessed biomass annually, about
electricity generation (21 percent), and half of which would come from energy
transportation (18 percent); see Exhibit crops on unused and abandoned lands.
60. Eighty-five percent of biomass is Potential biomass production would
used in its solid form, and 15 percent as vary by region. For example, coastal
liquid biomass and biogas. Ninety-six areas and Southern Europe have much
percent of this biomass is sourced from less suitable land available than North
within the EU. and Central Europe (Exhibit 61).
Exhibit 60
Buildings and industry account for 65% of EU bioenergy demand.

Bioenergy demand by sector and region
PJ, 2017, EU-27
100% = 1,090 680 650 470 210 290 260 620 980 20
Power
Transportation
Buildings
Industry
Germany France Italy Iberia Central Europe Nordics Ireland

Benelux Southeast
Poland Europe
Source: McKinsey, IEA
152 Net-Zero Europe

Exhibit 61
North and central Europe have the highest potential for biomass production.
Agriculture and forestry residues, t
Available residues (t)1

≤ 2,500
2,500-5,000
5,000-7,500
7,500-10,000
10,000-12,500
12,500-15,000
15,000-20,000
20,000-35,000
1. Potential in Finland not assessed as some of our global sustainability filters (e.g., presence of peatlands and biodiversity) were note adapted to local conditions
Source: McKinsey
Net-Zero Europe 153

Exhibit 62
Increased demand for bioenergy in industry and transportation would be met primarily
from residues and energy crops.
Biomass supply potential and demand in EU-27, 2050, EJ
A 1 Residues 3.6
2 Energy crops 4.4
3 Other sources 1.1
Max. total supply

B 9.1
potential1 Uncertainty on possibility
to achieve max potential
4 Industry 3.3
Transportation alone would
5 Transportation 3.6 require >50 mn tons for
alternative fuel production by
6 Buildings 1.1 2050
7 Power 0.2
C 8 Remaining potential 1.0
A Biomass sources2 B Demand from key sectors4 C Max. potential available

for other sectors
1 Existing agricultural and 3.6 4 Biomass for furnaces 3.3 8 Sectors like oleo- 1.0
wood product residues and boilers chemicals and bioplastics
Forestry residues 1.1
Agricultural residues 2.5
5 Biofuels for aviation 3.6
and marine
2 Potential from unused 4.4 Domestic 0.3

and abandoned lands International 3.3
Currently grown energy crops 1.4

Additional energy crops on 3.0 6 District heating and 1.1
marginal lands biomass boilers
3 Biogas/biomethane from 1.1 7 CHP and BECCS 0.2

anaerobic digestion
Manure 0.5
Organic MSW3 0.6
1. Supply from EU forest and agricultural residues (cereals, maize) that is deemed to be economically feasible
2. Highly dependent on production pathways, feedstock use and collection density
3. Assumes MSW (municipal solid waste) from cities with more than 300,000 inhabitants can be economically collected
4. Demand converted from end-use state (e.g., liquid) to biomass
Source: McKinsey, Biomass Futures, Bioenergy Statistical Report 2018, EU Agricultural Outlook 2019-30, Betsen & Felby 2012, Gerwin et al. 2018
154 Net-Zero Europe

In our sector pathways, the demand for system could be retrofitted with Scaling bioenergy introduces risks
primary biomass in its solid, liquid, and carbon-capture installations to create that need to be carefully managed. To
gaseous forms remains unchanged. a carbon sink. (CO2 is first absorbed make it sustainable, it will be essential
However, there would be a substantial when plants used to make biogas to maintain carbon cycles, protect
increase in demand for liquid biomass are growing and then a second time biodiversity, and minimize indirect land-
in transportation and biogas in industry when fuel combustion emissions are use changes. The biomass should also be
(Exhibits 62 and 63). Although biomass captured.) Although the total cost of sourced from within the European Union
use in buildings would decline, the these systems would be higher than to avoid increasing the decarbonization
form in which it is used would change producing ammonia with hydrogen challenges of other regions.
from mostly solid to more than using electrolysis, using CCS
To keep the process net-zero, the
50 percent gas by 2050. Converting technology would produce negative
entire supply chain for bioenergy, from
biomass to a liquid or gas is essential emissions. These negative emissions
production to consumption, would
for the intended end uses but leads to would be essential for offsetting
need to be decarbonized. And because
transformation losses. The demand emissions from agriculture that can’t
biofuel combustion emits gases
for unprocessed biomass would rise to be decarbonized or are very expensive
such as sulfur dioxide and nitrogen
8.2 EJ by 2050. to abate, such as landfill emissions
oxides that impair local air quality,
that could only be abated by direct air-
Using bioenergy to decarbonize the businesses would need to implement
capture over large stretches of land.
industry sector would be essential to other measures to mitigate them. An
In addition, biofuel could be one of the
achieving cross-sector net-zero by EU-wide certification system could
lower-cost options to reduce emissions
2050. One of the primary examples be established to track and trace the
in aviation and marine transportation.
is ammonia production. Early on, sustainability of biomass.
The production process also yields a
biogas could directly replace natural
significant share of road biofuels that
gas without any capital investments.
can be used for applications that are
Later, the conventional production
harder to electrify.
Exhibit 63
The demand for bioenergy will increase substantially in industry and transportation.
EU-27, EJ primary demand
8.1
3%
Power
Transportation
Buildings
6.2
45% Industry
21%
18%
13%
42%
39%
19%
2017 2050
Source: McKinsey
Net-Zero Europe 155

It’s also important to consider the Another factor to consider when
proximity of biomass to possible users. determining where and when to use
In places where the biomass sources biomass is the cost of alternative
are close, local manufacturers could decarbonization options. Biomass
more easily use it as a feedstock. should be prioritized for situations where
High-temperature demand in industry the other options are too expensive,
is typically concentrated, while especially in hard-to-abate sectors like
heating needs are more distributed. power, to help provide much-needed
For example, in Central Europe, local flexibility in the power grid. However,
industry sectors could use the abundant the supply and demand for biomass are
supply of crop residues to fuel its high- highly local because of high logistics
temperature furnaces and boilers. costs for residues. In some areas,
When the supply of biomass is far from there are cheaper decarbonization
demand, it could be converted to liquid alternatives for industry and heating,
fuel to replace heavy fuel oil in peak and using biomass to create biofuels for
district heating boilers or transportation. use in the transportation sector would
However, this would be expensive. be more effective.
156 Net-Zero Europe

Exhibit 64
From 2030, bioenergy is significantly less expensive than the next best option in power,
steel and transportation.
Average abatement cost for 2030 and 2050 for EU-27
2030
Delta decarbonization cost of next-cheapest option compared to biomass

EUR/tCO2e1
80
68
60
45 42
40
20
8 8
0
0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 Biomass
-20 Power Industry: Buildings3 Industry: Heat Demand
Steel EJ/year
-40
Transportation:
-60
Aviation & Marine 5
-80
-100
2050
Delta decarbonization cost of next-cheapest option compared to biomass

EUR/tCO2e1
80
60 51 9 EJ/year
45 available2
40 37 36
20 12
0
0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 B iomass
-20 Demand
Power Transportation: Aviation & Marine 5 Buildings3 Industry: Heat EJ/year
-40
Industry: Steel
-60
-80 -71
-100
Industry: Ammonia 4
1. Decarbonization cost of next-cheapest option that brings segment to 80% decarbonization relative to conventional/carbon-intensive production method
2. Estimate based on practical availability in Europe of sustainable feedstocks: energy crops, cover crops, agricultural residues, primary and secondary forest residues
3. Including NOx and CH4 emissions from incomplete combustion in buildings segment
4. Biomass option chosen due to negative emissions through BECCS, even though electrolyzer is cheaper
5. Biofuel production routes for aviation/marine also create a share road biofuels, which should be used for the hardest to abate road sectors like remote areas.
Source: McKinsey
Net-Zero Europe 157

3.8.3 Key uncertainties and enablers
Key uncertainties
Two unknown factors could affect the
feasibility of bioenergy in our net-zero
pathways, including:
— Lower-than-expected availability
of biomass could increase the need
for more expensive alternative
technologies or fuels.
— Lower-than-expected cost of other

decarbonization options would
reduce the demand for bioenergy.
In transportation, the price of
hydrogen-based fuels would
determine whether using biofuels
would be the most cost-effective.
158 Net-Zero Europe

Key enablers mandates, feed-in-tariffs, taxation, changes to existing fossil fuel
Scaling sustainable bioenergy would and pricing mechanisms. distribution networks would also
require significant investments in the help accommodate liquid biofuels.
— Scale bioenergy supply chains.
biogas, bioliquid, and solid biomass
Creating feedstock collection and — Ensure the sustainability of
value chains. Making this happen would
storage infrastructures in high- bioenergy. Making sure bioenergy
require numerous actions, including:
density agricultural and forestry is a viable renewable option would
— Establish regulatory certainty to residue areas and near large cities require considering land-use
create supply and demand for for municipal solid waste would competition, biodiversity, and
bioenergy. Bioenergy production make biomass collection less carbon cycles. It would also require
is unlikely to scale organically due expensive. It would also help to decarbonizing the bioenergy supply
to a “chicken-and-egg” problem. scale preprocessing and conversion chain, from farming to transportation
There’s a restricted market due to technologies. Since this would and consumption. This could be
limited production, and investment require many geographically achieved with building standards
in production is constrained by low dispersed plants, taking early action and verification and traceability
demand. Given this problem, some is critical. Because accommodating mechanisms for supply chain
policy direction would be needed to other feedstocks would require emissions and end-product usage.
clarify a 10- to 20-year horizon for many different technologies,
investors, land-owners, and other it will be essential to invest in
stakeholders. Policy direction would existing technologies, such as lipid
need to be supplemented with conversion, and new ones, such
bioenergy share targets or blending as alcohol-to-jet. Making limited
Net-Zero Europe 159

3.9 Cross-sector: Nature-
based carbon sequestration
160 Net-Zero Europe

Exhibit 65
Nature-based carbon sequestration pathway in brief

Nature-based carbon sequestration will be increasingly critical to cost-optimal achievement of EU climate targets
Forest cover
Mha
153
145
141
2017 30 2050
Source: McKinsey
Net-Zero Europe 161

3.9.1 Nature-based carbon
sequestration today
Today, the European Union’s forests
and soils store a total of 524 GtCO2e
of carbon, almost 150 times the
EU-27 net 2017 emissions of
3.6 GtCO2e (Exhibit 66).
3.9.2 The role of nature-based carbon

sequestration on the path
to net-zero
There is potential to increase carbon
storage in the European Union by
about 38 GtCO2e through reforestation,
maintenance, and management.
Despite this potential, biomass growth
rates and land availability limit how
much carbon can be added each year.
Exhibit 66
The biomass of the EU’s forests and soils currently stores more than 500 Gt of CO2e.
Current carbon stored in biomass
524 GtCO2e
is currently stored in EU’s forests and soils
Equal to almost
150 years
of EU-27 net emissions in 2017
(~3.6 GtCO2e p.a.)
0 250 500 750 ≥1,000 Mg C ha-1
Source: Walker et al. (In Review) – Map of EU Current Carbon Storage
162 Net-Zero Europe

For example, about 248 MtCO2e was
sequestered in 2018, comprising
345 MtCO2e from forests minus
the emissions from agriculture and
wetlands. To achieve net-zero, the
European Union would need to
increase its annual carbon storage to
353 MtCO2e by 2050, which would
require converting 12 Mha of agricultural
land to forest. This is significantly more
ambitious than current projections,
which foresee annual sequestration
declining to 172 MtCO2e a year by
2035 without intervention.
Exhibit 67
Using reforestation plus forest maintenance and management, the European Union could
increase natural carbon sequestration by 38 GtCO2e.
Unrealized potential to store carbon in biomass
38 GtCO2e
potential to increase store of carbon across EU
while safeguarding food production. Split across:
reforestation, maintenance,1 and management2
Equal to
~10 years
of EU-27 net emissions in 2017
(~3.6 GtCO2e p.a.)
0 40 80 120 ≥160 Mg C ha-1
1. Maintenance category refers to places where current stocks are at or near their potential (specifically within 10%) so there is little active management required
beyond avoiding losses
2. Management category includes places where trees are present but current carbon stocks are below their potential, suggesting the prevalence of degraded forests.
Here it is important to maintain current stocks while improving management practices for increased carbon sequestration
Source: Walker et al. (In Review) – EU Unrealized Potential Carbon Constrained
Net-Zero Europe 163

There are four levers for increasing There are extensive forest areas
annual sequestration (Exhibit 68): that could be managed to sequester
additional carbon.
— Reforestation: This involves
converting non-forest to forest in — Grazing management: This involves
locations that historically supported controlling pasture forage plants,
forestry or where forests are animal stocking rates on pastures,
ecologically appropriate or desirable. animal food sources, and livestock
Reforestation can sequester carbon breeds. Grazing management can
in the long and short term because sequester large volumes of carbon
forests capture carbon and convert it by changing the timescale of
into biomass. Reforestation projects livestock feeding cycles, especially
are most successful in temperate in wetter regions with high forage
regions where the availability of growth rates.
native trees for replanting is high
— Peatland restoration and
and where replanting is a well-
management: This is the restoration
established practice.
of peatlands that have degraded,
— Natural forest management: including through water-table
This is the manipulation of management and re-vegetation.
naturally occurring forests to
In addition to providing greater carbon
manage species composition, age
sequestration, these changes to forests
distribution, fires, or pests, plus
and soils can deliver other benefits,
tree cutting and extraction. Natural
such as improved water quality, better-
forest management can alter the
regulated water supply, higher soil
carbon stored in natural forests by,
quality, and biodiversity protection.
for instance, favoring species with
dense wood or delaying harvesting.
164 Net-Zero Europe

Exhibit 68
Reforestation would be the most powerful lever for increasing natural carbon sequestration
in the European Union.
Negative emissions in EU-27, MtCO2e p. a.
353
15-25 Further
20-30 measures
Existing
25-35 potential
181
248
124
76
172 172
2017: 17-50: 50: 50: 50: 50: 50: 2050:

Baseline Projected With Reforestation Forest Grazing Peatland Total
decline existing manage- manage- restoration/
measures2 ment ment manage-
ment1
-345 Mt sink from Reforestation of Includes grazing

forests countered areas that were optimization and
by emissions from previously legumes in
ag, grasslands, & forested planted pastures
wetlands
‘With Existing Measures’ Includes reduced- Rewetting of

Projections of Member impact logging, previously
States show that annual extended cycles disturbed
sequestration from LULUCF peatlands
is likely to decline to -172 Mt
by 20352
1. Walker et al. (In Review) – EU Unrealized Potential Carbon Constrained

2. European Environment Agency emissions projections; Griscom, B. et al. PNAS October 31, 2017 114 (44) 11645-11650; Ceccherini et al. (2020)
Source: McKinsey, National Inventory Reports for UNFCCC
Net-Zero Europe 165

3.9.3 Key uncertainties and enablers in Europe increased 49 percent
Key uncertainties: Climate change, and biomass loss rose 69 percent
forest management, and agricultural compared with 2011 to 2015,
efficiency particularly in the Iberian Peninsula
Three unknowns could impact the and the Nordic and Baltic countries,
level of natural carbon sequestration, according to a recent analysis. 55 This
including: does not change the potential for
natural carbon sequestration, but it
— Climate change has increased
does raise questions about whether
the frequency of drought and
existing forest management
weakened the natural defenses of
approaches are compatible with
trees in some parts of the world.
more carbon storage in the future.
This creates risks for Europe’s
forests. For example, the bark — Increased agriculture efficiency is
beetle outbreak across Central critical to ensuring continued food
Europe in 2018 infested five times production while freeing up at least
as many trees as the average 12 Mha of agricultural land, about
from 2012 to 2016. 53 As much as 7 percent of the current area, for
80 percent of spruce forests in the reforestation. This aligns with past
Czech Republic may be at risk. 54 The trends in which agricultural land in
continuation or acceleration of such EU countries shrank by 6 percent
climate-related risks could impact (9 Mha) from 2009 to 2015, while
the amount of carbon sequestration forest land increased by 2 percent
possible in Europe’s forests. (2.5 Mha). However, the potential for
agricultural efficiency improvements
— Increased harvesting with poor
to make land available for
forest management leads to
reforestation is uncertain.
a loss of biomass and carbon
sequestration. From 2016 to 2018,
the amount of harvested forest area
53
“Bark beetle ravages central Europe’s forests,” Reuters Graphics, April 26, 2019.
54
Jan Lopatka, “Climate change to blame as bark beetles ravage central Europe’s forests,” Reuters, April 26, 2019.
55
Guido Ceccherini, et al., “Abrupt increase in harvested forest area over Europe after 2015,” Nature, July 2020, Volume 583, Issue 7814, pp. 72-77.
166 Net-Zero Europe

Key enablers: Climate targets, the removals related to land use and — Consider the role of carbon
CAP, and carbon markets forestry were excluded. pricing and markets in supporting
Achieving increased levels of natural sequestration. Farmers
— Use the Common Agricultural
carbon sequestration would require and other landowners would need
Policy (CAP) to support
supporting regulatory frameworks and to change how they use their land
farmers through the transition.
compensation mechanisms, including: to contribute to a climate-neutral
Improvements to natural
European Union. Private markets
— Incorporate natural sequestration sequestration would only be
can support them. For example,
into member states’ targets. possible if they are coordinated with
the United Kingdom’s Woodland
Following recent regulation, the other policy mechanisms, of which
Carbon Code validates carbon
European Union’s climate targets CAP is the most important.
sequestration and compensates
will include CO2 removal through
farmers and landowners.
land use. Until now, emissions and
Net-Zero Europe 167

4. The socioeconomic
implications of
decarbonizing Europe
For most citizens, the European Union’s
transition to climate neutrality won’t
significantly change their everyday
lives. They might see more solar PV
farms in the countryside, their cars
would have better acceleration, and
their homes might be better insulated.
But most things would seem the
same. However, the structure and
metabolism of the economy would
change, in some respects substantially.
New sectors and technologies would
emerge, while others would shift
their focus or become obsolete. As
a result, there would also be some
job displacement. Managing these
changes will require Europe’s leaders to
address the socioeconomic impact of
decarbonization, as well as the financial
investments and other actions it will
take to achieve it.
168 Net-Zero Europe

Net-Zero Europe 169
4.1 Financing the transition Nearly half of the total capital would most of which would be used to
4.1.1 The capital investments required go to transportation (€11.8 trillion), upgrade the power grid (€1.4 trillion).
On our pathway, reaching net-zero followed by 30 percent to buildings The remaining €500 billion would be
would require investing a total of (€8.4 trillion), 9 percent to power used to invest in pipeline networks.
€28 trillion in clean technologies and (€2.5 trillion), 3 percent to agriculture
techniques over the next three decades (€935 billion), and 1 percent to industry
(Exhibit 69). This would comprise (€350 billion). About 14 percent
€23 trillion (an average of €800 billion (€3.4 trillion) of the total investment
per year) of funds that would otherwise would fund infrastructure that improves
be invested in incumbent technologies energy transmission and distribution.
and €5.4 trillion (an average of
Of the additional €5.4 trillion in capital
€180 billion per year) of additional
expenditures, €1.5 trillion (29 percent
capital outlay (Exhibit 70). In 2018,
of the total) would be invested in
the total investments made in the
the buildings sector, €1.8 trillion
entire EU-27 economy were about
(33 percent) in the power sector,
€2.7 trillion. 56 Decarbonization would
€410 billion (8 percent) in industry,
require redirecting roughly a quarter
€76 billion (1 percent) in agriculture, and
of those annual investments, or about
€32 billion (1 percent) in transportation,
4 percent of current EU GDP. It would
which would begin to experience net
also require increasing that investment
savings from emissions-reduction
pool by 7 percent, the equivalent of
measures in the 2040s. Cross-sector
1 percent of the European Union’s
infrastructure would absorb an
current GDP.
additional 28 percent of the investment,
56
This includes all investments made by the public and private sector in 2018 in the EU-27, source: Eurostat.
Exhibit 69
Reaching net-zero GHG emissions in the EU by 2050 would require €28 trillion of
investment in clean technologies and techniques.
Total CAPEX in EU-27, bn EUR (total within time bracket)
10,000 Total CAPEX by sector

9,400 2021-50, %
8%
8,400 12%
14 9
7%
Power
3
1 Transportation
45%
38% 44% Buildings
100% = 27,800
Industry
43 Agriculture
30
Infrastructure
36% 28%
27%
4% 1%
3% 1% 3%
3%
15% 14% 11%
2021-30 31-40 41-2050
Source: McKinsey
170 Net-Zero Europe

4.1.2 Operating cost reductions
The transition to net-zero would create
significant operational cost savings,
such as lower heating bills from
improved building insulation. As a result,
at the societal level, net-zero emissions
could be achieved at net-zero cost
because the €5.4 trillion in additional
investment would be recuperated
through operating cost savings. So,
the net cost of reaching the abatement
targets would be €0 per tCO2e.
Exhibit 70
Capital expenditure on the cost-optimal pathway is €5.4 trillion more than if the EU took
no climate action at all.
Additional CAPEX in EU-27, Bn EUR (total within time bracket)
1,900 Total additional CAPEX required

1,900 per sector 2020-50, %
1,600
44%
13% 40% Power
28
33
12% Transportation
2% Buildings
100% = 5,400
31% Industry
24% 32% 1
Agriculture
8 1
4% Infrastructure
2% 4%
1%
14%
29
2%
39% 29%
19%
-10%
2021-30 31-40 41-2050
Source: McKinsey
Net-Zero Europe 171

From now until 2050, operating costs 4.1.3 Bridging the financing gap The volume of investments without
would drop an average of €130 billion The pathway we lay out optimizes net- a business case varies by decade.
per year, offsetting 70 percent of the system-level costs under a societal From now to 2030, 60 percent of the
capital investments over the same discount rate. However, individual investment would not have a business
period at a macro level (Exhibit 71). As stakeholders usually make capital case. But from 2030 to 2040, that
a result, €3.9 trillion of the €5.4 trillion allocation decisions based on their share drops to 36 percent as renewable
in additional investment would be own cost of capital and payback period technologies mature and prices decline.
recovered by 2050. The remaining expectations. So, the decisions that From 2040 to 2050, about 45 percent
€1.5 trillion would be recovered soon individual actors would make without of the investment would lack a business
after, as operating costs continue to targeted interventions would likely case for individual stakeholders
outpace capital investments by at least differ from those laid out in our pathway. because hard-to-abate sectors
€65 billion a year. Taken together, the From the perspective of the relevant require more expensive measures to
average TCO across all newly adopted stakeholder in each case, we estimate decarbonize (Exhibit 72).
technologies and techniques would be that half of the required €28 trillion
cost-neutral. capital outlay would not appear to have
a positive investment case. This may
However, this would not be the case
be due to differences in cost of capital,
for each sector or individual measure.
shorter payback period expectations, or
Domestic transportation would derive
the benefits not directly benefitting the
most of the operating cost savings,
stakeholder making the investment. For
while sectors like international aviation
example, car buyers usually give more
and industry would see an increase
weight to the upfront purchase price
in operating costs, in addition to the
than the total ownership cost.
initial investments.
Exhibit 71
From now to 2050, the transition to net-zero GHG emissions would save the EU an average
of €130 billion per year, offsetting 70 percent of capital investments
Total OPEX1,2 in EU-27, Bn EUR p.a.
0 30 Power
Transportation
-40
Buildings
-110 Industry
Agriculture
-60 -230 Average 2021-50:

-130
-150
-70
-10
-260
2020 30 2050
1. Fuel and feedstock OPEX

2. Excluding OPEX reduction in refining sector (which is mainly due to reduction of the refining activity)
Source: McKinsey
172 Net-Zero Europe

Exhibit 72
About half the required investments do not have positive standalone investment cases for
their stakeholders.
Emissions-reduction investments by type of investment case for individual stakeholders

Total CAPEX in EU-27, Bn EUR (total within time bracket)
10,000 Share of total investments by type

9,400
of investment case, 2020-50, %
8,400
36%
14
46%
No standalone
61% investment case1
47
100% = 27,800 47 Standalone
investment case1
49% 40 Infrastructure2
43%
24%
15% 14% 11%
2021-30 31-40 41-2050
Emissions-reduction investments by type of investment case for individual stakeholders by sector

Total CAPEX1 in EU-27, total for 2020-50, Bn EUR
100% = 2,500 11,800 8,400 350 930

11%
36%
46%
85%
95%
89%
64%
54%
15%
5%
Power Transportation Buildings Industry
Agriculture
No standalone case Standalone investment case
1. Investment cases that are NPV positive. For assumptions (including WACC and lifetime expectancy) see technical appendix
2. Profitability of infrastructure investments are not modelled as business model is often unclear and asset base is often regulated
Source: McKinsey
Net-Zero Europe 173

The share of investments with a There are multiple ways to mobilize — Price measures such as carbon
positive investment case for individual capital, including: prices or cap-and-trade systems.
stakeholders also varies by sector Carbon prices could increase the
— Direct financing interventions.
(Exhibit 73). Although most of the mobilization of private capital, as
Direct government investment
transportation, agriculture, and power increasing the carbon price would
is usually most appropriate for
sector investments have standalone make more investment cases
projects that lack a revenue
business cases, only 15 percent of positive. We estimate that at a
stream reliable enough to interest
those in the buildings sector and carbon price of €50 per tCO2e,
the private sector or suitable for
5 percent in industry would eventually an additional 21 percent of capital
outright public ownership, such
pay for themselves. In agriculture, more required through 2050 could be
as grid upgrades or CCS systems.
than half of emissions could only be unlocked on top of the 40 percent
Tax credits and subsidies tend to
abated with behavioral changes, such that already has a positive
work best for accelerating an active
as reducing meat consumption. But investment case. A carbon price
market, such as increasing building
of the emissions that can be reduced of €100 per tCO2e could unlock
insulation and industry efficiency
through technological interventions, another 10 percent of capital
efforts. Grants are often required
almost 90 percent have standalone requirements, giving more than
for funding R&D projects that
business cases. Because of these 85 percent of the required capital
generate no short-term revenues.
differences, sectors will require a standalone business case. The
Loans and loan guarantees tend
differing levels of financial support or remainder would require carbon
to work best when they target a
innovative finance solutions to switch to prices of over €100 per tCO2e. See
few beneficiaries because of their
green technologies. Exhibit 74 for the impact of carbon
higher administrative costs. As
prices on the total investable capital.
shown in Exhibit 73, applying direct
financing to close the gap in each
stakeholder’s business case would
require committing about €4.9 trillion
over the next three decades.
Exhibit 73
Government intervention may be needed to encourage individual stakeholders to make

clean technology investments in the absence of compelling investment cases.
Additional CAPEX and OPEX in EU-27 required, Bn EUR (total gap created within time bracket)
3,400 Total gap to positive investment

8% case by sector, 2020-50, %
3 6
40% Power
Transportation
38
100% = 4,900 40 Buildings
7% Industry
Agriculture
800 13
700 41%
34%
43%
18%
46% 39%
2% 1% 18% 4%
2021-30 31-40 41-2050

12% 9% 48% 36% Share of total CAPEX in cleantech
in that period
Source: McKinsey
174 Net-Zero Europe

— Commercial derisking and involving The sustained low-cost capital
long term investors. Capital could available from capital markets
be mobilized by reducing investment today may be an opportunity
risks, such as establishing an to lower the overall cost of the
ETS price floor, providing loss transition. Capital markets
guarantees, or using models such innovations—such as asset-backed
as public-private partnerships and securities, utility and corporate power
blended finance. New financing purchase agreements, and risk
models and products, such as guarantees—could accelerate the
adding insulation costs to house rate of decarbonization.
mortgages or creating leasing
Of course, increased costs could
schemes for technologies with high
also be passed on to end customers
upfront costs, could bring more
through regulatory backstops such as
long-term investors into markets
banning gas boiler installations after a
dominated by short-term decisions.
specific date and establishing portfolio
For example, if the applied weighted
standards that require a minimum
average cost of capital (WACC)
share of investment in the renewable
dropped to 4 percent and short
power sector.
payback expectations were
relaxed, the share of investments
with a positive business case,
even without a carbon price, would
increase from 40 percent to almost
50 percent of the total €28 trillion.
Combined with carbon prices
of €50 to €100 per tCO2e, the
proportion of investable business
cases would increase to 65 percent
and 89 percent, respectively.
Net-Zero Europe 175

Exhibit 74
Carbon prices and other pricing measures could increase mobilization of private capital
where there may not be a standalone investment case.
Share of CAPEX with positive investment case from perspective of individual stakeholders
Total CAPEX in EU-27, Bn EUR (total within time period)
10,000 Total CAPEX with positive Carbon price

9,400 investment case, 2020-50, % required to turn
11% investment case
8,400 13% positive:
11% 14 15
9%
23% >100 €/tCO21
15%
10 50-100 €/tCO21
24%
12%
100% = 27,800 0-50 €/tCO2
<0 €/tCO2
25% 40 Infrastructure
49% 21
43%
24%
15% 14% 11%
2021-30 31-40 41-2050
Long-term investor perspective on share of investments with positive investment case

Total CAPEX in EU-27, Bn EUR (total within time period)
10,000 Total CAPEX with positive Carbon price

9.400 required to turn
10% investment case, 2020-50, %
investment case
8,400 13%
8% positive:
14 11
8% 7%
9%
11 >100 €/tCO2
19%
24% 50-100 €/tCO2
100% = 27,800 0-50 €/tCO2

17%
17 <0 €/tCO2
58%
Infrastructure
48
40% 45%
16% 14% 11%
2021-30 31-40 41-2050
1. Profitability of infrastructure investments are not modeled, as business model is often unclear and asset base is often regulated
Source: McKinsey
176 Net-Zero Europe

Overcoming the infrastructure decarbonization costs, connecting an For these reasons, interventions
deployment challenge industrial cluster to CO2 pipelines could would be necessary to ensure that
For consumers and companies to lead members of the cluster to choose the proper infrastructure is put in
switch to low-carbon technologies, they CCS to reduce emissions. This could place. The private or public sector
will need access to the right types of create lock-in effects and higher-cost could lead these interventions. For
infrastructure. For example, a trucking outcomes. As discussed in Section example, private sector players
company can only change its business 2.4, there are two or more equally could form joint ventures to build the
to green hydrogen trucks if the enabling cost-optimal abatement technologies required infrastructure, much like
infrastructure—hydrogen refueling for reducing 20 percent of total EU the European automotive OEMs have
stations, a hydrogen distribution emissions. In these cases, the type of joined together to install EV charging
network, and renewable power to infrastructure that’s deployed could infrastructure along EU highways.
electrolyzers—is all in place. And the impact which technology gets chosen. Public sector leaders also have various
absence of infrastructure affects mechanisms at their disposal, ranging
On the second point, the total
upstream technology development from direct public ownership, such as
investment needed for infrastructure
and deployment. Commercial vehicle road or rail networks in most places;
from 2020 to 2050 is about €4 trillion.
original equipment manufacturers to including a certain infrastructure
Three quarters of this, some €3 trillion,
(OEMs) would likely invest in developing type in the regulated asset base,
would go to upgrading the power
hydrogen trucks only if they are similar to power grids; to targeted
grid. Nearly €500 billion would go
confident that the lack of infrastructure subsidies aimed at derisking investment
toward installing new district heating
wouldn’t reduce future demand. cases. Each type of infrastructure
networks for 45 million households.
So, a delay in ramping up sufficient would need a different approach,
Another €500 billion would be spent
infrastructure could stall the transition depending on the characteristics
on CO2 and hydrogen pipelines, EV
to net-zero, whereas early deployment of the capital-expenditure profile,
charging infrastructure, hydrogen
could accelerate it. market development and viable market
refueling stations, and other smaller
mechanisms, and the complexity of the
However, the fact that infrastructure infrastructure projects. Seventy-
stakeholder ecosystem.
deployment usually needs to precede five percent of the total investment
technology deployment creates two for infrastructure would need to be Because of these factors, decision
challenges: it could prematurely mobilized before 2040. makers need to think carefully about
conclude the technology race and make infrastructure. If left unattended,
This may not be trivial. The challenge
it harder to mobilize the required capital. it could become a critical barrier to
stems from the fact that infrastructure
the transition or lead to suboptimal
On the first point, in instances typically needs to be in place before the
outcomes. But done right, it becomes
where there isn’t a clear leading roll-out of technologies. Sometimes,
a crucial part of enabling change and
zero-emissions technology choice, market development is uncertain, even
creating business opportunities and
deploying infrastructure can influence with the required infrastructure in place.
new markets.
what becomes the most attractive This creates risks and uncertainties for
decarbonization option. For example, investors, who consequently are often
for industrial players for which hesitant to deploy the capital required.
CCS or electrification have similar
Net-Zero Europe 177

4.1.4 Impact on households be roughly the same as today, albeit — Mobility: Transportation costs would
Another critical consideration is with variations in the following spending drop over time because of lower
the impact the net-zero transition categories: operational costs and lower capital
would have on households (Exhibit investments in EVs as technology
— Power and heating/cooling bills:
75). Changes in the cost of living and production costs fall.
The short-term investment in
would depend on the details of local
improving energy efficiency in — Food: The cost of food would rise as
regulatory interventions and taxes.
residential buildings could produce the agriculture sector takes steps to
In this section, we assess the impact
long-term savings. However, the decarbonize, although switching to
on household expenses, assuming
amount of those savings will depend a plant-based diet could offset the
consumption patterns remain the same
on the type of technology the cost increases.
and the cost increases and savings of
homeowner chooses, the location
decarbonization are directly passed — Recreation: The cost of things like
and age of the house, and how
through to consumers. international flights would rise as
agency issues are resolved, such as
airlines switch to more expensive
In this scenario, the aggregate cost whether landlords raise rent prices
alternative fuels.
of living for an average household in a to pay for the investment.
climate-neutral European Union would
Exhibit 75
On the cost-optimal pathway to a climate-neutral EU, the average household would spend
less on transportation and somewhat more on food and recreation.
Average household annual spending in EU-27
2018 Baseline1 Future spending

‘000 EUR changes4
2030 2050
0 0
Housing & utility2 8 3.0% -4.0% 2.0%
Transportation3 5 -4.0% -14.7%
Food5,6 5 1.4% 4.4%
Recreation &
3 2.1% 6.3%
culture
Restaurants &
3
hotels
Clothing &
2
footwear
Other7 10
-1.7% -0.4%
Total 35 0.5%
1. Excludes Greece due to data availability

2. Based on 2017 data, excluding ~5% spending in water
3. Only for passenger cars (i.e. no bus / rail) and exclude the price for green steel production
4. Assuming only the true costs are passed on to consumer, i.e. there is no additional mark up from the decarbonization costs
5. Only ~35% of food spending goes to the farmers and assuming 60% of food spending is for animal based products
6. Excludes the impact of electrification of tractors
7. Other includes health, communications, education, alcoholic beverages, tobacco, narcotics, furnishings, household equipment, routine household maintenance and
miscellaneous goods and services
Source: McKinsey, Eurostat
178 Net-Zero Europe

Based on our analysis of a sample of During the transition to climate-
households across income levels, we neutrality, it’s typically the cost of
found that middle-income households intermediate goods and services
in middle-income countries such as that rises, whereas the cost of the
Italy, Germany, and France would final goods doesn’t change much.
save the most over the short and For example, a ton of zero-emissions
long-term (Exhibit 76). Low-income steel is 25 percent more expensive
households in lower-income countries to produce than its high-carbon
like Romania, Hungary, and Poland counterpart. But the price of a typical
would also financially benefit from passenger vehicle increases by less
decarbonization (Exhibit 77). However, than 1 percent if the manufacturer uses
high-income households from high- zero-emissions steel. 57 And while zero-
income countries such as Luxembourg, emissions container shipping would be
Ireland, and Denmark would see no real twice as expensive, it would increase
change because of their higher share of the price of a pair of jeans produced in
spending on recreation and other items Southeast Asia and sold in Europe by
that would see cost increases. less than 2 percent.
57
Eric Hannon, Tomas Nauclér, Anders Suneson, and Fehmi Yüksel, “The zero-carbon car: Abating material emissions is next on the agenda,” McKinsey, September 18, 2020.
Net-Zero Europe 179

Exhibit 76
Middle-income households would see the most economic benefits on the cost-optimal
pathway to EU climate-neutrality.
Household expenditure breakdown Decarbonization impacts1

%, 2017 % changes to baseline year
2030 2050
Top income Average, percent
-25 -20 -15 -10 -5 0 5 10 15 20 25 -25 -20 -15 -10 -5 0 5 10 15 20 25
Housing & utility 29 Housing2

-1 -1
-5 4 -5 11
-15
Transportation 16 Transportation 3 -2
-5 3 -16 -14
Food 12 Food5,6
4 9
1 6 5 14
Recreation & culture 9 Recreation7 3 10

1 7 3 20
Miscellaneous* 34
Total 0 0
100 -2 1 -3 3
*Restaurant & hotels (8%), Clothing & footwear (5%), Other1 (22%):
The impacts of decarbonization are minimal
Middle income
Housing & utility 32 Housing2

-10 -23
-14 -5 -25 -18
Transportation 13 -10 -18

Transportation 3 -7 -3 -21 -14
Food 15 Food5,6
3 7
0 9 2 17
1 2
Recreation & culture 8 Recreation7
0 1 1 3
Miscellaneous* 32
Total -3 -8
100 -5 -1 -11 -6
Low income
Housing & utility 19 -4 -12

Housing2 -11 4 -23 -5
Transportation 7 Transportation 3
-5 -17
-7 3 -22 -11
1 3
Food 38 Food5,6 -1 2 -1 5
Recreation & culture 4 Recreation7 0 0
Miscellaneous* 32
Total -1 3
100 -3 1 -6 0
2. Based on 2017 data, excluding ~5% spending in water
3. For first decile bracket, transportation is only public transportations for countries with low or medium car ownership and 50/50 public transportation/car for high car ownership countries;
for fifth decile, only public transportations for countries with low car ownership, 50/50 public transportation/car for medium ownership, and only passenger cars for high ownership
countries; and for top decile, only passenger cars for countries with high or medium car ownership and 50/50 public transportation/car for low car ownership countries
4. Based on data for Hungary, Poland, and Romania for first decile; Italy, Germany, and France for fifth decile; and Luxembourg, Ireland, and Denmark for top decile
5. Only ~35% of food spending goes to the farmers and assuming 60% of food spending is for animal based products
6. Excludes the impact of electrification of tractors
7. For top income bracket, only international aviation (road transportation not included to avoid double counting); assume 50% of middle income bracket will also be affected and 0% for
bottom income bracket
8. For first decile and for France (data available for tenants),
180 Net-Zero Europe

Exhibit 77
In certain countries, low-income households would see even greater economic benefits
along the cost-optimal path to climate-neutrality.
Example country: Italy
Household expenditure breakdown Future spending

%, 2017 Changes vs. baseline year1
Income level: Top 20% 2030 2050

0 0
Housing & utility 32 -5% -25%
Transportation 14 -6% -20%
Food 14 0% 2%
Recreation & culture 6 0% 1%
Others 34 0% 0%
Total 100 -2% -10%
Income level: Bottom 20%
Housing & utility 42 -19% -35%
Transportation 7 -9% -27%
Food 25 0% 2%
Recreation & culture 2 0% 0%
Others 23 0% 0%
Total 100 -9% -17%
Net-Zero Europe 181

4.1.5 Stranded assets Towards 2040, changes to ethylene
One of the concerns about a net- and ammonia production would result
zero transition is the risk of stranded in additional stranded assets as
assets, the forced retiring of assets conventional ethylene crackers and
like blast furnaces and coal plants ammonia production facilities that rely
before the end of their lifecycle. on CCS are abandoned.
However, our analysis shows that the
In the power sector, the early phase-
risk of stranded assets in Europe’s
out of coal power plants would result
net-zero transition may be smaller than
in €13.7 billion of stranded assets,
expected, with a total stranded asset
equivalent to half a percent of total
value of €215 billion 58 (Exhibit 78).
power investments over the next
Most of these stranded assets would three decades.
be in the industry sector, amounting to
€80 billion in assets in the iron and steel
industries and €45 billion in oil refining.
A large portion of asset stranding in iron
and steel would happen before 2030 as
manufacturers switch to hydrogen-
based steelmaking to meet the
55 percent emissions-reduction target.
58
We calculate the ‘stranded’ value of prematurely retired assets by multiplying the share of remaining useful life at the point of retirement with the initial capital
investment. For example, retiring an asset after 30 years that cost €50 million to build and would have a useful life of 50 years produces a stranded asset value of
€50 million x (20 years/50 years) = €20 million.
Exhibit 78
The total value of stranded assets retired before the end of their lifecycle would reach €215
billion, mainly in the iron and steel and oil refining industries.
Cumulative stranded asset value in EU-27, Bn EUR
Billion EUR
stranded assets
in 2050
20 25 30 35 40 45 50
-0
Iron and steel 80
Refining 45
-50 Ammonia 20
Ethylene 20
Power 15
-100 Aluminum 5
Other 5
-150
-200
€215 billion 17 years
Stranded assets value1 by 2050 in Average remaining economic lifetime
climate-neutral Europe of blast furnaces going out of use in
-250 steel sector
1. We calculate the “stranded” value of prematurely retired assets by multiplying the share of remaining useful life at the point of retirement with the initial capital
investment. Stranded assets included in the analysis are production assets that are retired at some time prior to the end of their economic life
Source: McKinsey
182 Net-Zero Europe

4.2 Job gains and job losses
4.2.1 Emissions reductions would
lead to 5 million more jobs
We estimate that the transition to net-zero
emissions can create net job growth of
2.2 million by 2030, reaching 4.9 million
by 2050, which represents a 1 percent
increase in EU employment by 2030 and
a 2.5 percent increase by 2050.
Net-Zero Europe 183

Exhibit 79
Net-zero emissions can create 2.2 million net jobs by 2030, and 4.9 million by 2050.
Millions of jobs, EU-27
Net Indirect & % of

Change1 Direct Induced2 Job Losses Job Gains employment3
By 2030
-1.3 1.4
EU-27 +2.2 +0.8 +1.4 2.8 2.2 1.1
-0.7
By 2050
EU-27 +4.9 +1.3 +3.7 -4.3 -2.1 3.4 7.9 4.9 2.5
Indirect & Induced job loss Direct job loss Direct job gain Indirect & Induced job gain
Job gains and losses by sector
Net Indirect &

By 2030 Change1 Direct Induced2 Job Losses Job Gains
Power +2.4 +0.8 +1.6 -0.3 2.7
Transportation -0.6 -0.1 -0.5 -0.6
Industry -1.1 -0.4 -0.7 -1.1
Buildings +1.3 +0.5 +0.8 1.3
Agriculture +0.1 +0.1 +0.0 0.1
By 2050
Power +5.4 +1.5 +3.9 -0.6 6.0
Transportation -0.7 -0.2 -0.5 -2.1 1.4
Industry -3.4 -1.3 -2.1 -3.7 0.3
Buildings +3.3 +1.1 +2.2 3.3
Agriculture +0.3 +0.1 +0.2 0.3
Job losses Job gains
1. May not sum due to rounding. Numbers given in millions of jobs.

2. Indirect and induced jobs are mapped to the sectors that cause the indirect and induced jobs shifts but occur outside these sectors in the wider economy
3. Net change in direct, indirect, and induced jobs over total employment in 2019
Source: McKinsey
184 Net-Zero Europe

In the power sector, we estimate that Beyond the power sector, we expect to
1.5 million new jobs would be added by see 100,000 new jobs in the agricultural
2050, including almost 700,000 jobs sector as farmers adopt new technologies
in solar power and 450,000 in wind such as anaerobic digesters, feed mix
power (Exhibit 79). About 70 percent optimization, and greenhouse-gas-
of these new power jobs would focused breeding. Retrofitting homes
involve manufacturing and installing and commercial buildings with new green
green infrastructure, which could be heating and cooking systems would
considered temporary employment. create 1.1 million jobs in the buildings
However, these jobs would actually be de sector. In the automotive sector, we
facto permanent, considering the steady estimate a net loss of roughly 150,000 as
increase in renewable-generation manufacturing activity shifts away from
capacity over the next 30 years and the current practices (Exhibit 80).
fact that most infrastructure must be
replaced every 20 years.
Net-Zero Europe 185

Exhibit 80
The EU would create approximately 11 million new jobs on the cost-optimal pathway to
net-zero GHG emissions, but certain industries would experience job losses.
Total1 job gains and losses by sector in EU-27

Millions
12.0
10.0
8.0
6.0
4.0
2.0
0
-2.0
-4.0
-6.0
-8.0
2020 25 30 35 40 45 2050
Gains Losses
Solar Gas New transport tech Other Non-RES Coal
Battery CSS Industry cleantech Biomass Conventional transport
Wind Offshore Hydro Buildings Nuclear Industry
Wind Onshore Agriculture
Net direct and indirect job change in EU-27

Millions
0
2020 25 30 35 40 45 2050
Indirect & Induced Jobs Direct Jobs
1. Direct and indirect jobs, with indirect jobs mapped to the sectors that cause the indirect jobs shifts, but occurring outside these sectors in the wider economy
Source: McKinsey
186 Net-Zero Europe

Regions may experience different Our analysis assumes that no find employment, some, such as those
levels of job displacement, but most production will shift outside the working with new products and supply
would see net employment gains. European Union’s borders. Although it chains, would likely require additional
New job gains would be spread across is possible that EU companies may fall education. In this context, the number
and within countries, because many behind overseas competitors during of people needing reskilling could be
of the new jobs would be dispersed, the course of the transition and thus larger than 5.5 million for those jobs
such as those in building renovation lose domestic market share, this may directly impacted by the transition, and
and agriculture. However, some regions not lead to significant job losses to up to 17.7 million if we include new jobs
may experience some job losses, and overseas locations as production of and workers indirectly affected.
there would be bigger shifts in areas most of the products and services in
Although the projected job losses and
with high concentrations of jobs in question would likely remain in the
reskilling requirements are significant,
affected sectors. For example, many EU regardless of which company is
they are substantially smaller than
oil and gas jobs are concentrated in producing them. That said, shifting jobs
those expected due to other trends
Benelux. Automotive manufacturing is from incumbents to new entrants could
such as automation, which we estimate
prevalent in some parts of Germany but lead to more extensive socioeconomic
would require reskilling more than
not others, and coal mining is prominent disruptions than workforce
100 million workers by 2030. 59
in Poland. These geographically transformations occurring within
concentrated job shifts are important organizations.On the other hand, value The new green jobs would generally
to consider when addressing the creation and employment could rise if be higher-skilled positions such as
socioeconomic impact of the transition. products now imported began to be installing solar panels, developing
produced within the European Union. hydrogen fuel cell technology, and
Although the transition to net-zero
growing genetically modified organism
would lead to some job loss, it would 4.2.2 Reskilling the workforce
(GMO) crops to feed livestock.60
happen over 30 years, providing time Reaching net-zero could require skills
As a result, reaching the EU’s
to prepare. And some subsectors, such training for up to 18 million EU workers.
decarbonization goals would require
as mining, have older workforces that Across the European Union, we expect
a more educated and higher-skilled
would be nearing retirement over this to see 3.4 million new jobs by 2050 and
workforce. To meet this demand,
period. For example, we found that 2.1 million job losses in the sectors
workers throughout the European Union
in Poland, the drawdown of the coal directly impacted by the transition. For
will need greater access to training
industry could be achieved without these new and lost jobs, workers will
opportunities. When providing this skills
significant layoffs. Because of the coal likely need reskilling or upskilling to
training, governments and companies
workforce’s advanced age structure, obtain or maintain employment.
could take advantage of skills overlaps
the workforce would naturally shrink
The European Union would see another between different sectors, such
faster due to retirements than because
7.9 million in gains and 4.3 million in as oil and gas engineers who can
of decarbonization. So, the transition—
losses in sectors indirectly impacted switch to developing offshore energy
if carefully managed—could be
by the transition. Those include infrastructure. In industries where jobs
smoother than the numbers suggest.
suppliers to impacted sectors and require new skills, such as in green
At the same time, it is important to look
more distant economic activities, agriculture, governments may need to
beyond the statistics and recognize
such as restaurants that benefit from create dedicated training programs.
that every job displacement may cause
the patronage of employees in those
worry and hardship for those affected,
impacted sectors. Although not all
no matter their number. Care needs
workers affected indirectly by the
to be taken to offer them support and
transition would require new training to
create new opportunities.
59
Sven Smit, Tilman Tacke, Susan Lund, James Manyika, and Lea Thiel, “The future of work in Europe,” McKinsey Global Institute, June 10, 2020.
60
Hauke Engel, Alastair Hamilton, Solveigh Hieronimus, and Tomas Nauclér, with David Fine, Dickon Pinner, Matt Rogers, Sophie Bertreau, Peter Cooper, and
Sebastien Leger, “How a post-pandemic stimulus can both create jobs and help the climate,” McKinsey, May 27, 2020.
Net-Zero Europe 187

4.3 Risks and opportunities import infrastructure has a capacity of Europe are imported from China and
in trade and production over 700 bcm61 , and domestic other Asia Pacific countries.
production from Norway is more than
4.3.1 The impact on fossil fuel trade Also, there are limited raw material
100 bcm.
balance and energy dependency supplies of the critical minerals for
A potential shift away from fossil-fuel 4.3.2 A potential shift in import battery cell production, such as
imports to zero-emissions technologies dependencies from fossil fuels to graphite, 70 percent of which comes
and raw materials zero-emission technologies and from China. And iridium, which
Between 2020 and 2050, oil, gas, materials is required to produce hydrogen
and coal demand would decline more While decarbonization would enable the electrolyzers, currently has such a small
than 90 percent from 43 EJ to 3 EJ European Union to move away from its volume on the world market that its
(Exhibit 81). It would remain primarily as dependence on fossil fuel imports, it could price and availability could be volatile.
feedstock in chemical manufacturing and develop new dependencies on technology
Solar PVs, Li-ion batteries, and
reducing the fossil fuel trade deficit by and raw materials imports that are vital to
electrolyzers are only three
two-thirds, from €180 billion a year today a zero-emissions economy.
components that may be crucial to the
to about €65 billion a year by 2050.
By 2050, about 75 percent of the energy transition. The availability of
Since current fossil fuel value chains primary energy supply would consist critical parts and materials would need
and infrastructure are set up for ten of renewables, with electricity to be monitored, and action would need
times the volume needed in 2050, representing over 50 percent of to be taken when it’s at risk.
single-source supplier dependencies the secondary energy supply. This
would likely be eliminated. For instance, could lead to a new type of import
natural gas demand would drop from dependency. Today, more than
roughly 400 billion cubic meters (bcm) 75 percent of all solar cells installed in
now to 30 bcm in 2050. The current
61
IEA: https://www.iea.org/data-and-statistics/charts/average-capacity-utilisation-of-eu-natural-gas-import-capacity-2018
Exhibit 81
On the cost-optimal pathway, the EU would import much less energy than it does now.
Million TJ
Trade balance of fossil fuels in 2017 and evolution under

cost-optimal pathway in EU-27
59
Own 16 Imported energy mix, 2050, %

49
production (27%)
-86%
18 4
(37%) 31 19 Nuclear
Oil
100% = 6 49 Coal
Net 43 29
imports1 (73%) Natural gas
(81%)
31 29
(63%)
6
(19%)
2017 30 2050
1. Assumption: 85% of fossil fuels are imported by 2030; 100% by 2050. All nuclear remains imported
Source: McKinsey, UN Comtrade (2016)
188 Net-Zero Europe

4.3.3 EU production and exports This could enable them to become 4.3.4 EU industrial topography
The transition to zero-emissions global leaders in these products and, Local industrial clusters and ecosystems
technologies could influence competitive in turn, safeguard market shares in often emerge because of factors like
dynamics and shift the EU import-export the European Union and important lower transportation costs, the pooling
landscape. The rate of global innovation export sectors while unlocking new of skilled labor markets, and the location
on decarbonization continues to export opportunities. For example, of resources. For many subsectors,
accelerate, and the innovators are taking we estimate that heat pumps, electric future energy and materials inputs will
market share from those that fall behind. furnaces, electrolyzers, and zero- be different, particularly as hydrogen
Navigating the transition and making the emission agriculture technologies could and renewable electricity replace fossil
strategic and operational adjustments account for over €50 billion of exports fuels. As the industrial metabolism shifts
to thrive in a zero-emissions world is no by 2050. The following enablers are from fossil fuels to renewables, the
easy task for many incumbents. This critical to sustaining and advancing European Union’s industrial topography
poses a risk for core pillars of European Europe’s competitiveness in zero- could also change.
prosperity, such as the automotive emissions products and services:
For example, the locations of ammonia,
sector. This risk is particularly relevant
— Extensive R&D spending, including steel, and ethylene production could
for markets of globally traded products
flagship research programs change to take advantage of where
in which the products or value chains are
and specific financing schemes hydrogen, CCS, or green electricity
likely to be fundamentally transformed
for a range of zero-emissions cost the least. We estimate that the
and where overseas competitors have a
technologies. total cost difference between the
head start or structural advantages like
current location and that of lowest-
low-cost labor. — A considerable pool of highly
cost inputs could be 2 percent for steel
skilled employees to enable
At the same time, the European Union and up to 20 percent for ammonia
the large-scale manufacturing
has an opportunity to accelerate R&D production. However, other factors
of zero-emissions products.
across sectors, become a leader in may inhibit relocation, such as the rest
Examples include clean technology
zero-emission technologies, and open of the supply chain’s aggregation or a
education and manufacturer-led
new export segments. If the European historical affinity with a specific region
apprenticeships supported by
Union takes a leadership position or community.
subsidized education.
in decarbonization, it could give EU
companies an advantage since they — Significant investments in
would have a large home market for automation and digital innovations
zero-emissions products. to maintain a cost-competitive
technological advantage. This
would require cross-sector learning
to combine knowledge from
different industries. For example,
setting up open innovation labs
where automation and digital
players could co-develop solutions
with manufacturers.
Net-Zero Europe 189

5. Charting a way forward
Although 2050 seems far away, many of — Encourage constructive industry

the decisions that consumers, business dynamics. Business leaders that lean
leaders, and policy makers make now into the transition and demonstrate a
will stay with us for years to come. commitment to overcoming transition
Vehicles are driven for 10 to 15 years. hurdles through collective action
Steel plants have lifetimes of 50 years rather than worrying about first-
or more. And the development and mover disadvantages will be critical.
maturation of new technologies take
— Mobilize green capital and
time, as does building up and scaling
investment. Much more public
new supply chains.
and private money would need
The European Union’s decarbonization to be invested in precommercial
targets are ambitious, but as our analysis technologies and rapidly deploying
shows, they should be achievable and commercially mature infrastructure.
affordable. Success will depend on Investors that provide ESG-
everyone taking decisive action while aligned funding mandates that
recognizing that time is of the essence. require businesses to quantify
Five forces would help galvanize the kind their exposure to climate risks
of widespread action required to meet and emissions could also play an
the decarbonization targets: important role.
— Shift social norms and consumer — Accelerate net-zero technologies

and investor expectations to along their learning curves.
zero-carbon as the new normal. Achieving the necessary
Consumers and business leaders technological breakthroughs to
would need to make decisions in reduce emissions in hard-to-abate
the expectation and in support of a sectors and accelerating their
shift to net-zero instead of business- progress to market would require
as-usual as the public and business consistent public and private
default. investment. It would also require
greater willingness among business
— Create secure and stable policy
leaders and policy makers to adopt
frameworks and regulatory
new technologies.
environments. Successful
decarbonization depends on public The good news about creating an
sector leaders who adopt robust environment driven by these transition
regulatory frameworks proportionate forces is that they build on and
to the emission-reduction goals strengthen each other. For example,
rather than incremental policies. providing long-term regulatory signals
This would provide stable planning would reduce the cost of capital for low-
and investment signals that would carbon investments and increase their
provide incentives for low-carbon competitiveness with fossil fuels. When
technologies and business models. consumers vote with their wallets and
purchase low-carbon products such as
electric cars and CLT, it accelerates their
development. Overall, public support for
green energy efforts speeds up political
decision-making and the redeployment
of business capital.
190 Net-Zero Europe

Net-Zero Europe 191
5.1 The time is now
In subsectors such as consumer
electronics, technology cycles are fast,
and development costs are typically
relatively lower. But most new clean
technologies require a substantial
lead time and significant development
investment. For example, large
commercial aircraft designs can take
15 years from concept to certification.
The journey for any one technology

from early-stage R&D and proof-
of-concept to early deployment and
commercial competitiveness requires
a complex interplay of support models
and stakeholders. The phase between
government-supported R&D and
commercial maturity, often called “the
valley of death,” can be particularly
challenging to navigate. The societal
benefits of the new technology
often cannot be fully captured by the
innovator, who consequently cannot
fully fund the scale-up.
192 Net-Zero Europe

Achieving net-zero emissions by 2. Accelerate next-generation public and private investments in
2050 hinges on the willingness of policy technologies and invest in enabling R&D will be critical to address the
makers and business leaders to take infrastructure to allow emission long-term needs for achieving net-
the following actions now: reductions after 2030. To boost zero, such as finding a way to drive
industry-wide innovation, funding down the costs of direct air capture
1. Rapidly scale cost-competitive
mechanisms for deploying early technologies. It would also be
technologies and business models
technology should encourage essential to invest in reorganizing land
to reduce near-term emissions.
collaboration. Policy makers could use to generate negative emissions
Achieving near-term emission-
create regulatory certainty, such through reforestation. Lawmakers
reduction targets requires
as CO2 and hydrogen price floors, can also start passing legislation
accelerating the scale-up of
to mobilize capital for essential to make it easier for each sector to
available mature and early-adoption
infrastructure such as carbon and reach net-zero emissions, such as the
zero-emission technologies. These
hydrogen pipelines. automotive emissions standards now
include solar and wind power, EVs
in effect in transportation.
and charging infrastructure, better 3. Invest in R&D and negative
building insulation, and district emissions to achieve final emission
heating systems. reductions by 2050. Increasing
Exhibit 82
Meeting the EU’s decarbonization targets would require decisive action from business
leaders and policymakers.
Drive transition forces … …to enable emissions … with private and public leadership
reduction over three
horizons …
CEOs Policy makers
I. Zero-carbon mindset 1. Rapidly scale cost- 1. Create strategic 1. Strengthen interventions

and behavior as the competitive alignment and incentives
new normal technologies and Align strategic narrative Resolve agency issues
business models, to
Value climate risk Enable and accelerate emissions
II. Secure and stable reduce near-term reduction beyond own borders
policy signals and emissions
regulatory 2. Reallocate capital and
people 2. Lean forward on capital and
environment 2. Accelerate next- investments
generation technologies Pivot financial capital base
III. Constructive industry Lean forward on infrastructure
and invest in enabling Invest in R&D investments
dynamics infrastructure to allow Invest in reskilling Mobilize capital
emission reductions
IV. Green capital and after 2030 Support businesses to reskill
investment 3. Engage policy makers Invest in RD&D and negative
3. Invest in R&D and and industry peers emissions
V. Zero-carbon negative emissions to Engage policymakers and form

technologies achieve final emission “coalitions for action” amongst 3. Lead by example
peers
reductions by 2050 Decarbonize the public sector
Instill learnings from the best private

sector transformations
Ensure a just transition
Source: McKinsey
Net-Zero Europe 193

5.2 Critical players and
actions to make change
possible
Achieving net-zero within 30 years
will require governments to set a clear
direction and business to be the engine
of innovation and delivery. In this section,
we discuss the actions that private and
public sector leaders could take to
support reaching climate neutrality.
194 Net-Zero Europe

5.2.1 The role of CEOs devaluation of the business. Liability As for talent, the existing workforce
To thrive during the transition and risks include litigation for climate may be well-suited to the zero-
shape it, CEOs could focus on three change inaction. emissions transition. However,
areas: creating strategic alignment, CEOs would need to reskill and
2. Reallocate capital and people.
reallocating capital and people, and redeploy this talent quickly. For
Investors may see lower value in
engaging with policy makers and example, they could shift capital
capital stock and business models
industry peers. project engineers to low-carbon
that aren’t aligned with science-
projects now. They could also:
1. Create strategic alignment. based carbon budgets, and
Businesses face many uncertainties most companies are not quick to • Conduct workforce planning
as they try to understand what the reallocate capital. 62 For companies with long-term horizons driven by
transition to net-zero would require that are slow to do it, the gap top management that considers
of them. Although incumbents between management expectations reskilling, outsourcing, and
would need to drive most of the and market valuation may grow. To replacing talent where necessary.
movement toward decarbonization, keep this from happening, leaders
• Consider collaborating with
it’s not easy to keep the legacy can deploy proven strategies,
others on reskilling, forming
business running while also including:
groups such as the UK’s
building a new business model. For
• Review the business from a zero- FutureNow program, a coalition
example, profit margins for new
emissions budget perspective, of companies, educators, and
products are often initially lower
determining where each ton of charities that work together to
than legacy products. But leaders
emissions adds the most business develop digital talent.
can embrace this as a challenge and
value (“Return on Carbon”).
make calculated bets on innovative 3. Engage policy makers and
product substitutes while building a • Invest in gray-to-green industry peers. Business leaders
strong narrative to bring employees, transformations or greenfield could consult with policy makers
investors, and customers on board. capital formation. to determine what’s required to
accelerate decarbonization and
• Scale new business models rather
As leaders prepare to discuss how they can help meet climate
than focus on existing product
green transformation with their targets. For example, transmission
lines and capabilities.
boards and investors, it may help to players could shape the investment
quantify the potential costs of not • Derisk capital investments environment to accelerate
addressing climate risks. These can through commercial, technical, interconnector or offshore grid
be categorized into physical and and policy innovation, such as build-out to improve renewable
transition costs and liability climate investments in electrolyzers power integration. And they can
risks, which will differ in relevance combined with renewables to influence how environmental
under different macro scenarios. improve the price certainty for performance is measured and
Leaders can analyze the physical clean power. reported while setting the bar on
impacts of climate change using reporting and disclosures. For
To thrive in a zero-emissions world,
tools that provide a geographic example, leading banks have been
companies would also need to
understanding of the likelihood defining what it means for financial
build competitive positions in zero-
that climate change could result in institutions to align their investment
emission technologies instead of
physical damage to the business. portfolios with science-based
focusing on prolonging their lead
The transition risks are the stricter targets and what data they need to
in traditional ones. This would
consequences that companies measure this.
involve investing in both midterm
could face if they don’t take action,
research, such as in lithium-air
such as regulators imposing more
batteries, floating offshore wind,
drastic measures to meet carbon
and perovskite tandem solar cells,
budgets. This is sometimes referred
as well as long-term research, such
to as “crash decarbonization,” a
as direct air capture and storage
scenario of more invasive regulation
and BECCS. In these endeavors, it
that results in much higher job
would be vital to collaborate with the
losses and stranded assets.
public sector through joint research
Another transition risk is that
agenda-setting and funding.
investors may sell their stakes to
reinvest elsewhere, causing a rapid
62
Yuval Atsmon, “How nimble resource allocation can double your company’s value,” McKinsey, August 30, 2016.
Net-Zero Europe 195

4. To make their efforts and In each sector, policy makers can It’s also essential for policy makers
investments go further, business set targets that are aligned at a to strengthen international
leaders can also form coalitions with granular level to meet the interim cooperation to decarbonize the
peers at the industry- and value- targets per year. These targets could aviation and shipping industries
chain level (“coalitions for action”) to complement the traded carbon with measures such as harmonized
take the following actions: markets; although these carbon technology standards and refueling
markets already provide some infrastructure at airports and
• Industry-level: Create critical
encouragement, carbon prices can harbors. This cooperation would
mass demand for a decarbonized
provide insufficient incentives to also be necessary for accelerating
product such as green steel in
mobilize investments in hard-to-abate decarbonization beyond the EU’s
the automotive industry, jointly
sectors. Carbon price volatility also borders in other sectors. The
shape regulation, agree on
does not give assurance to making potential for international friction
product standards to accelerate
capital investments over decades. through policies such as carbon
the industrial learning curve, and
border adjustment mechanisms
share information to track supply
For example, policy makers could set could be reduced by approaching
chain decarbonization.
volumetric targets for consumption climate issues collaboratively,
• Value-chain level: Accelerate of hydrogen in steel, chemicals, and such as forming working groups of
innovation and scale-up by power sectors. These volumetric importers and exporters.
encouraging value-chain targets would be directionally
partnerships and supporting consistent with the lowest cost Along the way, policy makers would
global standards for things pathway. Alternatively, government need to monitor technological
like hydrogen production and could procure low-carbon hydrogen development and adjust industrial
transport. This would help drive at reverse auctions and create the policy accordingly. The stakes
costs down the learning curve, marketplace for this supply within of intervention would be higher
provide the coordination required prioritized hydrogen hubs. This than ever, and these interventions
to stabilize and scale supply and “clearinghouse” matches supply require greater collaboration with
demand together, while derisking and demand for industries, and the the private sector.
infrastructure investments. competition for clean hydrogen
volumes supports a market price Throughout this process, policy
5.2.2 The role of policy makers
for long-term (~10 years) hydrogen makers would need to address any
To reach net-zero, policy makers would
contracts. The gap between the agency issues that slow decision-
need to create a business environment
reverse auction costs and revenues in making. For example, landlords may
conducive to transitioning quickly to
the clearinghouse equals the subsidy not invest in making their buildings
green energy. Shaping and managing
that is required that year. Similar more energy-efficient if they can’t
the transition would likely require
to the impact of feed-in tariffs and share the resulting cost savings
more policy intervention and stronger
reverse auctions in the renewable with tenants.
international cooperation than usual.
power sector, as technology
Government officials could focus on the 2. Lean forward on capital and
costs come down, the subsidy
following three areas: investments. Infrastructure will
requirements reduce. We estimate
be critical for decarbonization,
1. Strenghten interventions and €60 billion will be required to bridge
whether it’s creating new power
incentives. Policy makers can the economic gap for hydrogen
interconnectors or developing
influence the behavior of companies consumption in transport, industry,
ways to capture and sequester
and consumers to reduce the overall and buildings through 2050.
CO2. Having the right infrastructure
cost of the transition. For example,
in place is a common challenge
switching to EVs and improving While providing certainty through
among businesses that is often
building energy efficiency is much such volumetric targets per
too risky for private investors
more cost-effective than other subsector, policy makers can still
to tackle. In the next decade,
decarbonization options. Policy check and adjust to create an agile
policy makers can remove these
makers could help accelerate policy as technology costs change
hurdles by forming public-private
their adoption through actions and the preferred pathways per
partnerships to build the necessary
like extending subsidies, enacting subsector become more certain
energy transition infrastructure.
stricter emission standards, and over time.
creating regulatory backstops such
as banning sales of ICEs after a
specific date.
196 Net-Zero Europe

Policy makers can also help mobilize 3. Lead by example. Government 5.2.3 No one left behind
capital for these kinds of initiatives leaders can spark change in the Although the transition to net-zero
by removing process barriers that broader economy by modeling the could be cost neutral at an aggregate
introduce costs, standardizing necessary changes while creating level, it would impact some people more
contracts, providing carbon price a steady demand for sustainable than others. For example, energy tax
floors, providing public guarantees, solutions for the government’s hikes would create more hardship for
and offering tax incentives. Banks, own use. For example, the Irish low-income households than those
regulators, and supervisors can play government backed its ambitious with higher incomes. Reskilling efforts
a role in creating stable and favorable 10-year decarbonization plan by would involve front-line workers much
frameworks for green financing. setting two targets for itself: to more than white-collar colleagues.
reduce its emissions by at least These socioeconomic disparities would
Policy makers could provide 30 percent and improve its energy need careful management.
transparency through midterm efficiency 50 percent by 2030.63
The opportunity to make decarbonization
(2030) and long-term (2040+) The actions for achieving these
easier and more affordable for everyone
infrastructure master plans for goals include retrofitting school
extends beyond EU borders. The
energy-transition infrastructure buildings built before 2008,
European Union could help other
and appoint a central orchestrator providing behavioral change
countries transition to net-zero and make
to organize and oversee industrial training to its workforce, increasing
development support contingent on it
clusters. To accelerate the afforestation rates to an average
being used for zero-emission objectives.
implementation of these master of 8,000 hectares per year, and
At the same time, EU leaders can work
plans, policy makers could support evaluating suppliers against
with the rest of the world to ensure that
regulated infrastructure returns for sustainability criteria. 64
the transition benefits everyone while
new energy transition infrastructure
reducing global emissions.
such as feedstock collection, Like Ireland, national governments
storage infrastructure, or new throughout the European Union
hydrogen and CO2 pipelines. can develop detailed climate plans
□□□
with clear timelines and targets. To
Policy makers can also support establish accountability, the entire
businesses in reskilling their government would align around
Climate change is a critical global
workforces. For example, the these goals. For example, prime
challenge. As this report has shown,
Austrian government funds nearly ministers and cabinet ministers
the European Union has an opportunity
70 percent of skills training for can work together to lead the
to take a leadership position and
employees at smaller companies day-to-day implementation of
achieve net-zero emissions without
that form cooperatives of at least the plans. Delivering this kind of
compromising prosperity. Advances
three companies for training. societal transformation will only
over the last decades have put climate
Similarly, the Netherlands provides be possible if the public sector
neutrality within reach. Laying the
tax credits equal to the amount for accounts for the interconnections
foundation in the next decade will be
companies to spend on reskilling. between its infrastructure,
critical to achieving this goal.
employment, environment, and
Policy makers can also play a role economy in the design.
in increasing public investment
in R&D to pursue breakthrough
technologies that could reduce the
cost of decarbonization. They would
need to help reorganize land use to
generate negative emissions at scale
and create legislation to make it
easier for sectors to reach net-zero.
63
“Climate Action Plan 2019 Annex of Actions,” Government of Ireland, July 2019.
64
“Climate Action Plan 2019 Annex of Actions,” Government of Ireland, July 2019.
Net-Zero Europe 197

6. Technical appendix
Modeling methodology how the European Union could achieve To express volumes of different
climate neutrality. greenhouse gases using a common
To determine our cost-optimal
metric, we used metric of tons of
pathway to net-zero emissions, we Various cost outlooks for commodities
CO2 equivalent (CO2e). Different
used two McKinsey optimization and technologies were defined. For
greenhouse gases have different
tools: the Decarbonization Pathway fossil fuels, we assumed prices to
impacts on global warming. CO2 can
Optimizer (DPO), which models remain close to current levels going
remain in the atmosphere for decades,
industry, transportation, buildings, forward. No price impacts of supply
while methane has a much stronger
and agriculture, and the McKinsey shocks due to rapidly falling oil demand
warming effect but a half-life of only
Power Model (MPM), which models were included. Power and hydrogen
12 years. It is not obvious how much
power and new fuels, particularly prices were dynamically modeled in
methane abatement is equal to abating
hydrogen. Both represent the possible the MPM and used as input for the
a gram of CO2, since the average global
combinations of technologies in each demand sectors in the DPO. The
warming potential of methane is much
of their respective sectors and assume capital cost reductions for some critical
higher over a 20-year period than over
continued economic activity and technologies such as electrolyzers and
a 100-year period. To translate methane
growth, for example, in tons of steel batteries were defined based on the
and other GHG emissions to CO2,
produced or passenger kilometers learning rate; the faster electrolyzers
therefore, requires setting a common
traveled. Then they optimize for the are rolled out at scale, the faster they
timescale. The European Union uses
lowest system cost while achieving can decline in cost. Our cost outlooks
the 100-year global warming potential
the EU emissions reduction targets. for such technologies assumed that
for all greenhouse gases, and so we
The resulting pathways thus represent the rest of the world scales up their
adopted this to aid comparability.
the minimal cost route to climate decarbonization efforts, helping drive
neutrality. No co-optimization was adoption and the associated downward
done, for instance, on GDP. Nor were pressure on costs. EU regions in the report
any benefits of decarbonization, such
The optimization minimizes the societal For this report’s modeling effort, we
as reduced physical hazards, included
cost of the transition. Therefore, cost split the EU-27 into 10 regions (Exhibit
in the optimization.
calculations do not include money 83). Region splits were informed by
We included more than 600 different transfers between EU actors. For how geographic differences could
business cases for technologies and instance, we did not include profit impact local pathways. For instance,
techniques in the modeling. These margins that one EU player, such as a different climates can lead to different
range from conventional technologies, large hydrogen producer, may charge a costs of wind or solar power, or heat
such as ICE long-haul trucks and trucking company. Such transfers are demand in buildings, which are key to
natural gas furnaces for industrial zero-sum in the European Union and pathway choices.
heating, to technologies still under not a net cost to society. Similarly, we
development, such as hydrogen did not use different costs of capital
trucks and electric furnaces. For for sectors or technologies, as capital
new technologies, uptake rates were returns are also money transfers,
constrained by when products should not net costs. The cost optimization
first come to market and how fast was done at a societal discount rate
their chains could reasonably ramp of 4 percent. Cost data in this report,
up. The resulting pathway provides a unless otherwise indicated, is shown
technology-by-technology outlook of using the same 4 percent discount rate.
198 Net-Zero Europe

Exhibit 83
We modelled ten regions in the EU-27.
Germany
France
Iberia1
Italy
Benelux2
Poland
Southeast Europe3
Other central Europe 4
Nordics5
Ireland
Source: McKinsey
Net-Zero Europe 199

Financing analysis We have reflected the limitations of the Household spending
methodology societal discount rate for individual methodology
decision-making in our modeling. For the
The cost-optimized decarbonization The income analysis model provides
analysis of financing needs, we recalculate
pathway takes a societal perspective, an overview of the potential impact of
the business case using an individual’s
as reflected in our societal discount rate the EU decarbonization pathway on
discount rate for each sector and
of 4 percent. This is in the middle of the consumer prices by region, income
segment. We then split technology
range used by different economists and bracket, and purchase sector for the
switches based on their abatement cost.
organizations. For example, The Stern years 2030 and 2050. The main inputs
Technologies with a cost below zero are
Review on the Economics of Climate for the model are:
considered standalone. That is, if a
Change published in 2006, argues that
decision-maker is entirely rational, the — Capital and operating expenditures
discounting should incorporate an ethical
switch to this technology should happen for the main household spending
aspect and uses a rate of 1.4 percent
without intervention. For example, a fleet categories from the decarbonization
while suggesting that even a zero rate
owner switches to hydrogen-fueled trucks pathway model
may be appropriate.65 On the other hand,
as soon as it becomes profitable.
some think tanks suggest rates up to — Household spending per country by
Technologies with an abatement cost
7 percent.66 However, recent studies spending category from Eurostat
above zero do not have a standalone
suggest that economists are increasingly
business case, for example, replacing an — Household spending per country
comfortable using low discount rates for
affordable gas furnace with an expensive by income bracket and spending
climate change analyses.67
heat pump. These technologies require category from national statistics
The low discount rate, which may be the some form of regulatory or financial agencies
right one from a societal perspective, intervention. The financing needed for
— Categorization of car ownership,
favors options with high capital these interventions is calculated as the
used to divide transport costs
investments. But the cost of capital for total financing to bring the abatement cost
between cars and buses, from the
individuals can be higher and they may to zero over the lifetime of the technology.
European Environment Agency
expect shorter payback periods, leading
to higher effective discount rates. For The analysis does not take into account
example, under a TCO perspective, to potential costs such as road taxes
switch to a medium-size electric car or increased costs for companies’
in the next few years is economically branding or marketing.
reasonable. However, many individuals
The splits between low-, medium- and
are more focused on upfront cost, and
high-income groups are based on
thus the effective discount rate can be
income deciles for groups of countries
higher and delay the decision to switch by
with similar average incomes. The low-
many years.
income first decile is based on data for
Hungary, Poland, and Romania; the
medium-income fifth decile is based
on Italy, Germany, and France, and the
high-income top decile is based on
Luxembourg, Ireland, and Denmark.
65
Simon Evans, Roz Pidcock, and Sophie Yeo, “The social cost of carbon,” Carbon Brief, February 14, 2017.
66
David Kreutzer, “Discounting climate costs,” The Heritage Foundation, June 16, 2016.
67
The results of a survey of economists published in 2015 indicate that more than three-quarters of the 200 experts were comfortable with a median discount rate of 2 percent.
200 Net-Zero Europe

While different income brackets would Forecast volumes of goods and services
see different distributions of household across 10 regions of the EU-27 from
spending between categories, some 2017 to 2050 are generated by the DPO
of the largest differences can be model. To estimate the jobs impact of
expected in transport. Therefore, for decarbonization, industry and country-
the first decile, transport is assumed specific multipliers from McKinsey’s
to be exclusively public in countries Economics Analytics Platform (EAP) are
with low or medium car ownership applied to the difference in gross output
and 50-50 public versus car for supply for each good and service.
countries with a high proportion of Ratios of the differential impact on jobs
car ownership. For the fifth decile, of creating a green or brown good or
we assume solely public transport service via a specific production method
for countries with low car ownership, are estimated for each good. These
50-50 public versus car for medium “green multiplier ratios” are applied to
ownership, and solely passenger cars the EAP multipliers and the differences
for high ownership countries. For the in gross output supply to yield the
top decile, we assume solely passenger impact of decarbonization on jobs.
cars for countries with high or medium
For the power sector, the DPO power
car ownership, and 50-50 for low car
model provides forecasts of the
ownership countries.
installed capacity by energy source
across 10 regions of the EU-27 from
Jobs analysis methodology 2017 to 2050. Jobs multipliers, in
terms of direct jobs per megawatt
The direct and total job impacts
(MW), are derived from a literature
are derived by applying regional,
review. Multipliers for operations and
industry, and process-specific jobs
maintenance and fuel are applied to the
multipliers to: 1) the additional supply
annual changes in installed capacity to
(and the technologies of supplying)
calculate the effect on permanent jobs.
different goods and services in a
To calculate the effect on temporary
decarbonization scenario relative
jobs, multipliers for commercial and
to the baseline in McKinsey’s DPO
industrial and manufacturing are
model, and 2) forecasts of the installed
applied to the changes if they are
capacity of different energy-generation
positive. If negative, decommissioning
technologies in a decarbonization
multipliers are applied. To calculate
scenario relative to the baseline from
the indirect and induced employment
the MPM.
impacts, ratios between direct and total
multipliers from McKinsey’s EAP are
applied to every industry and region.
These direct effects are translated to
estimated indirect and induced effects
using historical ratios for each industry.
Net-Zero Europe 201

7. Acronyms
ATR Auto-thermal reformer GWP Global warming potential
BECCS Bioenergy with Carbon Capture and Storage HEV Hybrid electric vehicle
BEV Battery electric vehicle HVDC High voltage direct current
bcm Billion cubic meters IATA International Air Transport Association
CAP Common Agricultural Policy ICE Internal combustion engine
CAPEX Capital expenditure IMO International Marine Organization
CCS Carbon capture and storage IoT Internet of Things
CCU Carbon capture and utilization IPCC Intergovernmental Panel on Climate Change
CLT Cross-laminated timber kW Kilowatt
CNG Compressed natural gas kWh Kilowatt-hour
CO2 Carbon dioxide Li-ion Lithium-ion
CO2e Carbon dioxide equivalent LNG Liquid natural gas
COVID-19 Coronavirus disease 2019 LULUCF Land use, land-use change, and forestry
CRISPR -Cas9 A gene-editing technique MaaS Mobility as a shared service
DERMS Distributed energy resource management systems Mha Megahectares
DPO McKinsey Decarbonization Pathway Optimizer MPM McKinsey Power Model
DRI-EAF Direct reduced iron in the electric arc furnace Mt Megaton
EAP McKinsey's Economics Analytics Platform MtCO2e Megaton of carbon dioxide equivalent
EC European Commission MW Megawatts
EJ Exajoules NECP National energy and climate plans
ENTSO-E European Network of Transmission System Operators for Electricity OEM Original equipment manufacturer
EPBD Energy Performance of Buildings Directive OPEX Operating expense
ESG Environmental, social, and corporate governance PHEV Plug-in hybrid electric vehicles
ETS Emissions Trading Scheme PV Photovoltaic
EU European Union SMR Steam methane reformer
EV Electric vehicle T Ton
FCEV Fuel cell electric vehicle tCO2e Ton of carbon dioxide equivalent
GDP Gross domestic product TCO Total cost of ownership
GHG Greenhouse gas TJ Terajoules
GMO Genetically modified organism TSO Transmission system operators
Gt Gigaton TW Terawatt
GtCO2e Gigaton of carbon dioxide equivalent TWh Terawatt-hour
GW Gigawatt VR Variable rate
GWh Gigawatt-hour WACC Weighted average cost of capital
202 Net-Zero Europe

November 2020
Copyright © McKinsey & Company
Designed by Visual Media Europe
www.mckinsey.com
@McKinsey
@McKinsey

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Net-Zero

Magnus Tyreman Tomas Nauclér Hauke Engel

1. Getting to net-zero by 2050 38

1.2 The situation today 41 1.3 The road ahead 46

1.2.1 EU GHG Emissions 41

2. The EU pathway to climate neutrality 50

2.1.3 Key geographic differences in 2.3.2 An expanded view on EU land use 71

3.1.1 Power emissions today 82 3.4.1 Building emissions today 120

3.2 Transportation 94 3.5 Agriculture 126

3.2.1 Transportation emissions today 96 3.5.1 Agriculture emissions today 128

3.7.1 CCS installations today 144 3.9 Cross-sector: Nature-based carbon

4. The socioeconomic implications of decarbonizing Europe 168

4.2.1 Emissions reductions would lead 4.3.4 EU industrial topography 189

5. Charting a way forward 190

6. Technical appendix 198

EU regions in the report 198 Jobs analysis methodology  201

Financing analysis methodology  200

What would it take for the European

More than half the emissions

Energy systems and land use

Nearly €1 trillion must be invested

Policy interventions would be

Energy security and competitiveness

All stakeholders must

1.6 Total emissions

Yearly emission -35 -130 -110

The bulk of Europe’s emissions are generated by five sectors.

Historic emissions by sector

5,000 2017 CAGR,

2,000 Buildings -1.0

Emission baseline by sector and region

Iberia2 409 Emissions

100% = 930 820 490 1,140 470 -250 260

Iron & steel Equipment

Heavy duty trucks

O&G upstream Soils

Power Transportation Buildings Industry Agriculture LULUCF International

Power Transportation Buildings Industry Agriculture LULUCF

Current emissions Decarbonization cost1 Emissions evolution

Buildings 490 -66 37 40 500

On the cost-optimal pathway, some countries’ emissions reductions would compensate

Decarbonization target -55% -100%

Under emissions target Over emissions target

17% 11% Energy efficiency

-55% Electrification and

Total primary energy demand

Primary energy demand to final energy consumption

Renewable power1 Industry Oil

Total final energy consumption Transportation

Coal Biomass Electricity

Bioenergy 4.1 0.3

Nuclear 0.2 -8.6

Natural Gas 1.2 -2.8

Oil -0.1 -7.1

Coal -2.0 -10.7

Power and Hydrogen Power and Hydrogen

Additional focus themes

Focus of Common Enhance natural Support carbon-neutral Increase biodiversity

Other domestic Imports, e.g., biomass

Reaching net-zero would require an estimated €28 trillion in investments over

1. Getting to net-zero by 2050 38

1.2 The situation today 41 1.3 The road ahead 46

1.2.1 EU GHG Emissions 41

2. The EU pathway to climate neutrality 50

2.1.3 Key geographic differences in 2.3.2 An expanded view on EU land use 71

3.1.1 Power emissions today 82 3.4.1 Building emissions today 120

3.2 Transportation 94 3.5 Agriculture 126

3.2.1 Transportation emissions today 96 3.5.1 Agriculture emissions today 128

3.7.1 CCS installations today 144 3.9 Cross-sector: Nature-based carbon

4. The socioeconomic implications of decarbonizing Europe 168

4.2.1 Emissions reductions would lead 4.3.4 EU industrial topography 189

5. Charting a way forward 190

6. Technical appendix 198

EU regions in the report 198 Jobs analysis methodology 201

Financing analysis methodology 200