Better insight and new tools needed to plan the energy transition

The energy transition focuses on 2030 – insight up to 2050 needed 

About one-fifth of all energy consumed in the EU comes from renewable sources. This share will rapidly increase as we're heading towards a fully climate-neutral energy system by 2050, and ideally before. While broad consensus exists on the need to achieve climate neutrality, there's no consensus yet how this goal will be achieved. Current and planned policies focus on 2030. In itself an understandable focus. But to make sure that policy choices lead to a climate neutral energy system as cheaply and fairly as possible, the entire transition from today up to 2050 should be mapped out. Without a clear view of the future as a basis for long-term planning, climate policies will be short-sighted.

What does the optimal 2050 energy mix look like?

The European Commission has done a great deal of energy system scenario analysis as part of the preparation of the 2018 ‘Clean Planet for All’ vision for a climate neutral economy¹  and in preparation of the ‘Fit for 55’ Impact Assessments.² All of this good work consists of scenario-studies which does not yet provide a central view on what would be the most cost-optimal climate-neutral energy system. It would be useful and necessary for the Commission to undertake a study into the cost-optimal 2050 energy system as a basis for political decision making. Such study could be used to evaluate the Fit for 55 package in order to sharpen and fine-tune it in line with the optimal transition pathway.  

Overall direction is clear – many choices remain

Broadly speaking, we can already foresee the transition: much more (offshore) wind and solar-PV; hydrogen, partly imported; sustainably produced biomethane, also to create negative emissions; reinforcement of electricity networks and the creation of a European hydrogen backbone infrastructure with storage capacity; accelerated electrification in transport, industry and buildings, insulating buildings and reducing peak energy consumption as much as possible. But within this overall direction, there are many different ways to achieve a climate-neutral energy system. The energy system has many variables and subsystems and smart choices are needed to come to a functioning system at the lowest societal costs.

More solar-PV, offshore wind or large-scale energy-imports

Each EU Member State can decide how to achieve climate-neutrality within the boundaries of EU climate and renewables policies. In this, many choices remain. In most countries solar-PV and onshore and offshore wind-power are scaling-up rapidly. This puts increasing pressure on network companies. Is it wise to facilitate further growth of solar PV with grid connections in countries with relatively few sunshine hours, or rather scale up offshore wind all the way to 450 GW by 2050?³ When should Member States make choices about creating offshore energy islands and should the EU support these? To what extent should solutions such as flexibilisation of energy demand, heat buffering and hybrid heat pumps be used to keep extra investments in energy networks as low as possible? How fast should a European Hydrogen Backbone infrastructure be created and what should be its estimated  length and topology by 2050? Should the EU do more to facilitate hydrogen interconnectors? To what level are we going to insulate Europe’s 220 million buildings and which heat technologies are needed where? Is it wise to focus on large-scale CCS for blue hydrogen production, also to use CO₂-storage to enable negative emissions in combination with biomass or direct air capture?

Currently, the EU imports about 60% of its energy. It is unrealistic that Europe will become self-sufficient in energy by the middle of this century, and probably unnecessary too. A key question is how much energy we produce ourselves and to what extent Europe will import e.g. green hydrogen from North Africa via hydrogen pipelines.

Political decision are needed on these and other questions, based on optimisation analysis. Policy choices for 2030 should be in line with the pathway to 2050. Also, to maintain societal support it is crucial that energy transition costs are reduced and distributed fairly.

MACC curve and societal CO₂ price to guide decision making

Insight first, followed by decisions. Decision making should take stakeholders views into account, but ultimately governments and parliaments decide. Coordination and leadership at EU level is  essential, for example on the construction of a European hydrogen network. Societal costs and benefits should guide decision making rather than the costs faced by individual consumers based on current fee structures and taxes. In order to take decisions in line with the transition pathway it can be useful to rank solutions based on their total system costs, in combination with a gradually decreasing maximum 'societal CO₂ price' per tonne of CO₂ emissions avoided.

Such a Marginal Abatement Cost Curve provides insight into the hierarchy of transition solutions. Many companies already use this tool to plan their own climate strategy. In the built environment, for example, the MACC would compare the scale-up potential and costs for different heat solutions. The societal cost of one tonne of avoided CO₂ emissions is determined for each sustainable heat solution. In this, technology costs, insulation and energy per building are captured, plus the costs of required energy infrastructure, including storage.

Government support for solutions with low societal costs

A '2050 MACC' should be determined based on the results of the optimisation study, as well as  '2020 MACC' reflecting today’s situation. Both MACCs are reviewed annually in order to take into account falling technology costs, innovation and new insights on scalability. Government policies and incentives, including those aimed at 2030, should be in line with the ‘2050 MACC'. Policies would target the implementation of a package of transition solutions that are scalable as to jointly satisfy future energy demand at the lowest overall cost. The most expensive measure in the package would constitute the ‘maximum societal CO₂-price’ which governments should be ready to support. Any additional or alternative measures with a higher societal cost would have to demonstrate that their societal costs could be reduced under the maximum prices in order to be eligible for support.

Affordable and fair

Such structuring of energy transition solutions based on scalability and societal costs allows governments can make optimal energy transition choices and to plan the transition all the way to 2050. The next step is to implement the selected solutions at scale and to significantly reduce and fairly divide their costs. This will put us on course towards an affordable and fair climate-neutral energy system.

1. European Commission, In-depth analysis accompanying the Clean planet for all Communication, COM(2018) 773; see here.
2. European Commission, Fit for 55 package; see here.
3. The European Commission considers that by 2050 the EU needs between 240 GW and 450 GW of offshore wind to provide 30% of future increased electricity demand; see here.