Net Zero E-conomy 2050: Decarbonisation roadmaps for Europe: focus on Italy and Spain

“Net zero E-conomy 2050 - Decarbonisation roadmaps for Europe: focus on Italy and Spain” has just been presented at the Forum held at Villa d’Este in Cernobbio (3 September). The study shows that a powerful commitment towards decarbonisation objectives would offer greater benefits in terms of economics, employment and energy independence at a European level, when compared to low-ambition scenarios. The key findings of the study, carried out by Enel Foundation and The European House Ambrosetti, in collaboration with Enel, are:

1. To contain global warming, a paradigm shift in the energy system is necessary. To achieve this, the European Union has set the goal of becoming “climate neutral” by 2050.  Italy and Spain need to speed up on decarbonisation to prevent the risk of significant delays in meeting the 2050 decarbonisation targets.

To reach ambitious climate targets, it is necessary to electrify final consumption as much as possible and encourage the massive deployment of renewable energy capacity and smart power networks. Along with climate/environmental imperatives, the need to rethink our energy system has been exacerbated by the current energy crisis triggered by the international geopolitical tensions linked to the Russian-Ukrainian war.

Even before this conflict, to respond to the climate threat, the European Union set itself the goal of becoming “climate neutral” by 2050 in its Climate Law. This also includes the intermediate step necessary to achieve net zero emissions by 2050: to keep pace with the 2050 final goal, in 2030 GHG emissions need to decrease by 55% with respect to 1990 levels. In July 2021 the European Commission launched the “Fit for 55” package of proposals which includes the Climate Law’s GHG emissions reduction target, a review of the EU Directive on Renewable energy sources (RES) and the Directive on Energy efficiency.

Looking at Italy and Spain, both countries register some criticalities with regard to the main energy transition levers. For example, considering RES, Italy is still a long way off from reaching the 2050 target, with a gap of 60.7 percentage points. The country also needs to accelerate in terms of energy efficiency and the reduction of gross GHG emissions.

Likewise, for Spain, RES penetration projection suggests that delays are already marked in the short-term, and reach a shortfall of 53.5 percentage points for 2050. However, if the year 2020 is also included in the analysis (a year in which there was a significant increase in the growth of renewables in the country), Spain will overperform its 2050 policy target. Looking at energy efficiency and GHG reduction, in Spain the gap between the inertial trend and the 2050 targets is broadening over time, with insufficient results achieved in both areas.

2. Italy is 5^th amongst EU countries for the gas intensity of GDP index and 2^nd for natural gas dependence index. However, decarbonisation is key to achieving energy independence. In fact, over the past ten years, the reduction in energy dependence in Italy and Spain (-9.1 percentage points in both countries) has been determined by an increase in electrification rates (+1.5 p.p. in Italy and +3.2 p.p. in Spain) and RES deployment (+2 p.p. in Italy and +4.7 p.p. in Spain) in final energy consumption.

The current energy crisis driven by the outbreak of the Russia-Ukraine conflict has highlighted the EU’s vulnerability and energy dependence on fossil fuel imports. Europe is 57% dependent on energy imports and over the 20-year period 2000-2020 this share remained almost unchanged, even slightly increasing by about one percentage point.

The natural gas dependence index in Europe stands at 23%. Italy ranks 2^nd with a value of 41.2%, while Spain is 8^th at 26.1%. Considering the same index purely for imports from Russia, Italy is the 4^th most exposed country to the threat of a shortage in Russian gas supplies, as these account for 19% of primary energy consumption. Spain’s dependence on Russian gas is just 3% since the country has a broader range of commercial partners. Lastly, Italy is 5^th in Europe in the gas intensity of GDP index, at 34.9 toe per million euro GDP, thus highlighting the economy’s structural dependence on natural gas.

To tackle the energy emergency, the European Commission recently proposed the “REPowerEU” plan with the aim of increasing the energy system’s resilience and eliminating Russian gas imports from the European mix by 2027. In both Italy and Spain, from 2010 to 2020, energy dependence decreased by almost 10%, due principally to an increase in both renewables and electrification, a fall in the share of petroleum products of 5.3%, and a reduction in total energy consumption.

3. A more robust acceleration of decarbonisation would require less resources than a weaker approach. The “Net Zero” scenarios envisage 3,351 billion Euros and 2,215 billion Euros of investments in Italy and Spain respectively over the 2021-2050 period, 548 and 546 billion less than the investments needed for the respective “Low Ambition” scenarios.

Overall, the “Net Zero” scenario requires lesser resources than the “Low Ambition” scenario, despite more ambitious targets. In Italy, while the “Low Ambition” scenario needs investments for around 3,899 billion euro, the “Net Zero” scenario, which includes the more ambitious “Fit for 55” for 2030 and the economic and environmental impacts of COVID-19, requires 3,351 billion, 548 billion less than the “Low Ambition”. In Spain, the “Low Ambition” scenario will require 2,761 billion euro while the “Net Zero” scenario would need 2,215 billion euro, around 546 billion euro less.

The different assumptions underlying the scenarios explain the variations in terms of investments. For transport, in both countries the “Net Zero” scenario envisages fewer passenger cars up to 2050, with greater electric vehicle penetration, a shift toward public transport, a higher utilisation rate of vehicles and an acceleration in more sustainable behaviour.

4. “Net Zero” scenarios in Italy and Spain are associated with relevant social, economic, environmental and energy security benefits, in terms of added value, employment, reduction of emissions, fossil fuel expenditure and energy independence.

The impact of the investments in the two scenarios defined in the Study is calculated on four dimensions: 1) economic and social impact; 2) reduction of pollution; 3) savings in fossil fuel expenditure; 4) energy security and independence.

1.      With regards to economic benefits, in both Italy and Spain, embracing the “Net Zero” scenario produces a more positive impact on the economy, with a better GDP/investment ratio with respect to the “Low Ambition” prospect: 1.64 vs 1.59 in Italy and 1.28 vs 1.23 in Spain. As for social benefits, in both countries the “Net Zero” scenario creates more jobs than the “Low Ambition” scenario.

2.      The reduction of pollution generates a positive effect on public health, through higher rates of reduction of diseases, improved productivity and the avoidance of premature deaths made possible by the “Net Zero” scenario compared to “Low Ambition”. In Italy and Spain, the savings amount to about 614 billion and 317 billion euro respectively.

3.      Regarding savings in fossil fuel expenditure, for Italy the benefit would be equal to 1,914 billion euro in the “Net Zero” scenario compared to a projection of current business as usual in the 2021-2050 period (vs. 851 billion euro in the “Low Ambition” scenario). In Spain, fossil fuel savings would be 1,279 billion euro in the “Net Zero” scenario compared to the inertial trend for the 2021-2050 period (vs. 702 billion euro in the “Low Ambition” scenario).

4.      In terms of energy benefits, the “Net Zero” scenario would permit a significant reduction in the gas intensity of GDP. In this scenario, in Italy the gas intensity of GDP is expected to drop by 94% with respect to today, while in Spain the reduction would be 92%. Moreover, the “Net Zero” scenario would allow for a further reduction in the energy dependence index, especially in Italy. In particular, the strong penetration of RES, together with electrification and energy efficiency, will enable Italy to reach energy independence in 2050. As for Spain, the energy dependence index is expected to drop from 67.9% in 2020 to 13.0% in 2050 in the “Net Zero” scenario.

5. Reaching ambitious global climate targets requires investment into the electrification of final consumption, while supporting a massive deployment of renewable energy production and smart power networks. To achieve this, two prerequisites and five policy proposals have been identified. One proposal affects all the economic sectors analysed, while the other four are sector-specific.

The prerequisites are:

1.      Ensure the stability, transparency and consistency of European, national and local energy policies, addressing long-term investments and designing consistent remuneration mechanisms that encourage companies and final consumers to invest in the energy transition and switch to green solutions,

2.      Support European and national industrial production in scaling up existing technologies, developing and adopting new green solutions and halting fossil fuel subsidies. This could be achieved by strengthening the European industrial strategy and building a resilient raw materials supply chain, continuing to promote European energy initiatives and funds encouraging the transition.

The cross-sectoral policy proposal focuses on the need for greater cooperation and harmonisation in the governance of the energy transition at European level, by reviewing the European Commission’s current enforcement mechanisms towards Member States regarding decarbonisation targets, facilitating the implementation of the “REPowerEU” guidelines.

The four sectoral policy proposals are as follows:

1. In the sector of power, simplify authorisation procedures for RES plants and grids and increase their social acceptance by straightforward procedures for receiving authorisation, recognising the status of national public interest for renewables, involving citizens in new projects by means of capital participation and reduced local taxes, promote demand side management and the deployment of storage facilities and flexibility solutions.

2. In the sector of transport, promote the deployment of electric vehicle charging infrastructures by simplifying administrative procedures, optimise grid connection time-to-market, ensure that grid infrastructure can handle increased capacity and flow, improve collaboration between all e-mobility ecosystem stakeholders, foster interoperability (any vehicle, any contract, any payment mechanism) across charger networks, and promote innovative financial schemes for public urban mobility (e-Buses).

3. In the industrial sector, leverage legal frameworks such as ETS (free allowances) to support the technological shift of industry towards greener technologies (i.e. green hydrogen), by reinforcing free carbon allowance schemes for greener solutions, creating national Tech Transfer Labs for direct and indirect electrification technologies, and favouring demand-response by providing adequate financial mechanisms.

4. in the sector of buildings, define the phasing-out of fossil fuel boilers in heating, level tax on heat pumps by moving beyond yearly renewal, optimise implementation procedures, with financial schemes inspired by European Union good practices, increase citizens’ energy efficiency awareness through the introduction of a “Household Maintenance Leaflet”, and create one-stop shops where citizens can be guided through the renovation process.