28.06.21 The average household will barely notice the energy transition” Interview with Hauke Engel and Stefan Helmcke • Reading time: 3 min.

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New energy networks, the shift to a hydrogen economy, and structural upheaval in industry: the energy transition will bring massive changes to our lives. In its study “Net-Zero Europe,” McKinsey has investigated the cost of the transformation across the EU and identified the future winners and losers. In this interview, we talk to co-author Hauke Engel and his colleague Stefan Helmcke about the most important results.

The energy transition is a huge project. What makes it so complex?

Helmcke: It really is a task on an unprecedented scale and the most complex transformation that we in Europe have ever had to come to grips with. There are two main ways for us to achieve our climate targets: electrifying every area of our lives and storing CO2, which is known as carbon capture and storage or CCS. If we want to electrify the whole of Europe, we will need two to three times as much electricity as we are generating today, which means scaling up renewable energy production by a factor of six to eight. On the one hand, that represents a large amount of work and, on the other, it presents us with new challenges. In the past, we had a small number of large power plants, and their electricity generation could be planned. By contrast, the wind and the sun are much more erratic, which means that the output is difficult to predict. And in addition, in the future the small number of power plants will be replaced by hundreds of thousands of decentralized electricity generators, all of which will have to be managed.

Quote Stefan Helmcke

That sounds expensive. What is the energy transition likely to cost us in the EU?

Engel: We have calculated the figures for our “Net-Zero Europe” study. If the European Union chooses the cost-optimal pathway, we will be spending around 28 trillion euros between 2020 and 2050. But this is not all additional spending. The lion’s share of these investments would have had to be made anyway and will simply be diverted to other areas. For example, Europeans would have bought new cars in the future without the energy transition, but now those cars will have electric motors instead of combustion engines. According to our calculations, the average household will barely notice the energy transition. For example, electric cars are cheaper to run, but traveling by air will become slightly more expensive. The cost increases and reductions will pretty much balance each other out. High-income households will see costs rising, while lower- and middle-income households will benefit from small savings.

Quote Hauke Engel

Helmcke: But that is only true of the cost-optimal pathway for the transformation. If the European Union fails to meet its expansion targets, electricity will become significantly more expensive in the future, and this could be a problem in particular for low-income households.

Can the costs of the energy transition be reduced by EU-wide cooperation?

Engel: Yes, they can, because all the countries can pool their advantages. For example, the sun shines more often in the south, whereas the output from wind power is greater in the north. Together we can be much more efficient. Our calculations show that the CO2 avoidance costs can be reduced by around 15 euros per tonne of carbon dioxide.

Helmcke: But we should also be thinking outside the borders of the European Union and collaborating with Ukraine or North African countries, for example. We could use the existing gas infrastructure to transport green hydrogen efficiently over long distances.

Is the EU on the right pathway?
Engel: The targets that have been introduced are the right ones. But in reality, things do not look quite as good, and one example of this is the expansion of wind power in Germany. However, we are talking about a huge project: a massive increase in renewable energy generation, the electrification of the entire vehicle fleet and the development of a new hydrogen economy.

Helmcke: And there is another subject that is important in this context: CCS. Many processes, such as the production of cement, are almost impossible to decarbonize, which means that we need to consider storing carbon dioxide. Do we want to use CCS? And will it gain widespread acceptance in Germany in particular? These questions will have to be discussed and answered if we want to be realistic about achieving our goal of climate neutrality.

In your study you also mention eating meat. What changes do we need to make to our consumption habits?
Engel: The problem here is the high level of methane emissions. It would help to protect the climate if people ate less meat. But there are methods of reducing the methane output from meat production by putting additives in the animals’ feed. Artificial meat grown in the lab is another alternative.

Helmcke: In my view, the decisive factor here is transparency. All products should be labeled with their environmental impact so that consumers have the choice. Of course, regulatory measures can also be used to control meat consumption.

The energy transition is opening up new opportunities for businesses. What impact will it have on jobs in Europe?

Engel: In our study, we estimate that eleven million new jobs will have been created in Europe by 2050, while at the same time six million existing ones are likely to be lost, for example in the automotive industry. Electric cars are easier to manufacture than cars with combustion engines. But new jobs could also be created, for example in battery production, which would help to balance out the losses. The companies that will benefit from the energy transition include those in the wind and solar industries, but the construction industry and its suppliers, such as the manufacturers of heat pumps, should also be among the winners.

Helmcke: It is important not to forget that a whole range of new technologies will be needed for the energy transition. In a country like Germany with its many outstanding engineers, we could see new global players emerging in the future. But here too we are unfortunately lagging behind at the moment, as the example of Tesla shows.

What do you think everyday life will be like in 2050 after the energy transition has been successfully completed?

Engel: It will probably be hotter than it is today. Even if temperatures are well over 30 degrees Celsius, we may regard that as being one of the coolest summers of the decades to come. If we take the best pathway for the transformation, nothing much else will change, although mobility might be slightly different from how it is now.

Helmcke: I also believe that our lives in 2050 will only differ very subtly from the way they are today. But that will only be true if we change course quickly enough. Otherwise, we will see big cutbacks.


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