Analysis of cost differences between a fossil-free and CO2-neutral Netherlands in 2050
On December 12, 2015, an international climate treaty was concluded at the Conference of the Parties (COP21) in Paris: the Paris Climate Agreement. With that treaty, 195 countries agreed to limit global warming to well below two degrees Celsius, with efforts aimed at one and a half degrees. Although energy and climate policies were being implemented by many countries even before that, the energy transition gained momentum after the treaty was signed.
When making climate policies, it is crucial to keep in mind the end goal of these policies – limiting global temperature rise. Indeed, many policies are currently driven by alternative or indirect goals that do not necessarily promote efficiency and effectiveness toward meeting the actual goal. One of the trade-offs that can have a major impact on the level of investment for meeting those goals is the choice of whether to eliminate fossil fuels entirely, or whether to focus primarily on making the energy mix emission-neutral (usually summarized as reducing greenhouse gas emissions, often referred to as CO2 equivalent.
In Europe, climate targets have been set by the European Commission (EC). These targets must be met proportionately by individual member states. Each member state therefore also has national policies that, aided by the frameworks set from Europe, must ensure sufficient and timely reduction of CO2 emissions. The energy transition is therefore also an economic challenge. After all, you are replacing a highly efficient, and therefore cheap, energy mix for another, often less reliable and/or more expensive mix with a higher space requirement. Therefore, the goal is to achieve the transition to an economy with no emissions toward the atmosphere and at the lowest possible cost. How high these costs will be depends on policy choices that may or may not exclude certain technologies.
There is no time for pickiness, but…
The Netherlands seems to be leading the way in setting even more ambitious climate goals than already prescribed by the EC. Looking at cost effectiveness, the question can be asked to what extent it is desirable to be (too) far ahead of the rest of the world. There is also another consideration to be made, namely that of technology choices.
The Netherlands Environmental Assessment Agency (PBL) showed in a recent study that delaying or ruling out options in advance will make climate neutrality in the Netherlands in 2050 almost or even completely impossible. The luxury of choosing between energy sources and technologies is no longer available, according to PBL. This seems at odds with the recent citizen initiative, introduced by Triodos Bank and a broad group of organizations and companies. This initiative is precisely committed to an international treaty that completely stops the use of coal, oil and gas. It is true that climate goals can also be achieved by excluding certain technologies or energy sources. But that would be at the expense of the affordability and/or reliability of the energy system. In addition, part of the CO2 emissions will be moved outside Europe. Something that is good for achieving our own goals, but rather counterproductive for combating global climate change – and thus the ultimate goal.
In this report, compiled by PZ Energy Research & Strategy and Quo Mare, we compare two scenarios for the transition to an energy system in 2050 that fits within the set goals. We then highlight the differences. Two transformation scenarios are presented: the Net-Zero – or CO2-neutral – scenario and the fossil-free scenario. In the fossil-free scenario, coal, oil and gas will no longer be used at all and only emissions from the agricultural sector need to be offset. In a carbon-neutral society, CO2 emissions from the extraction, transportation, conversion and consumption of these fossil energy sources can be offset with negative emissions, or captured through Carbon Capture and Storage (CCS).
Depending on policy choices, there could be large cost differences between the different scenarios. Scenarios that both result in achieving the ultimate goal: ending greenhouse gas emissions toward the atmosphere by 2050 in order to limit global temperature rise to no more than two degrees Celsius, and as close as possible toward one and a half degrees.
The model calculation underlying this report assumes only direct costs and revenues. This excludes from this quantitative analysis any indirect costs and revenues associated with a particular energy system. If these were to be considered, the annual cost differences between the scenarios would increase even further.