DECARBONISATION FOR EUROPE 2050

The Oxford Institute for Energy Studies - Mar 19, 2025 - Decarbonisation in Europe: Modelling Economic Feasibility and the Glidepath for Gas

Executive Summary

Modelling multiple decarbonisation pathways for Europe to 2050 illuminates key trade-offs between emissions reduction, costs and the implications for gas demand over the period. The most ambitious scenario that front-loads decarbonisation to 2040 and achieves net zero by 2050 indicates prohibitively high marginal abatement costs, while a linear pathway to net zero reduces those costs sharply, achieving the second deepest reductions in gas demand over the period. Scenarios that do not achieve net zero emissions by 2050 reduce those costs further and keep a larger role for gas in the energy mix for longer.

The critical political context is the European Commission’s proposal for a 90% reduction in net greenhouse gas (GHG) emissions by 2040 compared to 1990, positioning it as an intermediate milestone towards achieving net zero by 2050. Initially proposed in February 2024, the formal legislative proposal to enshrine this target into EU law has been delayed, with publication expected in Spring 2025. However, achieving such deep decarbonisation comes at a significant cost, particularly in the absence of breakthrough technologies that require substantial public and private financial backing to be developed and deployed at scale and acceptable cost.

In the “Accelerated Path to Net Zero” scenario modelled here that broadly tracks the EC proposal, reducing net GHG emissions by at least 90% by 2040 results in prohibitively high marginal abatement costs (MAC), reaching €17,246/tCO₂e by 2040. In contrast, a more gradual “Linear Path to Net Zero” (55% reduction in 2030, 76% in 2040, and net zero in 2050) spreads costs more efficiently over time, with MAC at €420/tCO₂e in 2040 and €1,944/tCO₂e in 2050. Even this MAC of €1,944/tCO₂e remains very high, highlighting the substantial cost required to eliminate the last remaining emissions as low-cost mitigation options become exhausted.

However, it is crucial to recognise that the alternative – inaction or insufficient mitigation – also carries substantial societal costs1 associated with continued emissions, even though these costs are challenging to quantify precisely in practice. Our projections indicate significant uncertainty in societal cost estimates for 2050, ranging from approximately €236/tCO₂ to €3,938/tCO₂. Consequently, direct comparisons with marginal abatement costs become difficult; for instance, even the relatively lower MAC of €1,944/tCO₂e in the “Linear Path to Net Zero” scenario aligns with societal costs only under particular discount rates and growth assumptions.

Achieving significant decarbonisation at a lower cost is possible in scenarios that do not require net zero by 2050. The Baseline scenario achieves an 84% reduction in emissions by 2050 with a significantly lower carbon price of €318/tCO₂e, while the High Carbon Price scenario attains an 86% reduction at €445/tCO₂e. These figures highlight that a significant reduction in emissions can be accomplished at a fraction of the cost of full net zero, suggesting that pursuing net zero through purely domestic abatement measures leads to exponentially rising costs. Thus, integrating and linking international carbon markets and low-carbon energy imports, such as hydrogen, bioenergy, and synthetic fuels, could provide a more cost-effective alternative. A diversified decarbonisation strategy that leverages external low-carbon resources can mitigate the economic impact of stringent domestic emissions reductions.

In the five scenarios modelled here, the demand for gas in Europe (EU27, UK, Norway, and Switzerland) declines differently, responding to policies and market dynamics. In particular, in 2050, gas demand varies widely:

• Baseline scenario: 291 bcm (vs 407 bcm in 2023), reflecting a continued role for gas in non-net-zero decarbonisation (84% reduction in GHG emissions relative to 1990).
• High Carbon Price scenario: 250 bcm, with a slightly more aggressive reduction (86% reduction in GHG emissions relative to 1990) driven by high carbon costs but without politically mandated targets.
• Low Carbon Price scenario: 370 bcm, indicating a slower transition (68% reduction in GHG emissions relative to 1990) due to weaker carbon pricing incentives.
• Linear Path to Net Zero: 160 bcm, illustrating a decline in gas use driven by the political ambition of reaching net zero gradually from 2030.
• Accelerated Path to Net Zero: 141 bcm, showing the impact of the aspirational goal of front-loading reductions to an early period (90% by 2040) with the potential to lock into inferior abatement solutions.

Gas use in power generation falls post-2040, particularly in net-zero scenarios, as renewables with strong public support take over. However, gas remains a key feedstock for hydrogen production and industry across all pathways. In the Baseline and High Carbon Price scenarios, 50–60% of transformation gas is allocated to hydrogen production with CCS. In the Low Carbon Price scenario, gas remains dominant across multiple sectors, with lower low-carbon hydrogen uptake due to weaker carbon price incentives. In the Linear and Accelerated Path to Net Zero scenarios, gas use for hydrogen production eventually declines, reflecting the shift toward green hydrogen produced via electrolysis due to residual emissions from low-carbon hydrogen incompatible with policy targets of net zero emissions.
Final consumption sectors, including industry, buildings, and transport, experience a more gradual decline in gas usage due to high operational and capital investment costs of alternatives, especially in the medium term (by 2040). In all scenarios, switching costs in these sectors are relatively high without additional policy support. The Low Carbon Price scenario exhibits the slowest transition, with gas remaining prevalent in industrial and residential heating applications even by 2050.

Gas demand elasticity relative to carbon prices remains low, particularly before 2040. Even under high carbon prices of €445/tCO₂e in 2050, gas remains in power and industrial use, indicating that carbon pricing alone cannot drive progress toward net zero. Thus, complementary policies such as financial support for low-carbon energies and infrastructure and environmental performance standards are necessary to accelerate the transition, particularly in final consumption sectors where infrastructure lock-in and high switching costs remain significant barriers.

The modelling suggests that while gas demand declines across all scenarios, the extent and speed of reduction depend on policy stringency, public and financial support, availability of carbon capture, utilisation and storage (CCUS), and the pace of renewable and low-carbon hydrogen adoption. In deep decarbonisation pathways, gas transitions from a direct combustion fuel to a feedstock for hydrogen production, particularly in pathways where CCUS is feasible at lower costs.

The results and analysis suggest the following policy recommendations:

1. A phased approach to the energy transition minimises economic shocks, avoiding extreme price spikes and locking into inferior abatement measures. A gradual emissions reduction pathway reduces near-term costs and allows time for technological advancements.
2. Leverage international carbon markets and low-carbon energy imports. Incorporating external abatement solutions, such as linking to other international emissions trading and importing renewable, low-carbon hydrogen and bioenergy, can reduce the cost burden of domestic decarbonisation.
3. Develop hydrogen infrastructure as a bridge for reducing dependence on high emissions technologies. A well-structured transition to renewable and low-carbon hydrogen enables deeper decarbonisation while avoiding abrupt disruptions to energy supply.
4. Support innovation in renewables, CCUS, and synthetic fuels. Targeted R&D and financial incentives can mitigate abatement cost escalation and enhance technological readiness for large-scale deployment.
5. Complement carbon pricing with sector-specific policies. Electrification incentives, demand-side flexibility, and direct industrial decarbonisation measures are required to accelerate the transition.

In short, significant decarbonisation is achievable in Europe at a moderate cost. However, net zero requires substantial public and financial support and, crucially, technological advancements at a pace consistent with aspirational political goals. International abatement solutions and low-carbon imported fuels could provide a cost-effective alternative to achieving net zero climate goals without imposing excessive economic burdens. Policymakers must balance ambition and economic feasibility, ensuring long-term decarbonisation strategies reflect overall economic development conditions, the underlying costs of meeting those targets, and the technological pace.

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