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An electric and renewable century?

An increasing number of European countries have set zero net emission targets and the ambition to rapidly lower greenhouse gas emissions is growing. Although there has been significant investor focus on the power and transport sectors, there has been very limited attention on how to decarbonise the residential and industrial sectors.

These sectors, predominantly through their use of fuels for heating, make up around a quarter of EU emissions. Heating will need to be decarbonised in order to hit European targets, necessitating either the electrification of heating, or a widespread switch from natural gas to green gases. The significance for the European utility sector and the oil and gas industry could be pronounced. 

How to decarbonise heating?

The UK, France, Spain and a number of smaller EU countries have set targets to achieve net zero emissions by 2050, with the EU Commission also proposing a zero net emissions target for 2050. In Europe, around half of energy use is for heating and cooling, with this contributing around a quarter of EU emissions. Natural gas is an important fuel and, while cleaner than other fossil fuels, it will still need to be substituted, or its emissions captured, in order for the increasingly ambitious targets to be met. Significant thought is starting to go into how to achieve this, although there are major challenges. Heating demand, and gas use, is highly seasonal. In the UK peak winter demand for gas can be up to 6x the peak demand for power. Fully electrifying heating would lead to much greater seasonality in power demand which may be difficult to deal with in a world expected to be increasingly reliant on intermittent renewables. Secondly, it is extremely difficult to electrify some industrial processes. These challenges are turning attention towards green gases, in particular hydrogen, in addition to a range of other technology options.

Increasing ambition from policymakers

There seems to be fresh policy momentum in Europe for policies to reduce greenhouse gas emissions. An increasing number of European countries have approved laws targeting carbon neutrality while a number of others target the introduction of such laws. The European Commission currently has an objective for 80-95% emission reductions by 2050 although in November 2018, published a proposal to target net zero GHG emissions by 2050. The EU also has a series of 2030 targets. Member states are required to submit National Climate and Energy Plans (NECPs) and long-term national strategies consistent with the NECPs by year end. The EU’s 2030 targets include the following main objectives:
At least 40% cuts in greenhouse gas emissions (from 1990 levels)
At least a 32% share for renewable energy
At least a 32.5% improvement in energy efficiency
At national level, the UK in June 2019 passed a law with a legal requirement to cut emissions to net zero by 2050. France also in June approved a law with goals for carbon neutrality by 2050. In February 2019 Spain published a draft law for carbon neutrality by 2050, although this has not yet been passed. Among the smaller European countries Sweden and Norway have laws in place taking effect in 2045 and 2030 respectively with governments in Denmark, Finland, Ireland, Portugal and Switzerland also targeting carbon neutral laws.
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