Spain can achieve net zero emissions by 2050 by leveraging the country’s natural endowments and new technologies to unlock sustainable and inclusive growth.
In a world that is accelerating efforts to combat climate change and amid growing economic and geopolitical uncertainty, Spain could play a stellar role. The country’s wealth of natural resources, infrastructure development and deep technical capabilities make it ideally positioned to lead a green transition.
The analysis, conducted by McKinsey Sustainability, has identified five key characteristics for this transition:
- It is urgent, given the potential physical risks associated with rising temperatures.
- It is possible, as our zero net emissions scenario suggests.
- It is significant in its scale and scope.
- It will be technology-driven, as the development and deployment of new low-carbon technologies will be the key elements of the transition.
- And it will be rich in opportunities. The reason is that Spain can leverage its natural endowments and technical capabilities to lead Europe in the transition and create substantial socio-economic impact along the way.
The urgency for Spain to redouble its efforts is not trivial. In a scenario in which global temperatures reach 2°C above pre-industrial levels, parts of the southern region of the country would see more than 45 days a year in which the maximum daily temperature exceeds 37°C.
Several areas would face the possibility of more than six months of drought per year, resulting in a potential 25% decrease in water availability in critical watersheds. In addition, there would be detrimental impacts on yields of four critical crops – grapes, olives, tomatoes and wheat – which together account for 40% of Spain’s gross agricultural production value.
The tourism sector would also be severely affected, as scorching temperatures would deter tourists from visiting the country during the summer season.
Target to reduce greenhouse gas emissions
As a member of the European Union, Spain is committed to meeting the goals of the trading bloc’s climate agenda.
The European Union has set a target of reducing greenhouse gas emissions by 55% by 2030 compared to 1990 levels, with demanding timetables for different industries. The proposals reflect the objectives of the European Climate Act and affect areas such as renewable energy, energy efficiency and the EU Emissions Trading Scheme (ETS).
The Russian invasion of Ukraine and the resulting impact on energy prices have led Europe to redouble these proposals, as announced in the REPowerEU plan. The Spanish regulatory agenda builds on many Spanish and EU initiatives, for example through the National Integrated Energy and Climate Plan (PNIE)2 , which sets an ambitious 31% emissions reduction target between 2019 and 2030. This will help Spain catch up with the rest of the European Union, which has reduced its net emissions by approximately 28% since 1990, while Spain’s net emissions have grown by 9% over the same period.
Although Spain’s emissions have been declining over the past 15 years, since 2013 the rate of decline has slowed to approximately 2 MtCO2e per year.3 This rate needs to be four times faster if Spain is to reach its decarbonization targets by 2030, and five times faster thereafter to reach net zero by 2050. On this basis, this paper considers two scenarios. The first is based on current policies, while the second proposes a faster green transition. The second, the net zero scenario, proposes an ambitious pathway focused on accelerating Spain’s reduction efforts. It would entail reducing emissions by 46% by 2030 (starting in 2019) – equivalent to reducing about 130 MtCO2e – and reaching net zero emissions in 2045 and net negative emissions in 2050. This compares to a 33% reduction by 2030 and 85% by 2050 in the “current policies” scenario.
Innovation and investment to achieve “Net-zero” goals
In the net-zero emissions scenario, Spain would become a regional leader and a clean energy hub. However, achieving that goal will require significant capital investment. The net-zero scenario will require capital expenditure of €2.5 trillion for green technologies and processes between now and 2050. This equates to an average of 85 billion euros per year, or around 6.2% of Spanish GDP. The main areas of expenditure will be transport, energy and buildings. Investment in this scenario would support 1.1 million jobs per year on average over the 30-year period.
The most interesting innovations will be in three areas: electrification, green hydrogen and biofuels. Spain has a track record of leadership in renewable energy. With more than 28 GW, it has the second largest installed wind generation capacity in Europe, after Germany. Together with enviable solar resources, it can produce renewable energy at a lower cost than other European economies and continue the rapid pace of decarbonization shown by its electricity sector over the past 15 years.
This, in turn, means it could become one of the most competitive producers of green hydrogen, which is needed for deep decarbonization in sectors that are difficult to electrify or downsize. Biofuels would also be a key technology for Spain’s decarbonization journey, serving as a transition technology in multiple use cases.
An orderly and productive transition
Some sectors are more difficult to reduce than others, and others are more urgent due to their high emissions intensity. The transport and industry sectors in Spain together account for more than 55% of the country’s emissions and are therefore key areas for achieving net zero emissions.
Regulation alone will not be enough to advance the change agenda in Spain. Instead, Spanish society needs to act collaboratively. And the next decade will be critical: more than €700 billion would need to be invested in green technologies between now and 2030 to accelerate the pace of decarbonization in line with our net zero scenario.
We put forward nine key elements that would bring about an orderly and productive transition, such as technological innovation, scaling up supply chains and supporting infrastructure, and natural resources. We also envision three economic and social adjustments to the transition: putting in place effective capital allocation and financing structures, managing demand shifts and unit cost increases, and addressing socioeconomic impacts.
Finally, progress will require enabling mechanisms that include market rules and protocols, public-private collaboration, and consumer support. Through these combined efforts, Spain can overcome barriers to decarbonization, make the transition faster than its peers, and become a major player in Europe’s green transition.
Source: McKinsey Sustainability (2022)