Europe’s aim to become world’s first climate neutral continent is a step closer thanks to Ricardo economic modelling expertise

The European Commission has recommended a 90% reduction in greenhouse gas emissions by 2040, compared to 1990 levels as part of its stated aim to become the world’s first climate-neutral continent.  

The recommendation was shaped by a detailed impact assessment on possible pathways to reach the agreed goal of climate neutrality. In proposing a greenhouse gas target by 2040 which spans both the European Union and its economy, the impact assessment examines three alternative scenarios based on economic modelling, all achieving the climate-neutrality goal by 2050. Ricardo modelling and policy analysis experts contributed to the 2040 climate target impact assessment facilitated by PRIMES (Price-Induced Market Equilibrium System): their large scale applied energy system model that provides detailed projections of energy demand, supply, prices and investment to the future, covering the entire energy system including emissions from energy combustion and industrial processes. PRIMES combines behavioural modelling (following a micro-economic foundation) with engineering aspects, covering all energy sectors and markets.

Explaining the importance of the announcement and Ricardo’s contribution to it, Dr Maria Kannavou, Ricardo’s Director - Εnergy systems modelling said: “We are proud to have contributed to preparing the 2040 climate target impact assessment through our modelling and policy analysis work. This achievement is the result of our collective team effort and required extensive coordination and collaboration across many colleagues and teams to achieve this milestone.” 

“The modelling and policy analysis that we undertook was essential to defining and examining the three alternative scenarios in the impact assessment – all based on economic modelling - which all achieving the climate-neutrality goal by 2050. Each scenario differs in the pace of the transition, the level of greenhouse gas emissions (GHG) reduction in 2040 and the contribution of sectors and technologies in reducing emissions. An additional scenario complements the analysis by examining the impacts of societal trends and lifestyle behaviours, such as the circular economy, changes in the food system, and consumer preferences in mobility, on the future evolution of GHG emissions.” 

“Our modelling and analytics service has supported policymakers continuously for more than 25 years. It has been involved in all significant climate and energy initiatives, such as the European Commission's proposal for the Long-term Strategy, the 2030 Climate Target Plan, the EU 2020 Reference scenario, the "Fit for 55" policy package and the REPowerEU policy framework. Our advanced modelling tool, PRIMES, together with GAINS and GLOBIOM by IIASA and CAPRI by Eurocare, has been used to quantify the alternative scenarios serving the impact assessment studies by European Commission experts.” 

There are two key reasons why setting a 2040 climate target is important. First, it will help European industry, investors, citizens and governments to make decisions in this decade that will keep the EU on track to meet its climate neutrality objective in 2050. This sends important signals on how to invest and plan effectively for the longer term, minimising the risks of stranded assets. With this forward-planning, it is possible to shape a prosperous, competitive and fair society, to decarbonise EU industry and energy systems, and to ensure that Europe is a prime destination for investment, with stable future-proof jobs.

Secondly, it will boost Europe's resilience against future crises, and notably strengthen the EU's energy independence from fossil fuel imports, which accounted for over 4% of GDP in 2022 as we faced the consequences of Russia's war of aggression against Ukraine. The costs and human impacts of climate change are increasingly large, and visible. In the last five years alone, climate-related economic damage in Europe is estimated at €170 billion euros. The Commission's impact assessment finds that, even by conservative estimates, higher global warming as a result of inaction could lower the EU's GDP by about 7% by the end of the century.

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