A country-specific transition roadmap is a tool to support timely, transparent and effective energy transition. It provides a long-term, cross-sectoral vision, comprising clear imperatives, goals and major milestones for the energy transition in a given country. Such a roadmap allows the establishment of the required enablers as outlined in the framework for effective energy transition, including integrated policy frameworks, stable policies and certainty for investors and consumers.
Developing an energy transition roadmap requires a systemic approach that considers all stakeholders, regional specificities and decision timing, and anticipates unintended consequences. If developed thoroughly, it provides several benefits for all stakeholders. These derive from a common understanding of the imperatives of the energy transition, transparency on timing, the extent of the expected changes, clarity on how to measure progress, prioritization of the most effective improvement initiatives, and increased predictability from consistent, yet agile policy frameworks. It is important that an energy transition roadmap, while defining a long-term vision and targets, maintain the flexibility to capture the full potential from innovation and fast-moving technologies.
Formulating a country transition strategy that enables economic growth is not straightforward. Several elements need to be taken into account, including:
- The impact on energy affordability, security and sustainability for different stakeholder groups
- The supply and demand of different energy sources
- The regional integration of energy infrastructures
- Capital requirements and cost allocation
- The (regional) impact on existing jobs
- Workforce requirements for potential new industries and the application of new technologies
- The impact on economic value added for existing businesses
- Timing implications and lead times for introducing new technologies
- New policies, regulatory and market design considerations
- Local, national and regional political constraints
Work conducted by McKinsey in the Netherlands, 81 a country with significant improvement potential in environmental sustainability, identified three specific considerations that other governments should keep in mind (see the Netherlands case example below):
- Use optimizing long-term value for the country as the main criterion for the transition roadmap
- When tackling decarbonization, develop specific plans per demand sector; a fact-based plan translates long-term goals into clear short- and medium-term decisions and targets
- Establish incentives, including tax policies, that consider the longer-term challenge ahead; remain agile to encourage citizens and major energy consumers to participate in the energy market overhaul
Case example: Netherlands
Even without abundant natural resources, it is possible to build a high-performing energy system. However, countries with top scores in the ETI still face major challenges. The major focus of McKinsey’s work in the Netherlands lay on reducing carbon emissions while maintaining, and further improving, the contribution of the current energy system to economic development and growth as well as secure access to energy.
According to the International Energy Agency (IEA)’s report on CO2 Emissions from Fuel Consumption, a limited number of cases exist where industrialized countries maintained high standards of living while reducing per capita and per GDP emissions. However, transforming the Dutch energy system to greatly reduce emissions will require significant investment. A crucial question for policy-makers and business leaders is whether there is a way to minimize investment and increase economic benefits through increased efficiency and the creation of new (export) sectors.
The study found that an accelerated but flexible approach to reducing greenhouse gas emissions will yield value in terms of GDP and employment. It was estimated that investing €10 billion per year between 2020 and 2040 in a low-carbon energy system (equivalent to 3% of GDP) would generate a positive GDP impact and potentially create tens of thousands of jobs in the long run, with a minimum of 45,000 installation jobs in the near term.
Positive growth was deemed possible through four main investment themes:
- Creating nationwide economies of scale through large-scale, planned programmes for technologies that would benefit from central rollout. Attractive areas could include improving building insulation, expanding renewable energy supply and electric-vehicle charging
- Avoiding investment in less efficient equipment that may need to be replaced with low- or zero-carbon equipment before reaching its economical or technical end-of-life in order to meet targets; leapfrogging to low-carbon or carbon-neutral technologies
- Attracting and stimulating new economic activity in target sectors, increasing investment in those sectors and developing capabilities to competitively differentiate the Netherlands on a global level
- Transforming adjacent economic sectors: an accelerated energy transition could spur more investment and innovation in supporting fields; this will require changes in technology, business models and financing, and could make the economy more competitive as a whole
The study estimates that investment and spending on goods and services required for the energy transition will generate GDP growth of 2% in the short to medium term. Over time, this direct effect will slowly fade but, in the longer term, further upsides can be created. For example, a shift in economic activity away from sectors with lower economic multipliers (like large plants) towards sectors with higher economic and employment multipliers (like construction) will provide a further net boost to GDP. The Netherlands’ trade balance could be affected positively as the country will need to import less fossil fuel. The biggest and longest-lasting economic benefits are likely to come from investment in sectors that may generate substantial economic growth and jobs.