Prolonged heat waves, frequent droughts, heavy rains: these are just some of the effects that Hungary and the rest of the European Union are experiencing as a result of climate change. To ward off worsening effects of global warming—damage to infrastructure, loss of biodiversity, and problems with public health, among others—Hungary aims to reduce the man-made greenhouse gases (GHG) that cause climate change. To this end, Hungary passed a law in 2020 that requires carbon-emissions reductions of at least 40 percent by 2030 compared with 1990 levels and becoming carbon neutral by 2050.1
The actual process of decarbonization depends on the unique economic and social contexts of each EU country. Taking these factors into account, this report lays out the most efficient pathway by which Hungary can achieve a 55 to 60 percent emissions reduction by 2030, and net-zero carbon emissions by 2050. It identifies actions in each major economic sector, assesses the corresponding costs and benefits, and examines how the net-zero transition contributes to economic competitiveness and energy security.
Hungarian emissions in context
Among the 27 EU countries, Hungary is the fifth least-emitting country in per capita emissions, and the ninth largest emitter regarding emissions-to-GDP ratio.
Hungary’s CO2-equivalent (CO2e) emissions grew by 2.4 percent compounded annually (CAGR) in the 20th century, resulting in an almost tenfold increase. Emissions began to abate in the mid-1980s as Hungary transitioned from a centrally planned, heavy industrial export economy to a more market- and service-driven economy. By 2019, emissions dropped to 64 metric tons (MT)2 CO2e from 95 MT CO2e in 1990, leading to an average annual decrease of 1.4 percent in this period. At the same time, Hungary experienced an annual 1.7 percent increase in GDP, demonstrating the potential for achieving significant economic growth without an increase in carbon emissions (Exhibit 1).
Exhibit 1
Seven-sector pathway to net zero
In Hungary, as in Europe, seven sectors account for all greenhouse-gas emissions: power, industry, transportation, buildings, agriculture, waste, and land use and forestry (referred to collectively as LULUCF for land use, land-use change, and forestry). LULUCF are natural mechanisms to negate emissions. To achieve cost-optimal decarbonization by 2050, each sector will need to harness new and existing technologies in a specific and sequential process. Our report lays out this process, demonstrating that Hungary can reduce carbon emissions by 55 to 60 percent by 2030 and achieve net zero by 2050 in a cost-effective and beneficial manner (Exhibit 2).
Exhibit 2
To be sure, the road ahead will be both complex and expensive. Our analysis estimates Hungary will need capital expenditure investments of between €150 billion to €200 billion from now through 2050, with a quarter of investments expected until 2030.
The good news is that our research indicates that Hungary not only can achieve this ambition but it will also realize long-term economic benefits in the process. These include an annual 2 to 2.5 percent rise in GDP; enhanced competitiveness of sectors representing about 30 percent of the economy; lower recurring operating expenditures across the economy; and the creation of 80,000 to 100,000 new jobs. Furthermore, decarbonization can enhance Hungary’s energy security by growing the share of domestically produced primary energy from 27 to 76 percent by 2050.
The following are some of the highlights of Hungary’s optimal pathway forward, by sector.
Industry
Industry accounts for 33 percent of total carbon emissions, representing Hungary’s largest source of carbon emissions. This sector will be one of the most challenging to decarbonize due to its complexity. Most of the mechanisms needed to reduce industry emissions in Hungary are cost-prohibitive or unavailable at scale, and we expect this to be the case until the 2030s.
In the interim, industry could achieve a 30 percent reduction in emissions by 2030 with improvements to energy efficiency in heavy industries. And it could offset some hard-to-abate industrial emissions with carbon capture, utilization, and storage. Any residual emissions would be offset outside the sector, for example, in natural carbon sinks such as forests.
Transport
Hungary’s transportation sector is the country’s second-largest source of carbon emissions, at a total of 22 percent, with the majority coming from road transport.
The electrification of passenger transport and increased usage of Hungary’s already extensive public-transport network will significantly reduce emissions within the decade. Falling battery costs and acceleration in uptake of battery-electric vehicles (BEVs) at scale will make BEVs cost-competitive against traditional, internal combustion engine vehicles in the 2020s.
By the early 2030s, green hydrogen will become a competitive alternative in specific sectors of transportation, enabling the decarbonization of heavy-duty road transport. The key levers to accelerate the transition will be the successful buildup of EV charging infrastructure and targeted incentives for EV users.
Power
Reducing power-sector emissions, accounting for 12 percent of emissions in Hungary, is central to the country’s ability to reach net zero. Decarbonization itself will help to boost demand for electricity by 2.8 times by 2050, and the sector must meet this demand with carbon-neutral solutions. Our research indicates that Hungary should increase installed power capacity by a factor of about eight or nine to meet projected demand in 2050.3
Given the increasing maturity of solar- and wind-power generation technologies and Hungary’s significant potential, the power sector could immediately begin scaling up renewable-power capacity and fully abating emissions by the mid-2030s. In addition, Hungary could aim to become a net power exporter from the early 2040s. By 2050, solar and wind resources could represent over 85 percent of total installed capacity.
However, the rise of solar power requires a major increase in sources of flexibility. For example, gas turbines will remain part of the generation mix (with potentially new turbines and green hydrogen) but will need to be refitted with carbon capture technology; batteries and seasonal storage systems are needed to integrate renewable-energy sources into the power supply and accommodate their variability; and new interconnectors will be needed to facilitate increased cross-border power flows.
Buildings
Buildings contribute 15 percent to Hungary’s total carbon emissions. Space and water heating in detached family homes is by far the largest source of the buildings sector’s emissions. Our analysis indicates that Hungary could reduce buildings emissions by 34 percent by 2030, and by 99 percent by 2050.
Improving energy efficiency, rapid and widespread installation of heat pumps and electric stoves, replacement of gas boilers with hydrogen boilers, and converting to carbon-neutral district heating are the main measures needed for Hungary’s buildings sector to achieve net-zero emissions by 2050.
Agriculture
Agriculture comprises 14 percent of Hungary’s total carbon emissions. Three sources account for Hungary’s agriculture sector emissions: farm animals, crop production, and on-farm energy use. Despite being the most difficult sector to reach zero emissions, we expect the emissions to significantly decline in the 2030s.
Our analysis indicates that the agriculture subindustry could eliminate a quarter of animal-related emissions by 2050 through proactive measures such as feed changes and anaerobic manure digestion, in which waste undergoes microbial processes to generate biogas.
As in the transport sector, the declining costs of BEV and fuel-cell electric vehicles will drive the electrification of agriculture machinery throughout the 2030s. By the 2040s, 100 percent of Hungary’s agricultural machinery would be electrified, cutting 24 percent of the current emissions.
Waste
The waste sector contributes 4 percent to Hungary’s total GHG emissions. As wastewater treatment and discharge along with solid waste disposal are the main sources of sector emissions,4 Hungary could cut emissions from waste by improving waste management for wastewater as well as solid waste. To reduce wastewater emissions, methane-capture mechanisms could be installed in water-cleaning facilities.
Although the inherent nature of waste means that it cannot be eliminated, analyses indicate that by 2030, the share of industrial waste going to landfills in Hungary will fall to zero, while the share of municipal waste going to landfills could fall to 20 percent in 2030 and reach the zero-landfill target by 2050.
Negative emissions
To meet the goal of net zero by 2050, Hungary will need to go beyond measures that lower carbon emissions—it must take steps that result in negative emissions. There are two ways to produce negative emissions: nature- and technology-based solutions; both help to capture GHGs not directly at the point of emission.
Natural resources serve as a powerful antidote to man-made greenhouse gases. Hungary could enhance its natural carbon sink through reforestation, proactive forest management, and by restoring peatlands. These solutions would offset 8 percent of Hungary’s total carbon emissions, or about 6 MT CO2e.
Technology-based solutions that offset carbon emissions will also be necessary for Hungary to reach net zero by 2050. These include existing and scalable bioenergy with carbon capture and storage mechanisms, which are discussed in the full report, as well as emerging technologies such as direct air capture and storage, which Hungary could deploy by the late 2030s.
SOURCE: McKinsey
