Clean energy can account for as much as 75% of energy supply across Emerging Europe and Central Asia by 2060, up from just 9% today, says the World Bank's inaugural "Net Zero Energy by 2060" report released on February 22. 

Decarbonising the energy system in Europe and Central Asia (ECA) — broadly referring to Central, Eastern and Southeast Europe, the former Soviet Union and Turkey — presents a formidable challenge, given the high dependence on coal and other fossil fuels in a number of countries, yet the World Bank outlines feasible pathways for achieving net zero emissions by 2060.

The report is the first in the World Bank’s new energy transition series, intended to help governments in the region prioritise policies and investments vital for shifting away from fossil fuels by 2060, which is imperative for keeping the global temperature rise below 2°C.

“This report is being released at a particularly alarming moment following the biggest supply shock ever experienced in gas markets, and an increasing rise in global temperatures, which has exceeded 1.5°C compared to historical averages for an entire year,” said Charles Cormier, World Bank regional director for Infrastructure in Europe and Central Asia. 

The authors explored decarbonisation pathways for ECA, incorporating data on the region's energy system and insights from the World Bank. 

“Our analysis provides countries in the Europe and Central Asia region with least-cost pathways towards fulfilling global commitments made at COP28. Our modeling shows that the region can increase its share of clean energy from 9% to 75% by 2060. This will only be possible with binding national commitments, targeted measures and investments,” said Cormier. 

The reference scenario shows rising emissions, serving as a benchmark for additional investments and policies needed beyond existing economic drivers.

The Net Zero 2060 scenario aims for carbon neutrality by 2060, requiring net-zero status for power systems by 2040, commercial buildings by 2050, and residential buildings by 2055. Industries and transportation rely on carbon removal technologies.

However, current efforts and plans fall short. The partial decarbonisation scenario based on current ambitions achieves only 65% decarbonisation in ECA by 2050 and 73% by 2060, missing the 1.5°C target and risking stranded assets and higher pollution costs.

Markets in turmoil 

The report focuses on the events that have roiled global energy markets since February 2022. The drop in Russian gas flows to Europe, marking the largest supply shock in the history of global gas markets, served as a stark wake-up call for the region. With Europe's high reliance on imported natural gas and chronic under-investments in infrastructure, the goal to reestablish energy security became a priority. Chronicling the energy crises that overwhelmed the region during the harsh winter of 2022-23, the report notes the vulnerabilities inherent in the region's energy systems.

The report also highlights a crucial finding: while gas consumption in the region may have peaked and could decline to 16% of the primary energy supply by 2060, concerns linger over the reliance on other fossil fuels, particularly coal. 

The power sector will be a key battleground for carbon neutrality, starting with the coal phase-down. Leveraging gas with carbon capture and storage (CCS) and bioenergy with CCS could provide dispatchable power system flexibility, particularly in regions abundant in these resources.

Although some countries have set national net zero targets, others lag behind. Nine ECA countries have already established net zero economy targets; five of them (Armenia, Bulgaria, Croatia, the Kyrgyz Republic and Romania) have chosen a 2050 target for achieving a net zero economy. Turkey aims to reach the goal by 2053. Kazakhstan, Russia and Ukraine have set a more distant target of 2060.

Net zero by 2060? 

The World Bank suggests that reaching net zero emissions by 2060 is possible with the right commitments and investments. While the transition requires substantial investment—estimated at €4.2 trillion — the potential benefits are immense. However, the report warns against the pervasive and poorly targeted subsidies that stall progress and stresses the need for binding national commitments and targeted investments.

"Our analysis delineates the least-cost pathways for ECA nations to meet global commitments," noted Stephanie Gil, practice manager for Europe and Central Asia in the World Bank’s Energy and Extractives Global Practice. "By scaling up clean energy from 9% to 75% by 2060, the region can make substantial strides towards sustainability."

"The region's transition to 75% clean energy by 2060 necessitates binding national commitments and strategic investments," said Cormier. "However, realising this vision demands concerted action and robust policy frameworks."

Despite the outlined pathways, uncertainties loom over the energy transition in ECA. The report underscores the importance of addressing implicit subsidies, enhancing power system flexibility, and promoting demand response mechanisms.

The transition to renewable energy must also prioritise inclusivity and equity, ensuring that communities benefit from the shift. While fossil fuel subsidies distort markets and hinder progress, removing them poses political challenges. However, investments in installation, operation and maintenance of clean energy technologies can stimulate job creation and economic diversification, mitigating the impact of expected declines in fossil fuel revenues.

Coal phase-out ahead 

Coal stands out as the chief contributor to fossil fuel emissions in the region, making up 42% of all emissions in ECA (excluding Russia). It dominates the energy mix in numerous countries including Bosnia, Bulgaria, Kazakhstan, Kosovo, Poland, Serbia and Ukraine. Fossil fuel producers and exporters like Russia, Kazakhstan and Azerbaijan are largely self-sufficient in terms of fossil fuel usage. Many ECA countries (Kazakhstan, Kosovo, Montenegro, Poland, Russia and Tajikistan) rely entirely on their own coal, a phenomenon more widespread than self-sufficiency in oil or natural gas. Without intervention, coal is poised to provide 25-30% of the region’s energy for decades.

However, in the outlined least-cost regional decarbonisation pathway, 90% of existing coal capacities across 21 ECA countries have to be phased out by 2030, retiring 31GW of coal assets early, ahead of their average 40-year useful life. Swiftly reducing coal use is crucial for ECA to realise decarbonisation goals and is the most effective strategy for meeting climate objectives, the report says. 

“Without a swift phasing down of coal use, ECA will not be able to decarbonise. Phasing down coal is the most effective way to reach climate objectives. It also reduces the economic costs of pollution, which typically outweigh the costs of stranded assets,” the report notes.

Meanwhile, coal subsidies present a challenge, undermining energy security and impeding decarbonisation efforts. High subsidies are problematic for Ukraine, Central Asia and areas where natural gas is a primary energy source. Reforming those demands meticulous planning and a safety net to shield vulnerable populations, the report says. It points to energy efficiency investments as a way to offset the impact of subsidy removal on prices, while also improving heating comfort levels and curbing underheating, prevalent in the Western Balkans and Central Asia.

Under the Net Zero 2060 scenario, the transition away from coal is anticipated to be nearly complete by 2040, as renewable and clean energy sources such as solar, wind, hydro, bioenergy and nuclear become cost-effective. By 2030, solar energy use is projected to surge fivefold, wind energy use will nearly double, nuclear energy is set to double by 2035, and bioenergy use by 2050, going off the beaten path of coal-dependency.

Gas the energy system backbone

Gas is the backbone of the region's energy system, with 46% of primary energy supply in ECA overall (34% excluding Russia). Gas's dominance is particularly pronounced when compared to its European counterparts, with its share in ECA's energy mix double that of the EU's 24%. Projections in the report suggest this trend will persist for at least another two decades, with gas expected to be utilised for balancing purposes in power and as a feedstock in industries, even amidst ambitious decarbonisation goals aiming towards net-zero emissions by 2060.

The shockwaves of the 2022 reduction in pipeline gas flows to Europe rang out across the region. Russia's state-controlled export giant Gazprom saw its gas deliveries to the European Union plummet from 140bn cubic metres (bcm) in 2021 to a mere 20-25 bcm in 2023. 

Russia's quest for alternative export outlets becomes crucial in the wake of dwindling European demand. The energy appetite of China emerges as a lucrative opportunity, with the Power of Siberia pipeline serving as a route for Russian gas deliveries. However, the Power of Siberia pipeline, which links Russia's Eastern Siberian fields with northeast China, lacks connectivity to the infrastructure previously supplying gas to Europe. This limitation prevents the redirection of gas exports from Europe to China through this route. The development schedules of Eastern Siberia's Chayandinskoye and Kovyktinskoye fields also constrain Russian exports to China. Despite this, deliveries via the Power of Siberia line exceeded expectations, with Gazprom delivering nearly 23bcm of gas to China in 2023, expecting full capacity of 38bcm by 2025.

Other proposed export outlets face disconnection from Western producing fields or lengthy approval processes. For instance, the Far Eastern route, set to begin deliveries from Sakhalin to Northeast China around 2026. The proposed Power of Siberia 2 line offers a potential solution by connecting Russia's legacy infrastructure with the Chinese market, albeit not before the end of the decade. Alternatively, Russia may temporarily redirect gas to Central Asia via existing infrastructure as part of a proposed "tripartite gas union" with Uzbekistan and Kazakhstan. Initially rejected, the proposal gained traction post-crisis, with cooperation roadmaps and short-term contracts signed. 

Amidst the turbulent energy landscape, Russian gas continues its steady flow into Turkey. But Turkey’s energy future is undergoing a transformation. A whopping 14% drop in gas consumption in 2022 and the discovery of the Sakarya gas field are set to slash Turkey’s gas imports by billions of cubic metres. With domestic production on the rise and alternative energy sources gaining ground, Turkey's appetite for Russian gas is dwindling. There's still some room for growth, potentially reaching 30 bcm by 2025. But the space for Russian gas is set to shrink to a mere 23 bcm by 2030. So, while Russian gas once reigned supreme in Turkey’s energy scene, its reign is waning as Turkey charts a course towards energy self-sufficiency.

Vulnerable to supply shocks 

Another issue is that insufficient underground gas storage worsens supply shocks in some regions. The Western Balkans and EU4 countries (Bulgaria, Croatia, Poland and Romania) lack storage cover (12% and 19% respectively), relying heavily on neighbouring countries for gas during peak periods. Turkey and Central Asia face even lower storage cover (7% and 8% respectively), leading to gas shortages and blackouts.

Ukraine boasts vast underground storage capacity of over 30 bcm, ranking third globally. This surplus capacity, a legacy of its former transit role, could enhance energy security for Europe. Harmonising regulations with the EU since 2020 allows for easier gas storage by EU-based traders. During the 2020 gas glut, Ukrainian storage provided crucial overflow capacity for European importers before the winter heating season.

While European countries in the ECA region theoretically have sufficient supply and cross-border capacity to offset further losses of Russian gas, a complete shutdown of remaining Russian pipeline flows would strain infrastructure and require extensive coordination among neighbouring states. Eastern and Southeast Europe could face periodic shortages during harsh winters, despite adequate gas supply conditions.

The EU4 countries benefit from high gas interconnectivity and LNG access via Croatia, Poland, Greece and Turkey. Disputes over payment methods led to Russian gas cutoffs to Poland and Bulgaria in 2022. Romania's domestic production and cross-border connections provide alternatives, while Croatia's LNG terminal enhances supply security for itself and neighbouring countries.

Although gas demand is low in the Western Balkans, import dependence exceeds 80%, primarily from Russia. Alternative transit routes could replace over 90% of the region's gas imports through 2025 in a complete Russia-EU transit corridor shutdown. 

When it comes to Central Asia, in the immediate future, it faces a pressing challenge: balancing its gas supply amidst growing demand and static production. Options like forming a gas union with Russia or adjusting exports to China are on the table. Recent figures show a dip in exports to China, especially sharp in Kazakhstan and Uzbekistan, prompting winter delivery halts due to domestic shortages. Looking ahead, Kazakhstan has hinted at no gas deliveries to China next heating season, while Uzbekistan is eyeing a complete halt to gas exports by 2025. Discontinuation of Russian gas to Europe could also trigger localised supply crises, especially in the next few winters. However, natural gas remains vital in the region for decades. Its role extends to balancing power and industry, even amid a transition to net-zero emissions. 

Hence, the centrality of natural gas remains undisputed, albeit accompanied by a pressing need for strategic diversification.

Renewables and hydrogen

Renewable energy has been somewhat overlooked in the region, but hydropower stands out as a shining star, serving as the main electricity source in multiple countries. However, solar and wind energy are set to take the stage in a big way, with aims to boost their share to 53% of the region's energy mix by 2040 in the Net Zero 2060 scenario.

“Yet, as solar and wind energy reach around 20-25% of the power mix in certain areas, concerns arise over their reliability and variability. Barriers such as inconsistent policies, lack of binding targets, and lengthy permitting procedures hinder their widespread adoption. The region's Regulatory Indicators for Sustainable Energy (RISE25) score reflects this, sitting at a relatively low 47 in 2021 despite significant progress over the years,” the development bank warns. 

The report points out that transitioning to net-zero pathways with domestic low-carbon energy sources is not just environmentally friendly but also economically savvy. By 2060, Turkey could save a whopping $146bn and Uzbekistan $67bn in fossil fuel import bills. Fossil fuel imports not only strain trade balances but also expose countries to supply disruptions and price fluctuations, making reliance on domestic sources all the more appealing.

One aspect often overlooked is the availability of critical minerals. With demand set to skyrocket, ensuring stable supply chains for these minerals is crucial. While the ECA region has potential for critical minerals, further exploration and investment are needed to tap into this resource.

The expansion of renewable energy and energy efficiency could lead to a significant increase in job opportunities, according to the report. By 2040, employment in renewable energy generation in the ECA region could skyrocket from around 200,000 to over 900,000 job-years. Turkey is a standout example, with plans to become a major player in solar panel and wind turbine manufacturing.

But it's not all smooth sailing. Skill shortages and the need for vocational training pose challenges to the successful rollout of energy efficiency measures. 

When it comes to hydrogen, the region's journey towards clean hydrogen is just beginning, but it's clear we have a long way to go. With projects currently in the pipeline only accounting for a fraction of what's needed to hit net zero targets, there's a pressing need for acceleration. While Kazakhstan's Hyrasia One megaproject leads the charge, other regions are lagging behind.

"More than half of the region’s planned capacity (2 Mt) is attributable to a single megaproject in Kazakhstan," highlights the World Bank report.

Clean hydrogen the game-changer

Clean hydrogen is emerging as a game-changer, projected to make up 10-13% of final consumption by 2060, especially in hard-to-decarbonise sectors such as long-distance heavy-duty transport and the manufacturing of steel, cement and chemicals. These sectors lack scalable alternatives for decarbonisation, making hydrogen a crucial solution. In scenarios where long-distance heavy-duty road transport switches to electric, hydrogen only contributes to 10% of final consumption in the region. However, in regions like Russia, Belarus and Central Asia, clean hydrogen is also being adopted for power and heat generation.

But without subsidies, its economic viability remains a challenge, with green hydrogen taking the lead in the Net Zero 2060 pathway, the report suggests.

The World Bank is backing green hydrogen initiatives in the region already. Poland, teaming up with Polenergia, an energy developer, plans to launch a pilot project financed by the Bank. The project includes a 5MW electrolyzer and two hydrogen refueling stations, with the IFC providing €3.6mn in pre-investment support. 

Despite the promising outlook, the road ahead is tough. Current projects fall short of the mark, highlighting the need for urgent policy support to ramp up implementation. Clean hydrogen's role in hard-to-decarbonise sectors is crucial, making it a key player in achieving net zero targets.

The "Net Zero Energy by 2060" report initiates a series by the World Bank aimed at guiding the energy transition in Europe and Central Asia. Future reports are expected to delve into overcoming barriers to renewable energy scale-up and exploring economic benefits.