Hungary’s Goal of Carbon Neutrality May Be an Economic Blessing

Despite significant costs, achieving the climate target of zero emissions by 2050 may prove a competitive advantage for Hungary, according to a recent study by McKinsey. The analysis outlines a path that will have a clear positive impact not only on climate protection objectives, but also on economic growth, job creation, energy independence and Hungary's competitiveness.

Some of the most apparent results of climate change affecting the continent include prolonged heat waves, frequent droughts and heavy rains. Hungary, similarly to most other European nations, aims to reduce the emission of man-made greenhouse gases (GHG) that cause climate change in order to ward off the worsening effects of global warming—damage to infrastructure, loss of biodiversity, and problems with public health. The country passed a law in 2020 that requires carbon-emissions reductions of at least 40% by 2030 compared with 1990 levels and becoming carbon neutral by 2050.

Decreasing emissions
A McKinsey study entitled ‘Carbon-neutral Hungary' argues that Hungary needs to take decisive actions in seven distinct areas in order to achieve a 55 to 60% emissions reduction by 2030, and net-zero carbon emissions by 2050.
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% compounded annually 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 CO2e from 95 metric tons CO2e in 1990. At the same time, Hungary experienced an annual 1.7% increase in GDP, demonstrating the potential for achieving significant economic growth without an increase in carbon emissions.

Seven-sector pathway to net zero
Similarly to Europe, seven sectors account for all greenhouse-gas emissions in Hungary: 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 de-carbonization by 2050, each sector will need to harness new and existing technologies in a specific and sequential process.
The McKinsey analysis estimates Hungary will need capital expenditure investments of between EUR 150-200 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% rise in GDP; enhanced competitiveness of sectors representing about 30% 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% by 2050,” the authors of the study said.

Sectoral action
Industry accounts for 33% 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% reduction in emissions by 2030 with improvements to energy efficiency in heavy industries. In addition, 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.
In terms of transportation, which is the country’s second-largest source of carbon emissions, 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 at scale will make these 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 de-carbonization 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.
Reducing power-sector emissions, which account for 12% of emissions in Hungary, is central to the country’s ability to reach net zero. De-carbonization 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. McKinsey argues that Hungary should increase installed power capacity by a factor of about eight or nine to meet projected demand in 2050.
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.