The Economic Case for Decarbonising Niš
In this article, we share highlights from analysing the economic value-case for decarbonising the city of Niš in Serbia.
The highlights are:
- Niš could double current ambitions and greenhouse gas emission reductions by 2030 (from 48% to 94% of modelled sectors, or 25% to 50% of total emissions)
- Doubling ambition also roughly doubles the required capital investment by 2030, from €650 million to €1320 million
- Both pathways have a positive return on investment of over 200%. Greater climate action equates to a much healthier and energy-secure city. The sooner radical action is taken the better.
- While this shows that there is significant social value on offer, business-as-usual won’t deliver it. A new strategic approach will be essential to solve the disconnects between who is currently expected to invest and where the benefits lie.
Background
The Thriving Communities initiative helps communities to create radical enough change to thrive in the 21st century.
One critical enabler of radical change will be communities investing financial capital at a much greater speed and scale than they have managed before, and in ways that much better distribute the returns.
We help communities to create Transformative Investment models that can make this possible. A key step in this work is developing an economic case for the change a community wants to achieve. This helps us to see and communicate the scale of investment really needed and the economic value of these investments. Here, we have focussed on the economic case for the mission of achieving climate-neutrality in Niš by 2030.
This work is connected to similar analysis done for the city of Skopje, Slovenia on a national scale and other cities across Europe.
Scope of Analysis
For this analysis we targeted a net-zero pathway for Niš by modelling a scenario covering the following sectors:
- Transportation: electrification of passenger cars, buses, and local freight; reduced passenger transport demand and increased car pooling; mode shifts to public and non-motorised transport; and optimised logistics.
- Buildings and heating: highly energy efficient new buildings; building envelope, lighting and appliance retrofitting; replacement of wood burning and fossil fuels in local heating; replacing fossil fuels in district heating.
- Electricity: utility-scale solar and wind generation, rooftop solar installations and enabling storage and grid infrastructure.
- Waste: increased waste sorting and recycling; increased centralised incineration with energy recovery.
The chart below shows that these sectors cover just over half of total (2018) greenhouse gas emissions in Niš.
Two pathway scenarios were then assessed:
- Decarbonisation Niš — based on the ‘most ambitious’ measures defined in the current Niš Decarbonisation Strategy
- Net Zero Niš — based on one possible pathway to reduce emissions to close to zero in the modelled sectors by 2030.
Key Findings
The figure below shows that by 2030 the current ‘Decarbonisation Niš’ plans could deliver a 48% reduction in greenhouse gas emissions across the modelled sectors (25% of total emissions) , along with a 45% reduction in the health costs of air pollution and 29% energy cost savings.
Then the Net Zero Niš pathway could essentially double this to a 94% reduction in greenhouse gas emissions from these sectors (50% of total emissions), 82% reduction in the health costs and 77% energy cost savings.
Of course, to achieve these greater savings, a faster and larger investment is needed. The total capital investment needed for the planned Decarbonisation Niš pathway is already €650 million, which goes up to €1320 million to achieve the Net Zero Niš pathway.
The charts above show that the returns on this investment are over 200% in both scenarios. Radical climate action in Niš is not a cost — it would be a significant investment with excellent returns.
The overall economic case is already profitable when only considering direct energy cost savings, which make up about half of the returns (dark green in the chart above). The benefits are doubled when we consider reduced health costs, which of course equals better health for the people of Niš (light green above). There are also other important economic benefits. The Net Zero Niš pathway is projected to create nearly 7,000 job-years of new employment.
While the Net Zero Niš pathway will no doubt be harder to achieve in a short amount of time, we should remember that the larger upside comes from reducing current costs. Why should the citizens of Niš wait longer for better health and cheaper energy services? Especially given the global urgency for rapid climate action and the insecurity that so clearly comes with a dependency on fossil fuels .
Insights for Action
While this analysis shows a clearly positive overall economic case for decarbonising Niš, real action is not yet aligned with this pathway, though the Niš Decarbonisation Strategy is a strong step in the right direction. Some further parts of the economic case analysis help to show us why.
When we arrange the analysis by action-areas into the above abatement cost curve, we see that many actions have clearly positive economics (they are below the line in the graph). Even with only energy savings considered, as is shown here. However, many are marginal or slightly negative. Adding health benefits moves most actions into the economic side, but the reality is that these social benefits are still not monetised in today’s economy.
The graph below then shows how the total costs and benefits do not accrue evenly across different actors in the community. This makes the problem worse again. Some actors would have to pay more than they gain directly in the current system.
These pictures show how the overall positive social value case for decarbonisation, and better health, is disconnected from the decision making of specific actors considering specific project business cases in today’s economy. This is a key reason why so much needed action is not happening, and won’t happen without doing things differently.
A mission-led approach demands that we find ways to get all of these things done.
Conclusions
This initial economic case analysis for decarbonising the city of Niš shows that:
- Niš could double current ambitions and greenhouse gas emission reductions by 2030 (from 48% to 94% of modelled sectors, or 25% to 50% of total emissions)
- Doubling ambition also roughly doubles the required capital investment by 2030, from €650 million to €1320 million
- Both pathways have a positive return on investment of over 200%. Greater climate action equates to a much healthier and energy-secure city. The sooner radical action is taken the better.
- While this shows that there is significant social value on offer, business-as-usual won’t deliver it. A new strategic approach will be essential to solve the disconnects between who is currently expected to invest and where the benefits lie.
While extending this analysis would be beneficial — especially testing other pathway scenarios and including more sectors, we believe that this economic case analysis provides the Niš community with valuable insights to help guide a strategic approach to their 2030 climate-neutrality mission.
Thanks to the team from Material Economics for this analysis.
Please contact Tim Taylor tim@korimako.org for more information
This study was made possible thanks to support from EIT Climate-KIC through the Future Cities of SE Europe Project.
