The Economic Case for Decarbonising Skopje

In this article, we share highlights from analysing the economic value-case for decarbonising the city of Skopje in North Macedonia.

It is clear from this analysis that deep climate action equates to a much healthier and energy-secure city. The highlights are:

  1. An ambitious decarbonisation programme for Skopje could reduce total emissions by 50% by 2030 (97% in the sectors we modelled)
  2. A total capital investment of approximately €2300 million by 2030 is needed to make this happen.
  3. This is a great investment! The benefits in reduced health and energy costs far outweigh the required investments (by about 300%). So, this could equally be framed as a health and energy security programme, with decarbonisation as the bonus.
  4. This investment pathway is projected to create over around 15,000 job-years of new employment.
  5. While this analysis shows that there is significant social value on offer, business-as-usual clearly 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 overall 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 Skopje by 2030.

This work is connected to similar assessments done for the city of Niš, Slovenia on a national scale and other cities across Europe.

Scope of Analysis

For this analysis we targeted a net-zero pathway for Skopje 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 Skopje.

Share of Skopje 2018 GHG emissions covered by modelled sectors — Material Economics

A Net Zero Skopje scenario was then assessed based on one possible pathway to reduce emissions to close to zero in the modelled sectors by 2030. This scenario equated to emissions reductions of 97% in these sectors, which is about 50% of total Skopje emissions.

Key Findings

The figure below shows that by 2030 the Net Zero Skopje scenario would also deliver a 94% reduction in the health costs of air pollution from these sectors. So this could could equally be seen as a Clean Air Skopje initiative, with the added bonus of decarbonisation.

Health cost reductions for Net Zero Skopje scenario — Material Economics

The overall economic case for this action is strongly positive, as shown in the chart below. It breaks even when only considering direct energy cost savings, and the return-on-investment is nearly 300% when health benefits are included. Radical climate and health action in Skopje is not a cost — it would be a significant investment with excellent returns.

Total Economic Case for all measures — Material Economics

A total capital investment of nearly €2300 million is needed to achieve the associated savings in health costs, energy costs and greenhouse gas emissions.

The modelled Net Zero Skopje pathway is also projected to create around 15,000 job-years of much-needed new employment.

Insights for Action

While this analysis shows a clearly positive overall economic case for decarbonising and cleaning the air in Skopje, real action is not yet aligned with this pathway. Some further parts of the economic case analysis help to show us why.

When we arrange the analysis by action areas into the below abatement cost curve, we see that most actions have clearly positive economics (they are below the line in the graph) if energy and health cost savings are considered. However, decarbonising electricity is only weakly positive while being critical to overall abatement. This picture would be more mixed without including health benefits.

Skopje GHG abatement cost curves, including benefits of energy and health cost savings — Material Economics

Accounting for health benefits is critical to the overall economic value-case for the Skopje community, but the reality is that these social benefits are not effectively 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. So we shouldn’t be surprised when action is not being taken.

Skopje Decarbonisation Economic Case Analysis broken down by stakeholder — Material Economics

These results show how the overall positive value case for decarbonisation, and better health, is still 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 Skopje shows that:

  1. An ambitious decarbonisation programme for Skopje could reduce total emissions by 50% by 2030 (97% in the sectors we modelled)
  2. A total capital investment of approximately €2300 million by 2030 is needed to make this happen.
  3. This is a great investment! The benefits in reduced health and energy costs far outweigh the required investments (by about 300%). So, this could equally be framed as a health and energy security programme, with decarbonisation as the bonus.
  4. This investment pathway is projected to create over around 15,000 job-years of new employment.
  5. While this analysis shows that there is significant social value on offer, business-as-usual clearly 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 overall benefits lie.

It is clear that deep climate action equates to a much healthier and energy-secure city. Yes, a large investment is needed in a short period and much hard work will be needed to make this happen. But, as the upsides come from better health and cheaper energy services, why should the citizens of Skopje have to wait for this? Especially given the global urgency for rapid climate action and the insecurity that so clearly comes with the current dependency on fossil fuels. The sooner radical action is taken the better.

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 Skopje community with valuable insights to help guide a strategic approach to a 2030 climate-neutral and healthy city 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.

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Thriving Communities is a collective initiative with a mission to help communities to create radical enough change to thrive in the 21st century. We use this Medium publication to share insights, ideas and stories from our work and learning processes

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Tim Taylor

Tim Taylor

I specialise in supporting communities to develop and deliver transformational social, economic and environmental change initiatives.

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