Romania Could Substantially Improve Living Standards while Decarbonizing its Economy by 2050: World Bank Group Report

BUCHAREST – Romania could raise its national income by almost three times in the next three decades while taking action to improve resilience against climate change and reduce carbon emissions, if it continues broader economic reforms, says the World Bank Group’s Romania Country Climate and Development Report (CCDR), released today.

Romania is highly vulnerable to the risks of climate change, particularly floods and drought. Its economy is relatively carbon intensive, at 2.5 times the average for the European Union (EU), of which Romania is a member. Rising temperatures and an increased frequency of heatwaves pose additional threats to the economy, people and infrastructure.

“While the challenges of decarbonization are considerable, with the proper mix of structural, social and economic reforms, and effective investments underlined by public, private and EU funds, Romania can improve living standards while achieving its climate goals,” said Marina Wes, World Bank Country Director for the European Union.

The report notes that the country is on track to achieving its 2030 target of reducing emissions by 55% from 1990 levels. In fact, it already reduced emissions by 53% between 1990 and 2018. However, achieving its pledge of carbon neutrality by 2050 will require substantive and coordinated policy action and funding. The investments needed to develop a decarbonized energy sector alone is estimated at $356 billion by 2050, representing about 3% of the country’s cumulative GDP over the time horizon.

With over 70% of Romania’s total energy usage dependent on fossil fuels, energy transition is paramount. The energy sector, comprising electricity generation, heating, transportation and manufacturing, accounts for 66% of emissions in the country, followed by agriculture (17%), and industry (12%). To reach net zero by 2050, Romania needs to implement a massive electrification program replacing direct consumption of fuels with energy generated from renewable sources. The CCDR demonstrates that the incremental cost of developing a greener, renewable power system does not substantially increase investment needs. Increasing energy efficiency in buildings, especially through better insulation, is also highlighted as a critical investment.

The report offers a suggested pathway to net zero by 2050, with a focus on several other priority areas in addition to decarbonizing the energy sector. These include:

Decarbonizing the transport sector: A hard to abate sector and an increasingly large emitter without which Romania cannot achieve its net zero target. Accelerating investments, deploying existing technologies, and encouraging behavioral shifts can accelerate progress, especially if backed by private sector investments in rapid charging infrastructure for electric vehicles.
Optimizing the use of water: Water is among the most urgent emerging issues for climate adaptation and mitigation in the country. The report shows that water scarcity is already a concern in the country and will become worse, directly impacting energy generation, agriculture, and consumers.
Investing in human capital and skills: Romania is already challenged by skills gaps and a lack of an adequately trained labor force. Without adequate policies and investments in human development, the transition to a low-carbon economy risks exacerbating this situation and creating a major constraint to growth and meeting climate targets.
“People are key to the success of a green transition. The major shift from brown to green sectors cannot be done without an adequately skilled labor force. Romania should invest in closing the skills gaps in the current labor force and evolve its education system to prepare the next generation for the new economy and jobs,” said Anna Akhalkatsi, World Bank Country Manager for Romania.

Given Romania’s considerable fiscal constraints, the report notes the critical role of the private sector not only in the decarbonization effort but also in financing relevant investments, particularly in the transport and electricity sectors. Strengthening the existing public-private partnership (PPP) framework could help mobilize private finance.

“The green transition will generate unprecedented opportunities for growth, development, and technological upgrades, building up on Romania’s existing strengths and potentially moving it up the value chains. Public financing, including from the EU, will not be enough to meet Romania’s green objectives. Incentives need to be put in place to mobilize private capital at scale,” said Ary Naïm, IFC Manager for Central and South Europe.

Download the Romania Country Climate and Development Report here.

About the World Bank Group’s Country Climate and Development Reports (CCDRs)

The World Bank Group’s Country Climate and Development Reports (CCDRs) are new core diagnostic reports that integrate climate change and development considerations. They will help countries prioritize the most impactful actions that can reduce greenhouse gas (GHG) emissions and boost adaptation, while delivering on broader development goals. CCDRs build on data and rigorous research and identify main pathways to reduce GHG emissions and climate vulnerabilities, including the costs and challenges as well as benefits and opportunities from doing so. The reports suggest concrete, priority actions to support the low-carbon, resilient transition. As public documents, CCDRs aim to inform governments, citizens, the private sector and development partners and enable engagements with the development and climate agenda. CCDRs will feed into other core Bank Group diagnostics, country engagements and operations, and help attract funding and direct financing for high-impact climate action.

The Romania Country Climate and Development Report is the first to cover a European Union member state and a high-income economy. The report explores how climate action, in line with the country’s goal of achieving net zero emissions by 2050, interacts with its growth and development path and suggests priority actions to reduce carbon emissions and build resilience, while supporting inclusive economic growth and poverty reduction.