Global power demand is rising so sharply that the world is now on course for 2.6°C of warming, putting net zero by 2050 out of reach, according to Wood Mackenzie’s Energy Transition Outlook 2025–2026.
The report finds that reaching a 2°C pathway would require annual investment of US$4.3trn between 2025 and 2060, with energy spending rising from 2.5% of global GDP to 3.35% within the next decade.
Few countries, and no major G7 economies, are on track to meet 2030 emissions targets, Wood Mackenzie said. Its base case projects peak emissions in 2028, followed by a slower 2% annual decline, resulting in 2.6°C of warming.
Variable renewables are set to rise from 20% to 60% of generation by 2050, with solar doubling by 2030 and overtaking gas and coal in 2033 and 2034 respectively.
Prakash Sharma, vice president for scenarios and technologies, said: “As power demand surges due to the expansion of technologies such as AI and electrification, what was once a mostly aspirational shift towards decarbonisation is now facing the hard trade-offs of scale, system integration, capital allocation and geopolitics.”
Wood Mackenzie said climate leadership is shifting to China as the United States “doubles down on fossil fuels” and Europe continues to see clean technologies as essential for energy security.
Under the firm’s base case, China will invest US$913bn annually in the energy transition by 2040, compared with US$455bn in Europe and US$388bn in the United States. To reach net zero, those figures would need to rise by 29%, 36% and 76% respectively.
Clean technologies’ dependence on lithium, copper, nickel, cobalt and rare earths is creating new geopolitical vulnerabilities, the report said, with China dominating refining. “Critical minerals have become the new strategic battleground,” Sharma added.
AI-driven electricity demand is also reshaping power systems, with data centres set to consume 700TWh in 2025 and potentially double by 2030, threatening clean power targets but also enabling technological breakthroughs through advanced simulations and optimisation.
Oil demand is now forecast to peak in 2032, two years later than previously expected, while gas demand rises as a “bridge fuel”. Carbon capture, hydrogen and bioenergy are expected to deliver up to 30% of total emissions reductions in net zero scenarios.
Sharma said: “Oil, gas, coal and power can no longer operate in silos. Geopolitical shocks or resource constraints in one fuel cascade across others, while shared infrastructure and technologies define the future energy system.”