There is still time to reach net zero emissions by 2050 by making US$78tn of cumulative investment, according to Wood Mackenzie’s latest ‘Energy Transition Outlook’ report, despite a string of global shocks likely making 2030 targets out of reach.
The new study analyses four different pathways for the energy and natural resources sector – Wood Mackenzie’s base case (2.5 degrees), country pledges scenario (2 degrees), net zero 2050 scenario (1.5 degrees) and delayed transition scenario (3 degrees).
It estimates US$78tn of cumulative investment required across power supply, grid infrastructure, critical minerals and emerging technologies and upstream to meet Paris Agreement goals.
Globally, the study found energy demand is growing strongly due to rising incomes, population and the emergence of new sources of demand, including data centres and transport electrification.
Strong renewables growth is a certainty and this will continue under all scenarios modelled in this update.
Sector capacity grows two-fold by 2030 in the base case, short of the global pledge made at COP28 to triple renewables by 2030.
Policy certainty crucial to helping unlock demand for new technologies and increases capital flow into all segments, including supply chains and critical minerals, states the study.
“A string of shocks to global markets threaten to derail the progress in a decade pivotal to the energy transition,” said vice president, head of scenarios and technologies for Wood Mackenzie Prakash Sharma.
“From the unresolved war between Russia and Ukraine to an escalated conflict in the Middle East, as well as rising populism in Europe and global trade tensions with China, the energy transition is in a precarious place and 2030 emissions reduction targets are slipping out of hand .
“However, there is still time for the world to reach net zero emissions by 2050 – provided decisive action is taken now. Failure to do so risks putting even a 2˚C goal out of reach, potentially increasing warming to 2.5˚C-3˚C trajectory.
“We are under no illusion as to how challenging the net zero transition will be, given the fact that fossil fuels are widely available, cost-competitive and deeply embedded in today’s complex energy system,” added Sharma.
“A price on carbon maybe the most effective way to drive emissions reduction but it’s hard to see it coming together in a polarised environment. We believe that these challenges are overcome with policy certainty and global cooperation to double annual investments in energy supply to US$3.5tn by 2050 in our net zero scenario.”
The electrification of the energy system is the central plank of the energy transition.
In Wood Mackenzie’s base case, displacing fossil fuels with more energy-efficient electricity leads to global emissions peaking in 2027 and subsequently falling by 35% through to 2050.
The share of solar and wind in global power supply increased from 4.5% in 2015 to 17% in 2024.
Strong renewables growth is a certainty in the energy transition, and this will continue under all scenarios modelled in the update.
Renewables capacity grows two-fold by 2030 in the base case, short of the global pledge made at COP28 to triple renewables by 2030.
Solar is the biggest contributor of clean electricity, followed by wind, nuclear (including large and small reactors) and hydro.
Together, renewables’ share rises from 41% today to up to 58% by 2030 and up to 90% by 2050, depending on the scenario.
“But any number of challenges – from the supply chain, critical minerals supply, permitting and power grid expansion – could dampen aspirations for renewables capacity,” said Sharma.
“Despite strong growth in renewables, the transition has been slower than expected in certain areas because many low-carbon technologies are not yet mature, scalable, or affordable,” added Sharma.
“A key constraint is the high cost of low-carbon hydrogen, CCUS, SMR nuclear, long-duration energy storage, and geothermal. Capital intensity is high, but the business case is weak without incentives.”
This challenge comes at a time of strong energy demand growth. As renewables alone will not be able to meet future energy needs in most markets, oil and gas is projected to continue playing a role in the global energy system to 2050.