Global Energy Perspective 2024: Navigating the Next Phase of Energy Transition
The McKinsey Global Energy Perspective 2024 report analyzes the current state of the global energy transition and explores pathways for achieving net-zero emissions. The document reflects on the progress made since the 2015 Paris Agreement and highlights the rising complexities and challenges. This new phase in the transition demands a careful balance between clean energy goals, affordability, energy security, and economic stability, especially in the context of a changing geopolitical and macroeconomic landscape.
1. The Progress and Challenges of the Energy Transition
Since the Paris Agreement, significant advances have been made in the adoption of renewable energy and low-carbon technologies. However, the report stresses that the global energy transition is entering a new, more challenging phase. Rising costs, inflation, and supply chain disruptions are some of the main hurdles complicating the next steps.
The clean energy transition is no longer just a technological challenge but involves complex economic, political, and social considerations. Decarbonization must be balanced with other priorities such as energy affordability and system reliability, especially as geopolitical tensions and market uncertainties increase.
2. Emission Trajectories and the 1.5°C Pathway
One of the main objectives of the report is to examine the likelihood of staying on track with the Paris Agreement’s goal of limiting global warming to 1.5°C. Even though emissions are projected to decrease by 2050 across all scenarios, they are expected to remain above levels required for net-zero targets. The decline is largely driven by the growing cost-effectiveness of low-carbon technologies, particularly in the power and transport sectors.
The report outlines three bottom-up energy transition scenarios:
- Sustainable Transformation: An optimistic scenario where global warming stabilizes around 1.8°C by 2050.
- Continued Momentum: A moderate scenario leading to a temperature rise of 2.2°C.
- Slow Evolution: A pessimistic view where temperatures could rise as high as 2.6°C.
The scenarios stress the urgent need for deeper decarbonization efforts across all sectors to prevent further temperature increases.
3. Global Energy Demand Trends
The global demand for energy continues to rise, with growth mainly concentrated in emerging economies such as ASEAN nations, India, and the Middle East. In these regions, rising populations and expanding middle classes are driving energy consumption. The demand is projected to increase between 11% and 18% by 2050, depending on the scenario.
In contrast, mature economies, particularly in Europe and China, are expected to see flattening or declining energy demand due to deindustrialization and greater energy efficiency. However, sectors like industrial electrification in the U.S. may offset some of this decline.
4. Electrification and New Energy Demand Centers
Electrification will be one of the main drivers of energy consumption through 2050. The report highlights that electricity consumption could more than double or nearly triple in this period, especially with the rise of electric vehicles (EVs), data centers, and green hydrogen production. For instance, the demand from data centers, driven by artificial intelligence and cloud computing, could account for 5% to 9% of global electricity consumption by 2050.
Electrification of transport is also a key growth area, with electric vehicles projected to dominate the global passenger car market by 2050. This shift will significantly increase electricity demand for transportation.
5. Renewable Energy Growth and Challenges
Renewable energy sources (RES) are set to play a dominant role in the future power mix, with projections showing they could account for 65% to 80% of global electricity generation by 2050. Solar and wind energy, in particular, are expected to see strong growth due to their decreasing costs. However, certain technologies like hydrogen and carbon capture may struggle to scale due to higher costs and a lack of strong demand or policy support.
One of the key challenges in increasing the share of renewables is ensuring the economic viability of new projects. The report indicates that, despite falling costs, many RES projects face profitability issues without regulatory interventions. Another major challenge is ensuring the reliability of power grids, as renewables are intermittent and require backup sources, such as battery storage or natural gas, to ensure a stable supply of electricity.
6. The Role of Fossil Fuels in the Transition
Despite the growth of renewables, fossil fuels will remain an integral part of the global energy system, contributing 40% to 60% of energy supply by 2050, down from 78% in 2023. The transition away from fossil fuels is occurring more slowly than anticipated due to several factors, including technological limitations and the growing energy demand. For the foreseeable future, fossil fuels will continue to provide the necessary firming capacity for renewable energy systems and meet demand where renewables cannot.
The report notes that investment in fossil fuels will likely continue through 2030 to ensure energy security and meet immediate demand, even as the world works to decarbonize.
7. Infrastructure Investments and Grid Challenges
To support the growing electrification and integration of renewables, substantial investments in grid infrastructure are needed. The report estimates that transmission and distribution (T&D) investments will need to triple by 2050 to avoid bottlenecks and ensure a stable energy supply. The current energy system is fragile and lacks redundancy, and these weaknesses could lead to disruptions in energy supply if not addressed.
The expansion of grid capacity is also necessary to accommodate bidirectional energy flows, which are essential for integrating distributed renewable energy sources. However, this build-out could face delays due to underinvestment and labor shortages.
8. The Future of Hydrogen and Energy Storage
Hydrogen, particularly green hydrogen, is projected to see significant growth as a key fuel in the decarbonized energy system. By 2050, hydrogen consumption could rise to 179 megatons per year, leading to a 20% annual increase in electricity demand for hydrogen production.
Energy storage systems, including battery energy storage systems (BESS) and long-duration energy storage (LDES), will also be crucial in balancing renewable energy supply with demand. However, the deployment of these technologies is still hampered by cost and scalability challenges.
9. Policy and Regulatory Implications
The energy transition requires supportive policies and regulatory frameworks to enable the rapid deployment of low-carbon technologies. Governments will need to implement pragmatic and adaptive regulations to incentivize investment in renewable energy, ensure energy security, and address economic competitiveness.
In Europe and the United States, the deployment of key technologies is falling short of 2030 targets, mainly due to economic concerns and the lack of firm project commitments. Despite policies like the U.S. Inflation Reduction Act, the pace of final investment decisions (FID) remains insufficient to meet net-zero goals.
10. Workforce and Material Constraints
The energy transition will also require addressing workforce and material constraints. The renewable and fossil fuel industries are facing a shortage of skilled labor, while the demand for specific materials, such as those used in EV batteries and renewable technologies, is increasing. Ensuring a stable supply of these materials and a trained workforce is critical to achieving the energy transition.
Conclusion
The Global Energy Perspective 2024 paints a complex picture of the global energy transition. While renewable energy and electrification are poised to dominate the future, significant obstacles remain. The slow decline of fossil fuels, coupled with the challenges in building the necessary infrastructure and scaling new technologies, makes it clear that the path to a decarbonized energy system will not be straightforward. Achieving net-zero goals will require a coordinated global effort, sustained investment, and adaptive policy measures to navigate the uncertain road ahead.