Energy evolution: navigating the path to a sustainable future

With oil, gas and coal still meeting 80% of global energy needs, Wood Mackenzie’s 2025/26 Energy Transition Outlook (ETO) calculates that the world is on course for a 2.6C increase in average global temperatures. This is far above the target set a decade ago in the Paris Agreement to limit average temperature increase to well below to 2C. Yet the commercial advantages of clean tech provide genuine hope that emissions can be brought under control. 

The pace of the transition remains uncertain but the ETO details four emissions trajectories up to 2060 based on varying policy and technology dynamics. Wood Mackenzie analysts held two region-specific webinars in late November to discuss the latest transition pathway findings, highlighting the US$130 to US$175 trillion investment opportunities on offer. Fill in the form on this page to access recordings of these webinars and download the accompanying presentation slides. 

Geopolitical challenges 

The broad thrust of the debate was that surging power demand and geopolitical challenges are pushing net-zero goals further out, delaying the transition and making it more expensive in the long-run. The global energy system is more complex, more interconnected and more volatile than ever before. This is prompting many governments to prioritise energy security and affordability over sustainability commitments, while the gap between commitments and delivery is widening.  

Yet this trend can hide the massive progress that is being made. The share of solar and wind in global power production has increased quickly from 5% in 2015 to 20% today, rising to 40% once hydro and nuclear are included. Emissions look set to peak by 2030 with 2% annual declines thereafter, mainly from the power and transport sectors. Under the most likely scenario, solar and wind capacity additions of 580 GW a year are likely over the next two decades, half of it in China. The two technologies will generate at least half of all power by the 2040s.  

Issues tackled in the webinars include geopolitical tensions, particularly in Ukraine/Russia and the Middle East, fragmenting global trade, global competition for critical minerals, and the impact of the AI boom on accelerating innovation and amplifying disruption. 

Meeting rising demand 

The impact of rising energy demand on the pace of the transition remains to be seen. Data centre development is driving the uptake of on-site renewable energy projects but can also support continued thermal power production. However, its impact is felt far more in the US than elsewhere, where population, industrial and economic growth continue to have more influence. 

Global consumption of fossil fuels will decline but it will be a long process that occurs at varying speeds across different countries and industries, depending on the commercial viability and availability of replacement energy resources. Coal demand has plateaued for about 15 years and it is possible that oil and gas will do the same. 

Globally, solar will overtake gas generation in 2033 and coal one year later, with renewables’ share of the energy mix rising to 50% by 2050. However, China, Europe and the US will account for 70% of energy transition capital expenditure by 2040, with relatively low investment levels in much of the rest of the world. 

It is difficult to overstate the importance of China’s role. Although it is still replacing ageing coal-fired plants with new coal generation, its low cost clean tech manufacturing is driving both renewable energy development and electrification. The average levelised cost of Chinese solar with storage, for instance, has fallen hugely from $82/MWh in 2020 to $35/MWh today, mainly because of rapid technological development, with Chinese solar manufacturers spending about 20% of their revenue on R&D.  

Similar progress is taking place with offshore and onshore wind, batteries and electric vehicles, with wind turbines getting bigger and batteries cheaper. Yet those massive cost reductions have not fully been passed on to the rest of the world, partly because no other country can manufacture on the same scale as China. 

Technological diversification 

While solar and wind dominate new capacity additions, growing demand, particularly for 24/7 electricity is drawing in other technologies. Enthusiasm for nuclear energy has rebounded to promote energy security against both geopolitical threats and supply chain disruption. This has led to rising US investment, India’s ambitious 100 GW nuclear goal by 2047 and renewed policy support in Italy and Germany.  

Next generation nuclear (e.g. SMR) present a compelling business case and a viable pathway forward with reduced construction risks and greater deployment flexibility. In Southeast Asia for example, only Vietnam is considering large scale nuclear, with Thailand, Indonesia, Malaysia and Singapore all including SMRs in their long term energy plans. 

Enhanced and advanced geothermal systems enable the direct use of heat and project development in far more locations, often by deploying fracking sector technology. They also offer lower cost power production than SMRs.  

Electricity accounts for just 20% of final energy demand, with other segments making slower progress. The decarbonization of heavy industry, shipping and aviation requires different solutions, and that is where carbon capture utilisation and storage (CCUS) and green hydrogen come in. The UK and EU are continuing to back the development of both technologies but the Trump administration has cut US tax credits for green hydrogen and lowered emissions’ standards, reducing the incentive for carbon capture. 

Learn more 

To catch up on the conversation, watch our Energy Transition Outlook webinars relating to the EMEA, America and APAC regions by filling in the form on this page.