The world is currently on a 2.5-degree Celsius warming trajectory according to Wood Mackenzie’s ‘Energy Transition Outlook’ report, a milestone assessment of the global journey towards a lower carbon future. If transformative action is not taken now, the Paris Agreement goal to limit the average temperature increase to below 1.5-degrees Celsius will likely be missed.
The new report analyses three different pathways for the energy and natural resources sector – Wood Mackenzie’s base case (2.5-degrees), country pledges scenario (2-degrees) and net zero 2050 scenario (1.5-degrees).*
- Achieving 1.5C is still possible but with limited temperature overshoot, and much depends on actions taken this decade.
- Low carbon power supply and infrastructure needs to scale up at twice the pace built in the last decade – made more difficult by the current delays faced by renewables assets due to limited grid interconnections.
- A minimum of US$1.4 trillion a year (base case) must be invested in renewables, infrastructure and energy transition technologies. Annual spend into these sectors has to rise to US$2.4 trillion to achieve net zero.
- Oil & gas still have a role to play as part of a managed transition. There will be a natural depletion as low carbon supply develops, but oil & gas supply will still have to be replenished as the world moves towards net zero. Spend will be US$0.5 trillion a year in the base case, and US$0.2 trillion a year for net zero.
- Electricity to become the major energy market, with renewables the main source of power supply. Power demand doubles every 10 years to support road transport electrification and green hydrogen production. Energy will have to be used much more efficiently in a net zero scenario with demand-side management a major component, softening the impact or rising electrification in other sectors.
- Carbon Capture, Utilisation and Storage (CCUS) and DAC (Direct Air Capture) tackle hard to abate industries and help restore the carbon cycle longer term.
- Rapid development of copper, nickel and lithium supplies is essential to support renewables, electric vehicles (EVs) and transmission infrastructure. Lithium demand is projected to double by 2030 (base case).
“The pathway to net zero was always going to be challenging, but Russia’s invasion of Ukraine has made it more difficult especially in the near term. The conflict quickly curtailed the global supply of energy and metals, amplifying the impact of underinvestment in the resources sector over the last decade. Supply security fears increased around the world, and higher prices across energy and mining commodities have fuelled inflation,” said Simon Flowers, chairman and chief analyst at Wood Mackenzie.
“The supply of low carbon energy has grown by a third since 2015, but the world’s energy demand has grown much faster with rising incomes and populations. The good news is that sustainability is alive and kicking, spurred on by policy including the introduction of the US Inflation Reduction Act and Europe’s REPowerEU. Achieving 1.5C is going to be extremely challenging, but it is possible and greatly depends on actions taken this decade,” Flowers added.
In Wood Mackenzie’s base case, energy related emissions will peak in 2027 and fall roughly 25% by 2050 from 2019 levels. With low carbon energy’s share of final consumption growing to 14% by 2030 and 28% by 2050.
“Net zero pledges now cover 88% of annual global emissions. But no major country is on track to meet their 2030 emissions reduction goals, let alone net zero. Policy landscape is shifting to direct incentives and targeted support to accelerate the development of new technologies, but countries need to urgently address obstacles including permitting restrictions and constraints in the electricity supply chain,” Flowers added.
What’s needed to limit global warming to 1.5 degrees?
In order to meet the 1.5-degree target, urgent action is required now to build low carbon power supply and infrastructure at a fast pace, according to Prakash Sharma, Vice President, Scenarios and Technologies Research at Wood Mackenzie, and lead author of the report.
Low carbon supply accounts for 42% of power generation today; this is expected to rise to 78% by 2050 in Wood Mackenzie’s base case. The share of wind and solar increases from 13% today to over 53%, while total power demand doubles in Wood Mackenzie’s base case in the same time period. The supply chain and inflationary pressures currently faced by renewables developers will ease in a few years.
The combined share of wind and solar in Wood Mackenzie’s country pledges and net zero scenarios reaches 60% and 65%, respectively, in 2050. This rapid growth in variable renewables is accompanied by 100% increase in the adoption of flexible assets such as energy storage, small modular nuclear, and geothermal technologies, compared to the base case.
Power transmission infrastructure will also need to expand alongside renewables and the next phase of growth will require grid connectivity.
Carbon pricing is required to close the gap in cost of low carbon supply, in order to drive adoption in difficult sectors such as steel, cement and chemicals. Wood Mackenzie expects that a carbon price of US$150 to US$200 per tonne is required by 2050 from the current global average of US$25 per tonne.
Electricity to power the future economy
“Electricity will become the largest energy market, overtaking oil and gas as a fast-response, low cost, and efficient energy source,” Sharma added.
In Wood Mackenzie’s base case, electricity’s share in final energy demand rises from 20% to 22% by 2030, and to 30% in 2050. In the country pledges and net zero scenarios, the share rises to 41% and 50%, respectively, by 2050.
For EVs, global stock rises from 43 million cars today to 1.02 billion cars by 2050 in the base case. An additional 20% growth in stock is projected in the country pledges scenario and 60% in net zero.
As a core material for EVs, lithium demand is projected to increase two-fold by 2030 in the base case and three-fold in a net zero scenario. Copper and nickel supplies will also need to be developed quickly to support renewables, EVs and transmission infrastructure. The urgency of investment is further underlined by seven to 10 years build time for new mines.
Emerging technologies: hydrogen & CCUS
Low carbon hydrogen and CCUS projects are moving out of the pilot phase and becoming mainstream.
Wood Mackenzie’s net zero scenario requires 515 million tonnes (Mt) of low-carbon hydrogen by 2050, as the technology will see 11% share in final energy demand by 2050, 4% in the base case, phasing out fossil fuels in chemicals, steel, cement and heavy-duty mobility.
CCUS and DAC abate fossil fuels use while low and zero carbon energy supply is developed. In Wood Mackenzie’s base case, CCUS and DAC capacity are projected to rise from 100 Mt in 2023 to 2 billion tonnes (Bt) by 2050. The deployment needs to reach around 7 Bt by 2050 in a net zero scenario, requiring substantial expansion in developing transport, shipping and storage infrastructure.
What about oil & gas?
“Oil and gas still have a role to play as part of a managed transition. There will be a natural depletion as low and zero carbon options develop but supply still needs to be replenished as we move towards net zero,” Sharma said.
In Wood Mackenzie’s base case, fossil fuels account for 69% of end-use energy demand in 2023, falling to 53% by 2050, triggered by greater end-use efficiency and electrification.
Oil peaks over the next decade in all scenarios, primarily driven by the significant uptake of EVs. In Wood Mackenzie’s base case, peak comes at 108 million barrels per day (mb/d) in 2032 and falls to 90 mb/d in 2050. Wood Mackenzie analysts expect it to fall to approximately 50 mb/d, and to 30 mb/d in the country pledges and net zero scenarios, respectively, by 2050.
Growth in LNG markets will see natural gas increase its share of primary energy supply to 25% in 2023, whereas coal and oil stagnates or declines. Gas demand is projected to grow for 10 years in all scenarios due to its wide range of applications. Demand weakness in buildings and industry is offset by increased coal-to-gas switching in power and feedstock for blue hydrogen production.
In Wood Mackenzie’s base case, the total investment needed to decarbonise the energy sector is estimated to cost US$1.9 trillion a year, and this will need to increase by approximately 150% – or US$2.7 trillion a year – if we are to meet the 1.5-degree target. More than 75% of this investment is needed in the power and infrastructure sectors.
“Sustained investment is critical for both the existing and new supply of zero and low carbon energy sources. Global cooperation and an institutional framework are essential in driving innovation and technology development. COP28 can build the consensus for commitment amongst member states to meet the 1.5-degree climate target and ultimately shape the outcome of the global energy transition,” Flowers concluded.
About Wood Mackenzie’s Energy Transition Outlook analysis
Wood Mackenzie’s Energy Transition Outlook report (part of its Energy Transition Service) maps three different routes through the energy transition with increasing levels of ambition – but also difficulty and investment. They are Wood Mackenzie’s independent assessment of what it would take to deliver on countries’ announced net zero pledges and potential outcomes for the planet.
You can read more information here and a copy of the analysis is available on request.
*Definition of scenarios:
Base case - Wood Mackenzie’s base case view across all commodity and technology business units – our central, most likely outcome.
Country pledges scenario - Wood Mackenzie’s scenario on how country pledges may be implemented in the future. The 2˚C trajectory aligns with the upper temp limit from the Paris Agreement.
Net zero 2050 scenario - Wood Mackenzie’s scenario on how a 1.5˚C world may play out over the next 30 years. Carbon emissions align with the most ambitious goal of the 2015 Paris Agreement.