Resetting expectations for the energy and materials transition
September 17, 2024 | InteractiveThe global energy transition is entering a new phase, marked by rising costs, complexity, and increased technology challenges.
Despite countries across the world committing to a net-zero future, the energy transition is unfolding slower than needed to achieve the goals of the Paris Agreement. We are now seeing a reality gap emerge between net-zero goals and the actions needed to achieve them.
Many low-carbon technologies are coming up against economic challenges, with weak business cases and high capital expenditure putting the brakes on accelerated rollout. An enabling policy environment has not done enough to reduce emissions at the rate required, either.
Important interdependencies between the energy and materials sectors are impacting the speed of the transition, too. The at-scale deployment of low-carbon technologies depends on the availability and affordability of key materials, and it is increasingly clear that what happens in one sector will have important implications for the other, and for the energy transition overall.
Faced with this reality check, we have re-examined the assumptions underpinning our Global Energy Perspective, updating our bottom-up scenarios to better reflect changing global conditions. We’ve also introduced a new Global Materials Perspective for the first time to underscore the interconnected nature of the energy and materials sectors as we move closer towards a net-zero world.
McKinsey is uniquely placed to deliver these insights, drawing on the expertise of our Global Energy & Materials Practice. Our collective analysis shows that traditional technologies will continue to play a role in the energy mix for longer than previously anticipated—chiefly to keep up with energy demand from a growing population and higher living standards in developing regions.
Our analysis is based on the best currently available data and shows a range of plausible scenarios that may unfold. Our goal is to help stakeholders look beyond the common success stories of solar and wind and understand the end-to-end value chain of the transition, including its strengths and weaknesses.
We invite you to explore our Global Energy Perspective and Global Materials Perspective to support your decision-making as we navigate this next phase of the global energy and materials transition.
Explore the challenges
Growing energy demand
The world needs more energy and materials to meet the demands of a rapidly growing population.
By 2050, the global population is expected to reach 9.6 billion, which will require exponentially more industrial output to match GDP growth.
While energy demand growth is flattening in most OECD countries …
… it’s growing in emerging market economies …
This is driven by population growth and better living standards, which together will push up the consumption of materials and energy.
As people move up the socio-economic ladder, they build more, travel more, and buy more.
Materials demand will vary with their relevance to the energy transition
Materials for which demand is, to a small extent, driven by the speed of the energy transition and which are consequently trending more or less in line with the growth of global GDP and the middle class (for example, steel).
Steel demand, 2023–35 10% increase
Materials for which demand is largely and positively impacted by the energy transition because they are embedded to a greater extent in low-carbon technologies and are therefore experiencing faster demand growth (for example, copper, lithium, and rare earth elements [REEs]).
Lithium demand, 2023–35 475% increase
Materials for which demand is largely and negatively impacted by the energy transition because they are fundamental to conventional technologies, which are gradually being phased out (for example, thermal coal).
Thermal coal demand, 2023–35 25% decrease
As the world moves away from fossil fuels, the large-scale deployment of low-carbon technologies will drive up the demand for materials, too. More copper, lithium, nickel, and REEs will be needed, changing the size and shape of value pools in the materials sector as the energy transition gathers pace.
Rising emissions
As energy and materials consumption continues to rise, emissions will, too. As a result of the changing landscape, we have revised our scenarios to better reflect changing global conditions.
Global emissions have not yet peaked, and are projected to keep rising until at least 2025.
Between 2030–2050, emissions show a decline across a range of scenarios.
But even with this projected decline, all scenarios remain above a level compatible with a 1.5° pathway.
Dilemma and uncertainty
Our need to reduce emissions while meeting the world’s growing need for energy adds renewed urgency to the global energy transition—and the materials transition needed to support it. But there are many challenges ahead.
For many critical materials, the current business case doesn’t stack up:
Deep decarbonization often comes with an opex increase of 30–50% depending on the materials and asset / region.
Yet our research suggests
less than 15% of customers would be willing to pay premiums of even 10% for low-carbon materials.
Assuming business as usual, total metals and mining emissions are projected to decrease by a modest 15 percent, reaching 6 GtCO2 by 2035 (from ~7.2 GtCO2 in 2023).
Alongside these material bottlenecks, uncertainty around the scaling up of critical energy transition technologies complicates things further:
And while demand for them is growing steadily, it is still unclear which solutions will rise to the top.
Demand for renewables is projected to grow 65–80% by 2050.
But less than 50% of the RES deployment pipeline has reached final investment decision, putting many projects at risk.
Demand has slowed for electric vehicles, heat, and electrolyzers due to high costs and rollout challenges.
And there are further demand-related question marks regarding power-hungry data centers, which could represent 5–10% of total electricity demand by 2050.
Hydrogen faces one of the widest reality gaps, with unfavorable economics and lower learning rates (among other factors) leading us to revise our 2050 demand projections down by 25% from previous analyses.
To meet growing energy demand, fossil fuels will remain in the energy system for longer than previously anticipated.
Global fossil fuel demand, million TJ
Solving the dilemma
Despite the challenges, the consensus for a global energy transition remains strong.
What happens in the energy transition will impact the materials transition.
And what happens in materials production will help or hinder the deployment of critical energy transition technologies.
To chart the road ahead, McKinsey’s Global Energy & Materials Practice offers a range of perspectives and insights across these vital sectors to enable sustainable growth and transformation, in line with climate goals.