This year marks the tenth anniversary of McKinsey’s Global Energy Perspective, providing opportunities to reflect on the lessons learned over the past decade and to look ahead to the challenges and opportunities of the next one.
Throughout the years, we have continually refined our global energy model, incorporating dozens of inputs across sectors and regions. Our goal has been to provide a robust, data-driven fact base for all energy stakeholders as the sector evolves. Two key forces have consistently shaped our energy outlook: policy and technology.
Energy policy sets long-term targets, creates incentives, and sends economic signals at both regional and global levels. The 2015 Paris Agreement continues to be the benchmark for many nations and global stakeholders when setting their long-term energy ambitions toward decarbonization. However, as the past decade has made clear, changes in leadership may come with significant policy shifts.
Technology innovations, both incremental and breakthrough, are also shaping the future energy mix. Since 2015, several technologies have exceeded expectations, including batteries, electric vehicles (EVs), liquefied natural gas, shale oil, and solar photovoltaics. Conversely, some technologies are taking longer to mature despite initial enthusiasm, such as carbon capture and storage and clean hydrogen. They remain nascent and currently make up a small share of our forecast energy mix to 2050.
Short-term disruptions have also made their mark on the energy landscape in the past decade. Economic crises, geopolitical turmoil, and the COVID-19 pandemic have all changed the trajectory of the energy system. Such disruptions remind us that the energy system must be flexible, with the ability to adapt to a constantly evolving, unpredictable global context.
Two overarching themes emerge from this year’s outlook. First, cost competitiveness and an economically pragmatic energy transition remain paramount. Energy affordability, reliability (including energy security at the national or regional level), and emission reduction continue to form a trio of priorities that drive energy decision-making. The world is falling short of meeting the Paris Agreement’s targets for emission reduction. Without affordability—and bankability—widespread adoption of new low-carbon technologies will not happen.
Second, there is no silver bullet for decarbonization. Countries and regions will follow distinct trajectories based on their local economic conditions, resource endowment, and the realities facing particular industries.
Looking ahead, global energy demand is expected to rise as access to energy expands. The challenge for the industry and policymakers will be to ensure the energy system is affordable, reliable, and resilient to price spikes, outages, and geopolitical instability. While some sectors seem to be making irreversible progress toward decarbonization, others won’t move forward without government mandates or substantial cost reductions.
The journey toward decarbonization remains long, but there is still considerable opportunity for energy stakeholders to act now and accelerate progress.