INDUSTRY INSIGHTThought Leadership

Wood Mackenzie Energy Transition Outlook

By Claude Mourey, Head of Hydrogen & Low carbon fuels – EMEA, Wood Mackenzie Consulting

The world is facing a significant challenge in meeting the goals of the Paris Agreement and limiting global warming to 1.5 °C or 2 °C. This difficulty is underscored by the ongoing reliance on fossil fuels, which currently supply 80% of the world’s energy needs. Despite a 33% increase in the supply of low-carbon energy since 2015, the demand for energy has outpaced these efforts, leading to a continued rise in global emissions. The war in Ukraine has further highlighted the global economy’s dependence on fossil fuels, particularly oil, gas, and coal.

The encouraging news is that sustainability remains a priority on the policy agenda, with major initiatives like the US Inflation Reduction Act, Europe’s REPowerEU, and efforts from Japan, South Korea, China, Canada, and India. These policies aim to steer the world towards a greener future and reduce reliance on China by supporting the development of domestic supply chains for low-carbon technologies.

Our Energy Transition Outlook outlines three energy transition pathways. The base case scenario suggests that the world is on a 2.5 °C warming trajectory, with energy-related emissions peaking in 2027 and falling approximately 25% by 2050. Oil demand is projected to peak in 2030, while natural gas plateaus from 2036. The share of low-carbon energy is expected to grow to 14% by 2030 and 28% by 2050. Electrification and renewables, particularly solar and wind, are highlighted as flagship technologies for decarbonization, and electricity is expected to become the largest energy market by 2050.

Global energy demand is anticipated to peak in 2027 in the net zero scenario and in 2041 in our base case. Industry will account for 46% of total final energy consumption, with efficiency gains, circular feedstock, and CCUS technology crucial for transitioning energy-intensive, fossil fuel-dependent processes. Despite reaching 90% of new car sales by 2050 in developed countries, electric vehicles (EVs) will not fully eliminate oil dependency in heavy-duty mobility, and the share of hydrocarbons in the transport sector is projected to remain around 75% by 2050.

Our energy transition outlook emphasizes the importance of policy support for the buildout of domestic supply chains for low-carbon technologies. It also highlights the need for robust regulatory measures to drive consumer shifts toward heat pumps and other electrical devices in the residential, commercial, and agricultural (RCA) sector, representing 33% of total final consumption by 2050 in the base case.

In terms of the energy supply mix, oil demand is expected to peak at 108 million barrels per day (mb/d) in 2030, falling to 92 mb/d by 2050 in the base case. Demand in the OECD countries declines from 2025, while demand in India and other emerging economies continues to grow through the early 2040s. China’s demand peaks by 2027 due to road transport electrification. Natural gas plays a key role in the transition, especially in power generation, but demand is projected to peak and plateau as early as 2036 in our base case.

Coal is in structural decline globally but is sustained by developing countries in the Asia-Pacific region. Thermal coal’s share in power generation is expected to fall from 34% in 2023 to 8% by 2050. China is expected to maintain a significant share of coal in heating, cement, and chemicals manufacturing. Metallurgical coal demand remains more resilient, falling only 28% by 2050 in the base case.

Power demand is projected to nearly double by 2050 in the base case, reaching nearly 50 Petawatt-hours (PWh). Wind and solar technologies, with a significant cost advantage, are expected to provide 53% of global power output. In our net zero scenario, 515 million tonnes of hydrogen and 12.7 billion tonnes of CO2 capture and removals are required by 2050. To achieve a net-zero outcome, carbon pricing is deemed essential, especially in difficult sectors like steel, cement, and chemicals. Our analysis shows a carbon price of US$150 to US$200 per tonne is needed by 2050, a substantial increase from the current global average of US$25 per tonne. Investment in both existing and new supply is crucial, requiring global cooperation and an institutional framework to drive innovation and technology development.

The COP meetings, such as the UAE’s COP in December 2023, have set goals for transitioning away from fossil fuels in energy systems, emphasizing the collaborative approach necessary to tackle climate change and keep global warming below 2 °C. Upcoming elections in countries such as the US, India, France, Germany, and the UK could delay decisions and impact the pace of the energy transition but progress is expected on methane reduction and the rollout of emerging low-carbon technologies.

Source: Wood Mackenzie Energy Transition Outlook, September 2023