The world’s ambitious goal of reaching net-zero emissions by 2050 comes with a steep price tag, according to a new report from Wood Mackenzie. The energy transition to a low-carbon future could cost a staggering $3.5 trillion annually, totaling a hefty $78 trillion in total investment. This significant financial commitment underscores the urgency and complexity of achieving global climate goals.
Wood Mackenzie’s Energy Transition Outlook outlines four potential pathways for the energy and natural resources sector to transition towards a low-carbon future:
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Base Case (2.5°C warming):
This scenario reflects current trends and policies, leading to a projected global temperature rise of 2.5 degrees Celsius by 2100.*
Country Pledges (2°C):
This pathway assumes that countries fulfill their current pledges to reduce emissions, aiming for a 2-degree Celsius temperature rise.*
Net-Zero 2050 (1.5°C):
This scenario represents the most ambitious pathway, requiring significant investments and policy changes to achieve net-zero emissions by 2050 and limit global warming to 1.5 degrees Celsius.*
Delayed Transition (3°C):
This pathway reflects a slower transition with less aggressive climate action, leading to a projected 3-degree Celsius temperature rise.The report highlights that global energy demand is expected to rise due to factors such as increasing income, population growth, and the growing need for electricity in sectors like data centers and electric vehicles. This necessitates substantial investments in power supply, grid infrastructure, and critical minerals, essential for supporting renewable energy sources and facilitating the energy transition.
To stay on track with the 1.5°C pathway, renewable energy capacity needs to more than triple by 2030. However, the transition has been slower than expected in certain areas because many low-carbon technologies are still in their early stages of development and lack the maturity, scalability, and affordability required for widespread adoption.
Despite these challenges, renewables play a crucial role in all scenarios. Solar, wind, and other clean energy sources are projected to rise from 41% of the global power supply today to a dominant 90% by 2050. However, they face significant hurdles, including supply chain challenges, regulatory obstacles, and the need for massive amounts of metals like lithium, nickel, and cobalt. Meeting the escalating demand for these critical minerals poses additional complexities due to geopolitical issues and the slow pace of mining development.
While the energy transition focuses on renewables, oil and gas are expected to remain in the global energy mix until 2050, albeit with varying degrees of reliance across the different pathways. In a delayed transition scenario, where low-carbon technology costs decline slowly, oil and gas demand remains elevated, peaking at approximately 106 million barrels per day by 2030. This level of demand is projected to persist until 2047. However, in the net-zero pathway, oil demand would decline rapidly to roughly 32 million barrels per day by 2050.
To achieve the ambitious net-zero pathway, governments must implement strong policies, including carbon pricing mechanisms, streamlined regulations, and incentives for technologies such as carbon capture and hydrogen. The upcoming COP29 meeting in Azerbaijan in November presents a crucial opportunity to reassess nationally determined contributions (NDCs) and strengthen global cooperation to mobilize the necessary $3.5 trillion annual investment in low-carbon energy supply and infrastructure, including critical minerals.
Prakash Sharma, VP at Wood Mackenzie, emphasizes the critical need for decisive action: “Strengthened NDCs and global cooperation will be crucial to mobilize US$3.5 trillion annual investment into low-carbon energy supply and infrastructure, including critical minerals. If these challenges can’t be overcome, the goal of net zero emissions by 2050 will not be achieved.”
