McKinsey & Company’s Global Energy Perspective 2021 report, published today, forecasts the ways in which energy production and demand patterns will change through to 2050, with the net-zero movement in mind. Some half of global GDP was covered by net-zero targets as of February 2020 and, since then, nations including China, Japan, South Korea and Canada have pledged to strengthen climate targets.
According to the new report, global energy demand is not likely to reach pre-Covid-19 levels for at least another year – four years at most. The demand for electricity and gas will rebound more rapidly than oil, a sector which was already reckoning with the prospect of degrowth due to tightening climate legislation.
Moreover, aggregate fossil fuel demand is likely to peak in 2027. McKinsey’s previous iterations of the report had flagged dates in the 2030s, but this version is the first since Covid-19 was declared a pandemic by the WHO.
These conclusions are drawn from analyses of four possible scenarios, ranging from a major shift to align economies with the Paris Agreement’s 1.5C pathway, to a scenario in which nations prioritise short-term job creation over long-term decarbonisation in their covid-19 recovery plans, slowing the energy transition.
When all scenarios are averaged out, the global peak in oil demand is likely to come in 2029. For gas, the peak will come in 2037, as infrastructure for heating buildings will need to be replaced at scale before demand patterns tip.
Also in the average scenario, green hydrogen will become cost-competitive with gas by 2030. More than 95% of the hydrogen produced globally in 2020 was fossil-based so, while it is widely considered as a key part of the net-zero puzzle for hard-to-abate sectors, it is not yet a silver bullet in and of itself.
Nonetheless, McKinsey is warning that more must be done if the world is to align with 1.5C. On a business-as-usual course, described in the report as the reference case, more than half of global energy demand will continue to be met by fossil fuels in 2050. And, by the early 2030s, humanity will have emitted the entirety of the CO2e budget which would need to be spread until 2100 in a 1.5C scenario.
“There is still a long way to go to avert substantial global climate change,” McKinsey’s senior partner Christer Tryggestad said.
“The importance of policies has increased in the past year. Despite the increased momentum towards decarbonization, many governments still need to translate ambitious targets into specific actions. Additionally, given the unparalleled size of many economic recovery packages post COVID-19, the focus of the stimulus measures will play a key role in shaping energy systems in the decades to come.”
The Energy Policy Tracker is providing regularly-updated information on the amount of stimulus funding national governments are providing to fossil fuels and to renewables, and what conditions they are attaching to these supports. As of 5pm GMT on Wednesday (13 January), more had been provided globally in the form of unconditional packages for fossil fuels ($202.4bn) that for renewable energy with or without conditions ($183.67bn).
Sarah George