Tackling energy transition bottlenecks with substitute materials, innovation, infrastructure build-out and regulation will be crucial to achieving net zero targets, according to analysis presented by McKinsey & Company in its 2023 Global Energy Perspective.

Bram Smeets, partner at McKinsey, commented: "The analysis of these bottom-up scenarios shows that the world requires a major course correction to reach the goals aligned with the Paris Agreement." He added that while the company sees a strong increase in low-carbon technologies, such as solar, wind and electric heat pumps, urgent global momentum and collaboration across the energy value chain is needed to resolve bottlenecks and fulfill critical prerequisites for accelerated decarbonization.

Bottlenecks, says McKinsey, relate to land availability, energy infrastructure, manufacturing capacity and labour, as well as consumer affordability, investment willingness and materials availability.

It is further argued that global energy consumption will be shaped by the speed of industry electrification and that, by 2050, global energy consumption might decline by as much as 6% when compared with 2022.

McKinsey believes that hydrogen demand will increase two to five times between now and 2050 and that growth will be fuelled by both traditional industries (such as chemicals) and new industries (like iron and steel).

"History has shown us that new technologies develop much faster than anticipated with the right catalysts and incentives."

Ole Rolser, partner at McKinsey

Analysis by McKinsey shows that total investments in the energy sector overall are projected to grow by 2-4% per annum, which is roughly in line with global GDP growth, to reach between $2 trillion and $3.2 trillion in 2040.

Demand for fossil fuels is expected to decline over the next two to seven years and that aggregate growth has already begun to slow.

According to McKinsey, decarbonization technologies demonstrate the highest levels of investment growth at 6-11% per annum, driven by the strong uptake of EV charging infrastructure and Carbon Capture Use and Storage (CCUS). The analysis shows that investment in a broad energy mix – including oil and gas – will continue for a period in order to shore-up security of supply and meet demand across a range of scenarios.

Ole Rolser, partner at McKinsey, said: "History has shown us that new technologies develop much faster than anticipated with the right catalysts and incentives." He said that 'substantial pivots' were needed across industries and geographies to deliver on the steep climate conditions and that the ingredients exist to enable the course correction towards a 1.5oC pathway and overcome bottlenecks.