Geopolitical instability, policy shifts, and surging electricity demand are reshaping the global energy system, according to the Global Energy Perspective 2025 report released by US-based consulting firm McKinsey & Company.
The report predicts that global temperature rise by 2100 is projected to be between 1.9 degree Celsius and 2.7 degree Celsius, highlighting the scale of the challenge ahead and the Paris Climate Agreement targets are becoming increasingly distant.
Global energy demand expected to peak by 2035
McKinsey forecasts that primary energy demand will rise until around 2035, reaching 10-15 percent above 2023 levels, before gradually stabilizing.
Growth will be driven primarily by India and Southeast Asia, while demand in Europe, Japan, and North America will plateau. Electrification remains the key demand driver, with electricity consumption nearly doubling by 2050 due to EV expansion, industrial heat electrification, and digitalization.
Fossil fuels decline as renewables take the lead
Despite progress in clean energy, fossil fuels will still account for 40-55 percent of global primary energy by 2050, down from 64 percent in 2023.
Oil demand peaks before 2030, then steadily declines, while natural gas remains resilient, supporting renewables as a flexible backup source. Coal continues to decline sharply, particularly in power generation, though Asia remains a key market.
By 2050, renewables are expected to provide 60-70 percent of global power generation, driven by solar and wind, supported by falling costs and energy storage capacity growth.
However, McKinsey warns of persistent grid bottlenecks, permitting delays, and integration challenges that may slow renewable expansion.
Hydrogen and CCUS drive deep decarbonisation
The report identifies clean hydrogen and carbon capture, utilization, and storage (CCUS) as critical enablers of the next stage of decarbonisation:
- Hydrogen demand to rise from below 100 million mt today to 200-500 million mt by 2050, primarily from steel, chemicals, and heavy transport.
- CCUS capacity to expand from 50 million mt per year today to over 2 gigaton per year by 2050 under the accelerated scenario.
Combined, these technologies could deliver nearly 25 percent of the total emission reductions needed to achieve the 1.9-degree Celsius pathway.
Energy investment to reach $3.5 trillion per year by 2040
Global energy investment requirements are expected to rise sharply, from $1.8 trillion today to $2.7-3.5 trillion annually by 2040. More than half of total investments will be allocated to low-carbon assets, including renewables, transmission grids, hydrogen infrastructure, and CCUS technologies.
Emerging markets will need major capital inflows to build renewable capacity and grid infrastructure, while advanced economies focus on modernizing legacy assets and decarbonizing industry.
In 2023, power generation and industry accounted for around 65 percent of global carbon emissions.
Under McKinsey’s Sustainable Transformation scenario, global energy-related carbon emissions could fall by 60 percent by 2050. However, under slower policy and technology adoption, emissions may only decline by 30-40 percent, falling short of the Paris Agreement’s 1.5-degree Celsius goal.
Accelerated policy and innovation needed
McKinsey concludes that while the energy transition is progressing, it remains too slow to achieve climate targets. To reach the targets, the world must:
- Triple renewable capacity by 2030,
- Electrify transport and industrial heat,
- Deploy hydrogen and CCUS at scale, and
- Align global carbon pricing mechanisms.
The firm stresses that only coordinated investment, innovation, and policy clarity can ensure a secure and sustainable global energy future.