Geopolitical uncertainty, shifting policies and increasing demand for power are reshaping the energy landscape, a new McKinsey & Company report reveals.
According to the Global Energy Perspective 2025, two overarching themes emerge from this year’s outlook. First, cost competitiveness and an economically pragmatic energy transition remain paramount. Energy affordability, reliability (including energy security at the national or regional level), and emission reduction continue to form a trio of priorities that drive energy decision-making. However, without affordability, along with bankability, widespread adoption of new low-carbon technologies will not happen.
Second, there is no silver bullet for decarbonization. Countries and regions will follow distinct trajectories based on local economic conditions, resource endowment and the realities facing particular industries.
Credit: McKinsey & Company
Yet every year also brings unforeseen developments, whether breakthroughs in energy technology that allow accelerated scale-up of solar and wind power or innovations like AI that drive rapid growth in power demand.
Key takeaways this year’s perspective:
#1 Fossil fuels are projected to retain a large share of the energy mix beyond 2050
#2 Key alternative fuels are unlikely to see wide adoption until after 2040
#3 Regional dynamics play a large role in scenario outcomes
#4 Global power demand is expected to increase, driven by electrification and data-centers in OECD countries
#5 Variable renewable energy sources and gas-powered generation will likely dominate new power supply
#6 Clean, firm power sources and renewable storage technologies are likely to expand. Such power sources include nuclear energy, geothermal power, and hydropower, and such storage technologies include batteries and pumped-hydroelectric-energy storage.
#7 A system-wide view could offer a faster and more cost-effective path to emission reduction in the energy sector.
While the urgency remains, the pathways to meet the Paris Agreement targets are now more complex and must be grounded in economic and geopolitical realities. Global greenhouse gas emissions are still rising, and the journey toward decarbonization remains long.
…McKinsey & Company explains.
Affordability, supply security, and decarbonization are priorities in the energy sector. However, the observed slowdown in progress toward net zero suggests that some stakeholders are currently prioritizing affordability and supply security over decarbonization. What has also become clear over the past decade is that the journey to decarbonization will not be linear, in part because multiple competing technologies are vying to fill the same roles.
Fossil fuels
A major finding of this year’s analysis is that, depending on the scenario, fossil fuels are expected to account for about 41 to 55 percent of global energy consumption in 2050. While this is a decline from today’s 64 percent, it is higher than our previous 2050 projections. The range represents higher absolute amounts of these fuels, given energy demand growth.
Projected fuel demand
Maritime and industrial use of oil is projected to decline as these sectors switch from oil-based fuels to natural gas, sustainable fuels, or electrification after around 2040. Such switches will be primarily driven by regulation.
The power sector’s oil use will likely continue to decline in accordance with the historical shift toward natural gas, approaching phaseout around 2035.
Clean hydrogen
Clean hydrogen is not yet cost competitive at scale, so it is expected to play a limited role in the energy mix across scenarios. Indeed, there is no certainty around the completion of clean-hydrogen projects in the next ten years. At-scale uptake will likely begin in transportation (heavy-duty trucks or aviation) and in iron and steel manufacturing, particularly in regions with carbon-pricing and local-production incentives.
Other sustainable fuels
Different types of sustainable fuels, both biobased and synthetic, will compete based on cost. Sustainable fuel demand is expected to grow to approximately 600 million tons per annum by 2050, driven by regulatory measures—for example, the amended Renewable Energy Directive, FuelEU Maritime Regulation, and US Renewable Identification Number program.
Growth would drive a major shift in the fuel mix: demand for fatty acid methyl ester (FAME) and ethanol will increase in Asia–Pacific countries and Latin America. Advanced drop-in fuels will be necessary to decarbonize the internal-combustion-engine-based legacy fleet and will replace fossil fuels in aviation, industry, and maritime sectors. However, without mandates, sustainable fuels are not likely to achieve broad adoption before 2040.
Expected electrification trends
Across regions, electricity demand growth is still mainly driven by the industry and building sectors, which are projected to grow 20 to 40 percent from today’s levels by 2050. In all regions but China, electrification is expected to accelerate after 2030, with Europe and North America possibly reaching similar levels as China by 2050.
Furthermore, transportation has become a bigger source of electricity consumption, mainly because of the increased uptake of passenger EVs. Data centers are also developing as a growth area for electricity demand, especially in the United States. In part because of these new drivers, electricity demand by 2050 could be double the 2023 level.
While some sectors seem to be making irreversible progress toward decarbonization, others won’t move forward without government mandates or substantial cost reductions. The journey toward decarbonization remains long, but there is still considerable opportunity for energy stakeholders to act now and accelerate progress.
…said Humayun Tai, Coleader of the Energy & Materials Practice and Senior Partner New York, McKinsey & Company.
