Energy Transition

These 8 innovations could help us dramatically reduce our fossil fuel use

This article is published in collaboration with McKinsey and Company.
A staff member plugs a charger cable into Toyota's i-Road electric vehicle in Tokyo April 9, 2015. Tokyoites will get a chance to zip around town on Toyota Motor Corp's three-wheeled electric car-cum-motorbike from Friday, in a trial aimed at crafting a global business model to reduce gridlock and pollution.   REUTERS/Thomas Peter - GF10000053349

A staff member plugs a charger cable into Toyota's i-Road electric vehicle in Tokyo Image: REUTERS/Thomas Peter

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Energy Transition

We may be closer to a radical energy transition than expected, with some far-reaching developments already under way. Through our research, we’ve uncovered eight areas where we are most likely to see rapid advancements that result in serious impacts for the energy sector as a whole. Though these eight shifts are still potential, recent developments over the past few years have revealed that just a few unexpected changes can fundamentally alter the trajectory of the global energy system or specific industries. Until recently, renewables played only a small role in the energy system. Now, technological developments—driven by R&D, subsidies, and feed-in tariffs—have driven the costs for new solar and wind capacity down to unheard-of levels, leading new renewable power capacity to surpass new fossil fuel capacity for the first time in history two years ago.

Exhibit 1

Though any one of these eight shifts could have a substantial impact on annual oil, gas, coal, and power demand, the degree to which a shift occurs is of particular interest. For example, we already anticipate a continued uptake in electric vehicle (EV) sales. Should that acceleration become more rapid either due to consumer behavior, decreasing prices for EVs, or government action as we’ve recently seen in different European countries, we could see oil demand from road transport fall 70% when compared to our Reference Case.

Our analysis further reveals that a combination of these eight shifts could have a disproportionately large impact on global energy markets. If all shifts fully materialize, fossil fuel demand by 2050 would be significantly affected. Overall, fossil fuels in 2050 would account for 58% of total primary energy demand (as compared to 70% in our Reference Case).

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Exhibit 2

Ongoing and unforeseen commitments regarding climate represent a further factor of importance. The 2-degree pathway outlined in the Paris Agreement would require governments to take dramatic steps to come close to achieving the agreement’s goals. The resulting developments and cost declines of key technologies, an increased demand for “clean” solutions, and innovations we might not see on the horizon today could disrupt the energy system even further.

This accelerated transition outlook builds on the view captured in our Global Energy Perspective Reference Case, a yearly report that outlines the McKinsey view of how energy demand will evolve in the future. To take a deeper look at our research and dive into each of the eight shifts and the resulting impact on demand for commodities, download our outlook.

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