Recommended Read: McKinsey’s Global Energy Perspective 2018

22/01/2018

Our recommended read this week is McKinsey’s thought-provoking publication of its 2018 “Global Energy Perspective” reference case for energy consumption up to 2050. The five key insights from McKinsey’s study – across 145 countries, 28 sectors and 57 energy products – are the following:

  1. Global energy demand growth decelerates, following a structural decline in energy intensity
  2. Electricity demand grows four times faster than all other fuels
  3. Renewables cost decline accelerates further, out completing newbuild fossil capacity today and existing capacity in 5–10 years
  4. Coal demand peaks in next decade, oil in the next two; in contrast gas continues to grow modestly
  5. CO2 emissions plateau by 2030 and remain far from a 2°C pathway

The report reflects the success we have seen in recent years – the result of a successful combination of public policy and private enterprise – in bringing down the cost of renewables and rapidly accelerating improvements in storage capacity, as well as activist campaigns against fossil fuels, and the use of coal in energy generation in particular.

In a way, however, it also challenges a number of “sacred cows”. For example much advocacy and philanthropic effort is centred around “fixing” emissions in the largest economies, while McKinsey’s reference case suggests that these actually mainly start to decline as energy consumers in the near future, with demand falling across the OECD countries, with Chinese demand peaking by 2030 and then falling off, and sustained growth in demand being seen only in India and Africa.

While McKinsey’s projections are at the lowest end of the various forecasts its cites – with a CAGR of 0.7%  in energy demand out to 2050, its forecast is around half that of BP, for example – the sting in the tail is, of course, that 5th conclusion, that emissions remain far from a 2° C pathway.  Indeed, McKinsey fits them at double the levels needed to achieve that outcome.  With its wide geographic, sectoral and product coverage, however, the report suggests the breadth of opportunities available to manage levels down if there is a global response tied back to the Paris agreement and increased ambition in the NDCs over time.

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