Society has gone through energy transitions in the past—but nothing like this one. The adoption of coal occurred over roughly five decades and the shift from coal to oil took more than three decades. To limit global warming to 1.5°C above preindustrial levels, we must ramp up renewables and other low-carbon solutions at warp speed. These energy sources must match the maximum shares held by coal (55%) and oil (41%) roughly three times faster than those commodities did and ultimately account for most primary energy by 2050—up to 70% in IEA’s Net Zero Emissions scenario. This rapid transition remains a massive challenge and appears increasingly unlikely: current policies would permit warming to +2.7°C by 2100. And the speed of the energy transition in sectors such as industrial manufacturing and buildings is woefully insufficient.
So how do we accelerate progress to ensure that we can meet ambitious targets for 2030 and beyond? BCG has studied the energy transition in depth to build a blueprint that outlines ways to scale new low-carbon technologies, the global implications of the shift, and critical actions that policymakers, energy users, infrastructure providers, energy producers, and investors can take to move the needle. Over the coming months, we will publish a series of articles exploring many of these topics in greater detail.
Failure to bend the curve dramatically on emissions will have steep costs for the natural world and for the health and livelihoods of people around the globe. Evidence of these impacts becomes clearer every day—and at a concerning pace. We have the tools to get to net zero, but we do not have the policies, proven business cases, and capabilities in place everywhere to massively accelerate the pace of action. All stakeholders, private and public, need to do their part to effectively unlock concrete progress.
Energy is a fundamental driver of economic growth and human prosperity.
Society must massively accelerate substitution and abatement of fossil fuel use.
We have the technological levers to get us to a net zero energy system.
Oil and gas must be phased down rapidly, but selective investments will still be necessary.
The energy transition is critical to preserving a livable planet. It will also drive major economic change—altering the economics of energy systems and markets and remaking the global competitive landscape. But if we successfully accelerate the transition, we can expand access to electricity and greater prosperity to the 775 million people who don’t have either today—and enable the even larger number of people who use very small amounts of electricity today to increase their usage.
The economics of our energy systems will fundamentally change.
We must redesign energy markets to provide the right investment signals.
By 2030, the energy transition will require at least $18 trillion in additional capital.
The success of the global transition will hinge on four key economies.
The transition will reshape the global industrial and competitive landscape.
A low-carbon energy supply can break many of the tradeoffs in the energy trilemma.
Private and public sector leaders seek greater clarity about the concrete actions they can take today to accelerate the energy transition through 2030 and beyond. Our work sheds light on opportunities and imperatives for all players. They must not only push ahead on these specific steps, but also simultaneously craft a vision of a green, resilient economy and private sector that mobilizes the support of their stakeholders.
As the toll of climate change becomes increasingly visible to citizens, public sector leaders need to build public support for action. That action should leverage the full power of market forces while maintaining the ability to course-correct. To achieve this result, they should prioritize actions on six fronts:
Many green products and technologies are still more expensive than gray alternatives when externalities are not priced in. (We currently price only 18% of global emissions from a carbon markets perspective.) Policymakers can level the playing field by taking steps to make non-green offerings more expensive (for example, through tax policy, carbon pricing, or removal of subsidies) or by making green products more cost competitive (for example, through incentives or public R&D funding). Recent developments are encouraging—particularly in the US, with its passage of the IRA, and in the EU, with its Green Deal Industrial Plan. The challenge now is to proceed to implementation, designing the appropriate regulations and disbursement mechanisms and alleviating bottlenecks.
Granular year-by-year deployment targets are critical to delivering on ambitious 2030 and 2050 goals. Stakeholders must coordinate these targets across industries and value chains. In some cases, government guarantees can advance efforts to achieve those targets.
Energy markets must evolve in three primary ways. First, planners must design energy systems and networks holistically and not shy away from configuring supply and demand in more optimal locations, when possible. Second, they must redesign electricity markets to provide the price signals needed to efficiently balance supply and short-term demand, and to incentivize an unprecedented level of investment. To this end, policymakers can enhance today’s market signals—for example, through carbon pricing and guaranteed revenue streams or subsidies. Third, energy markets must encourage energy consumers to modulate the timing of demand, including by shifting consumption toward off-peak hours.
In theory we have access to plenty of low-carbon energy. But time-consuming planning and permitting processes can severely impede rapid progress. Policymakers can streamline these processes to power rapid progress, particularly in expanding electric grids. Of course, instituting such procedural innovations entails overcoming major barriers, including potential pushback from public opinion.
Newer technologies—such as hydrogen and carbon capture, utilization, and storage—raise questions of liability uncertainty. For example, it may be unclear who should pay in the event of CO2 leakage. Potential financial risks of this sort, which can be massive, are slowing or even halting investment decisions. Updating and implementing redesigned liability frameworks can unleash significant investment.
During the energy transition, some traditional jobs will disappear and many new ones will emerge. Governments must ensure an equitable distribution of the positive and negative impacts of these changes across geographies and society. Ultimately, such equity will be critical to gaining and maintaining popular support for the transition. Advanced economies should also offer technical and financial assistance to emerging economies in support of their efforts to plan and deliver just transitions.
The emerging energy system will be more complex than its predecessor, requiring energy consumers and infrastructure providers to play a larger role. They must take three interlinked actions:
Large energy consumers should ensure that they have reliable access to low-carbon energy (for which there will be real competition) and to required infrastructure such as hydrogen and CO2 networks and long-distance electricity transmission. Timing matters because there is risk that end-use conversion and transmission and distribution infrastructure will lag creation of new low-carbon demand.
To avoid falling behind, heavy industry players must make capital expenditure decisions that are economic over the long term, even if the investments do not yield high returns in the short term. At the same time, they must bear in mind the risk of stranded assets created by an accelerated transition.
Business cases for many large investments in low-carbon production, infrastructure, and offtake assets have significant interdependencies, both between stakeholders and in the timing of investments. Consider hydrogen. In order for hydrogen markets to develop, end users must convert to its use, transport must be built out, low-carbon power must become widely available, and electrolyzers must be built on a large scale—all in the right order over time. Clearly, collaboration (including public-private partnerships) across sectors and along the entire the supply chain is critical in this process.
Energy producers and suppliers must aim for flexibility and resilience as they decarbonize. To achieve this, they should pursue these priorities:
To minimize those risks and avoid the added costs of stop-start investment cycles, energy producers and suppliers must arrange for a reliable supply of oil and gas. At the same time, they have an obligation to reduce fossil-fuel-related GHG emissions—in the short term through methane leak elimination, and in the short and medium terms through Scope 1 and Scope 2 emissions reductions and carbon capture, utilization, and storage. In parallel, they must invest aggressively in direct-air capture R&D and in pilots at scale to ensure the technology’s viability.
Producers and suppliers can leverage strong balance sheets and their technical and operational know-how to help orchestrate complex energy systems and ecosystems. Individually, players need to clarify their strategy—for example, whether they will operate as a pure play or as an integrated energy provider.
In some regions, green fuels may be a good fit; in others, using renewable energy to meet higher levels of electrification may be more suitable. Producers and suppliers can develop business cases and roadmaps that reflect those differences, and they can work with policymakers to shape regulations that support the right mix.
As customers transition from fossil fuels to low-carbon energy in their operations, energy producers must help them find pathways to transition effectively over time and avoid disruptions. For example, energy producers can offer industrial manufacturers heat as a service, independent of whether the source of the heat is fossil fuels or renewable energy. This will enable the manufacturers to reduce their carbon footprint while also limiting their need to invest in new assets or processes.
Not all customers, particularly residential or small commercial, are well equipped to absorb large increases in price volatility. As in many other industries, large swings in producers’ supply costs need not be passed on to customers. Energy suppliers should understand customer preferences regarding volatility and design innovative products that match those preferences.
If the low-carbon energy system is to scale successfully, manufacturers and tech players must secure and diversify their supply chains and push for standardization. To advance the transition, they should adopt the following measures:
Both OEMs—including all producers of equipment along the low-carbon supply chain—and low-carbon technology companies should ensure that their supply chains are robust and do not rely too heavily on suppliers in any one country. This means diversification, not decoupling.
OEMs should push for scale in low-carbon technologies to bring down costs and, ultimately, prices. In doing so, they should take advantage of supportive policies—for example, the Production Tax Credit in the IRA in the US.
Technological advances can help OEMs and low-carbon tech companies lower costs and improve efficiency. For example, the power generation capacity of the average operational wind turbine has quadrupled over the past two decades. As technologies mature, however, players should establish standards to drive industrialization. The right standardization can provide opportunities to lower costs in the medium term—not only for the component manufacturing industry, but also for the downstream value chain. Conversely, a lack of standardization might require endless, costly modifications, such as (in the case of wind power OEMs) continuous upsizing and alteration of vessels and other logistics for installing offshore wind.
The energy transition is impossible to achieve without a step-change in levels of investment in low-carbon solutions. To drive that outcome, financial players should take these steps:
Investors and financial institutions can work with the public sector to install long-term investment signals, including standards for measuring emissions and verifying that companies have taken certain decarbonization actions. Doing so will promote a more level playing field and a more accurate valuation of the externalities that exist today, ultimately increasing the pace and overall coordination of capital spending.
Investors and financial institutions must identify sound investments in networks and other shared infrastructure to ensure that sufficient low-carbon production is built. From now until 2050, the global electricity grid alone will require investments totaling more than $21 trillion. Larger connected zones, including for electric grids or hydrogen networks, will eventually yield lower commodity costs.
Investors must systematically embed consideration of carbon in their decision making process. This assessment should encompass regulated carbon costs, internal carbon costs, indirect carbon costs (related to Scope 3 emissions), and value created through the company’s decarbonization efforts (such as demand for the resulting low-carbon alternatives).
Investors and financial institutions need to move beyond financing individual projects and instead directly finance companies that are deploying low-carbon technologies. This will enable those companies to move capital between projects as situations for each evolve.
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The Center for Energy Impact (CEI) shines light on the energy transition, focusing on the actions required to achieve global transformation. CEI applies a holistic perspective to understanding and shaping bold responses to one of the most critical and complex challenges of our time.
Our deep expertise spans markets and economics, carbon and technology, capital and investors, the macrodynamics of geopolitics and resilience, and the microdynamics of politics and specific policies. We offer nuanced, constructive ideas and solutions covering the future availability, economics, and sustainability of the world’s energy sources—and the implications for energy companies, industries, investors, consumers, and governments. The CEI team is committed to facilitating informed, innovative discussions to make our world sustainable.
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Maurice Berns joined The Boston Consulting Group in 2001. He is a core group member of the firm’s Energy practice and is the Global Leader of BCG’s Oil and Gas Sector. Maurice previously led the UK Energy practice. Prior to being based in London, Maurice worked in BCG's Kuala Lumpur, Paris, Mumbai, New York, and Houston offices.
Patrick Herhold is a long-term core member of Boston Consulting Group's Energy, Operations, and Strategy practices.
Rich Lesser is the Global Chair of Boston Consulting Group (BCG). He previously served as BCG's CEO from 2013-2021, a period of exceptional growth for the firm across all regions and practice areas. During his tenure as CEO, Rich oversaw the launch of BCG Digital Ventures, a builder and accelerator of digital businesses; BCG GAMMA, a cutting-edge advanced analytics, machine-learning and AI team; BCG TURN, a rapid performance acceleration unit; and the BCG Center for Climate & Sustainability. As CEO, Rich initiated BCG's pledge to reach net zero climate impact by 2030.
Jesper Nielsen leads Boston Consulting Group’s Social Impact practice and the firm's business in M&A and post-merger integration in Western Europe, South America, and Africa.
Cornelius Pieper is a managing director and partner at Boston Consulting Group. He joined in 2004 and is a core member of the Industrial Goods and Social Impact practices. He co-leads BCG’s Center for Climate & Sustainability, supporting clients globally with the transition to a low-carbon economy.
Since joining Boston Consulting Group in 2006, Reiko has worked closely with clients in a variety of industries on business strategy development, strategy implementation support, scenario planning, business turnarounds, and organizational reform. She has rich experience working with clients to support business acquisitions, divestitures, and alliances.
Anders Porsborg-Smith is Boston Consulting Group’s global lead for commodity trading and risk management, and a core member of the Energy practice. He focuses on strategic topics linked to the commercial practices of commodity industries, including strategic reviews, strategy development, operating model enhancements, hedging principles, portfolio management and review, mergers and acquisitions, and post-merger integration. Anders is responsible for producing BCG Energy Market Insights.
Lenita Tobing is the Southeast Asia (SEA) lead for Boston Consulting Group's People & Organization practice, as well as a core member of the Energy and Industrial Goods practices. She joined the firm in January 2021 bringing over 20 years of experience working with state-owned and private companies in Indonesia, mostly in energy, resources, infrastructure, transportation, and logistics industries.
Tom Brijs joined Boston Consulting Group in 2017. He is a core member of the Energy and Climate & Sustainability practices at the firm, focusing on energy transition topics including hydrogen, renewables, storage, grids, and energy markets. He is also active in BCG’s broader Infrastructure practice, working on topics in rail, logistics, water, and waste. Tom’s client work is mostly focused on helping companies along the energy and infrastructure value chain, as well as investment funds, and key institutions in the public sector,, to make strategic decisions related to organic growth, portfolio mix, large investments, M&A opportunities and transactions, and (digital) transformation programs.
Edmond Rhys Jones co-leads Boston Consulting Group’s Center for Climate & Sustainability Policy & Regulation and is a core member of the Climate & Sustainability practice. Since joining BCG in 2013, Edmond has worked with public, private, and social sector clients, focusing on the public policies required to accelerate the global transition to a low-carbon, nature-positive economy.
Alexander Ohm is part of Boston Consulting Group’s Center for Energy Impact, and is a core member of the firm’s Energy and Technology & Digital Advantage practices. Since joining BCG in 2016, Alex has worked with clients in energy, financial institutions, and the public sector. In his work, he has covered digital transformations, technology strategy, and the energy transition.
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