Global Energy & Materials Practice

The energy transition:

Where are we, really?
Scaling up deployment of decarbonization technologies is crucial
to achieve net zero, but there is a reality gap—the lack of firm EU
and US project commitments could slow momentum.

This article is a collaborative effort by Diego Hernandez Diaz, Humayun Tai, and Thomas Hundertmark, with
Michiel Nivard and Nicola Zanardi, representing views from McKinsey’s Global Energy & Materials Practice.

© Getty Images

August 2024
 Almost nine years after the landmark Paris and energy efficiency investments) are the
Agreement and nearly halfway through what cornerstone of efforts to reduce greenhouse gas
has been called a “decisive decade” for climate (GHG) emissions in all McKinsey energy scenarios.
change, the world stands at a critical juncture in The period until the end of this decade is a critical
their transition away from fossil fuels. one to put in place a trajectory of accelerated
adoption to meet 2030 and 2050 targets set by
Translating into action the ambitious climate countries and companies.
targets that have been put in place by
governments and companies depends on While significant progress has been made
accelerating the deployment and adoption of in developing and deploying some of these
several interrelated technologies. These include technologies, notably solar and wind, for which
renewable energy sources (RES), electrification installed capacity has risen sharply over the past
technologies such as electric vehicles (EVs), and 15 years, a significant gap has emerged between
heat pumps—as well as comparatively less mature the actual results and the expected ones. The
technologies, such as carbon capture, utilization, at-scale deployment of all these technologies
and storage (CCUS), green and blue hydrogen, is still not happening as fast as needed to reach
and sustainable fuels. 2030 targets (see sidebar “The technology
gap”). Moreover, the technologies are at risk of
These decarbonization technologies (alongside facing raw material and labor shortages and long
many others, such as nuclear, long-term duration permitting procedures.
energy storage, battery energy storage systems,

The technology gap

The gap between what is needed and what has been achieved in the deployment of low-emissions technology is large—to
date, only about 10 percent of the deployment of low-emissions technologies globally by 2050 required for net zero has been
achieved, mostly in less challenging use cases. Closing the gap would require building a new, high-performing energy system
to match or exceed the current one, which would entail developing and deploying new low-emissions technologies, along
with entirely new supply chains and infrastructure to support them.

Given the size and complexity of today’s energy system, this is no easy task. The physical challenges that would need to
be overcome to successfully transform the energy system are significant and would require concerted action to solve.
McKinsey’s recent report, “The Hard Stuff: Navigating the physical realities of the energy transition,” identifies 25 physical
challenges across seven domains of the energy system that would need to be addressed for the energy transition to succeed.¹

Addressing these physical challenges would involve improving the performance of low-emissions technologies, addressing
the interdependencies between multiple challenges, and achieving massive scale-ups, even in technologies where a strong
track record has not yet been established. And, of course, this is only one side of the equation. To overcome these physical
challenges, significant firm investment into low-emission technologies needs to be unlocked.

¹ The hard stuff: Navigating the physical realities of the energy transition, McKinsey Global Institute, August 14, 2024.

2 The energy transition: Where are we, really?

We have identified three major issues that threaten maintained, and the energy transition continues
the necessary deployment of capital: first, the at the necessary pace. In this article—a prelude
business case—that is, the economic returns and to our Global Energy Perspective 2024—we seek
policy predictability for developers—often remains to provide a detailed, albeit partial, assessment
weak; second, many technologies are increasingly of where the execution of projects stands for
but not yet cost-competitive for consumers, given specific low-emissions technologies in Europe
the lack of at-scale manufacturing capacity or and the United States. The goal is to answer the
learning rate driven by deployment; and third, critical question: where are we, really, in the energy
several technologies have not been tested at scale transition?
and need multiyear product, project, and supply
chain development, thereby creating uncertainty While considerable progress in the energy
about their effectiveness and efficiency. Ultimately, transition has been made in many countries, this
technology-focused enablers have not yet article focuses solely on Europe and the United
managed to address the challenges posed by States, both of which have set explicit 2030
macroeconomic shocks, geopolitics, and what it targets.2 It should be noted that we are neither
takes to enable tech ecosystems. modeling nor forecasting future outcomes, but
rather seeking to bring to light the facts as best as
Fresh McKinsey analysis of the energy transition can be defined to assess how big the gap is and
landscape, including the uptake of key climate what needs to be done to close it.
and decarbonization technologies and investment
decisions that follow project announcements (see
sidebar “Our analysis”), suggests that corporate, Commitments and enthusiasm are up
public, and private equity investors are hesitating Recent years have seen a flurry of net-zero
about deploying capital for the reasons described commitments and ever-growing enthusiasm for
above. Invested capital is behind where it needs climate action from all parts of society.
to be to ensure deployment targets are met. As
it stands, a significant proportion of announced On the policy side, all 195 countries that signed the
projects have not yet reached the final investment historic 2015 Paris Agreement have put forward
decision (FID) stage at which projects are so-called Nationally Determined Contributions
greenlit, meaning that there is a continuing risk of (NDCs)—climate action plans—and more than 70
cancellation or leakage.1 And projects with longer countries today have net-zero targets enshrined
lead times (such as offshore wind) are quickly in law or outlined as a goal in policy documents. 3
reaching the stage at which capacity that has More than 155 countries have signed the Global
reached FID will only come online after 2030. Methane Pledge to reduce methane emissions by
30 percent below 2020 levels by 2030. 4
Facing this hard truth, innovation and policy
resets will be needed for the increasing number of Industrial policy in many OECD economies is now
country and company net-zero commitments to be anchoring climate technologies as a core pillar and
achieved in practice and move projects to FID and substantial public funds are being earmarked for
quickly beyond to subsequent deployment. their development. In both Europe and the United
States, emerging industrial policy has centered on
Rigorous, fact-based assessment of real-world building up a competitive cleantech value chain.
progress is key to ensuring that momentum is

1
Final investment decision (FID) is the point at which formal approval from the project developer is given to proceed, marking the
commitment to allocate capital resources to the execution of the project.
2
For the analysis in this article, Europe refers to the European Union plus Norway, Switzerland, and the United Kingdom. There may some
gaps in the data based on data availability.
3
“Net Zero Tracker,” accessed June 2024; “Nationally determined contributions under the Paris Agreement, synthesis report by the
secretariat,” United Nations Climate Change, November 14, 2023; Net zero stocktake 2023, a joint report by NewClimate Institute, Oxford
Net Zero, Energy and Climate Intelligence Unit, and Data-Driven EnviroLab, June 2023.
4
“Global methane pledge,” Climate and Clean Air Coalition, accessed June 2024.

The energy transition: Where are we, really? 3

 In Europe, the European Green Deal, introduced modernizing the energy grid, expanding EV
in 2019, aims to make the European Union infrastructure, and enhancing energy efficiency
climate-neutral by 2050, with intermediate Fit for across sectors.7
55 targets to reduce GHGs by at least 55 percent
by 2030 compared to 1990 levels. 5 In the United Together with continued cost improvement,
States, the Inflation Reduction Act (IRA) of 2022 including through innovation, these and other
is the largest climate investment in US history, policy initiatives are leading to progress. Globally,
with total climate-related spending of almost between 2010 and 2023, renewable energy
$370 billion over ten years, with the aim of cutting installation capacity grew around 20 percent
emissions by 40 percent by 2030 from 2005 per year, while the adoption of EVs surged, with
levels.6 In addition, the Infrastructure Investment a compound annual growth rate of around 80
and Jobs Act has allocated billions toward percent (Exhibit 1). 8

5
“European green deal,” Council of the European Union, June 17, 2024.
6
Building a clean energy economy: A guidebook to the Inflation Reduction Act’s investments in clean energy and climate action, The
White House, January 2023.
7
“A guidebook to the bipartisan infrastructure law,” The White House, January 2024.
8
Renewable energy installation includes solar photovoltaic, solar thermal, onshore wind, and offshore wind.

Our analysis

To shed light on the current status of the energy transition and provide a rigorous, fact-based assessment, we conducted an
extensive analysis involving several steps.

Scope: We identified the key singular technologies that together account for the bulk of decarbonization potential (onshore and
offshore wind, solar PV, clean hydrogen, sustainable fuels, CCUS, electric vehicles, and heat pumps). This means we excluded
several other decarbonization technologies, including energy storage and battery energy storage systems (BESS) because
these technologies are already in vast supply, with very healthy pipelines, and numerous players not only announcing projects
but committing to them. We also excluded energy efficiency, low-carbon thermal generation, and nuclear because these are very
fragmented markets with limitations due to regulation.

Data collection: We gathered comprehensive data from various sources, including proprietary and commercial project-tracking
databases. This allowed us to obtain up-to-date information on the status of numerous projects across different decarbonization
technologies.

Policy and historical capacity review: We reviewed existing policies, historical capacity deployments, and growth trends to
understand the broader context and the trajectory of different technologies. This helped us benchmark current progress against
historical data and policy targets.

Comparative analysis: We compared stated targets with expected capacity deployments, including project status and historical
sales levels for customer adoption-driven technologies, such as EVs and heat pumps. This enabled us to assess the alignment
between ambitious climate targets and actual progress on the ground.

Gap assessment: By examining the project status, including those that have reached FID stage, we assessed the gap between
target volumes, expected volumes (based on current trends), and volumes that have already reached FID. This analysis highlighted
the discrepancies between announced projects and those that are likely to materialize.

4 The energy transition: Where are we, really?

Exhibit 1
Accelerated
Accelerateddeployment
deploymentofofdecarbonization
decarbonizationtechnologies willwill
technologies be be
needed to meet
needed to
the
meetrising number
the rising of net-zero
number targets.targets.
of net-zero

Net-zero goals by country target year and status, % of GDP

Target year 2030–40 2041–50 After 2050 No target

1 59 32 8

Target status In law In policy Pledged/proposed No target

33 51 7 8

>90% of countries by GDP have net zero commitments—including China and India
>10,000 companies are members of the “Race to Zero” campaign¹
Global cleantech deployment

Installed capacity of wind and solar, Electric vehicle passenger car parc,² Heat pumps installed stock,
terawatts million units million units

Solar Onshore Offshore Battery electric Plug-in hybrid

PV wind wind
3 60 250

50
200
+6% per year
2 40
150
+20% per year
30 +79% per year

100
1 20

50
10

0 0 0
2010 2015 2020 2023 2010 2015 2020 2023 2010 2015 2020 2023

Note: Figures may not sum to 100%, because of rounding.

1
Race to Zero is a global campaign to take immediate action to halve global emissions by 2030.
2
Battery electric vehicles and plug-in hybrid vehicles.
Source: Carbon Brief; IEA; IRENA

McKinsey & Company

The energy transition: Where are we, really? 5

 From the corporate side, 66 percent of Fortune following FID does not only apply to hydrogen—it
500 companies have made climate commitments is true across most critical energy transition
(either carbon neutral, net-zero, or science-based).9 technologies (Exhibit 2).
Overall, more than 5,000 companies globally have
joined the Science-Based Targets Initiative (SBTi)— Indeed, decarbonization technology projects have
widely considered the gold standard for voluntary historically had a high fall-through rate, with only a
climate targets—and have set approved targets small percentage of announced projects reaching
compatible with a 1.5° pathway.10 Public companies FID, and an even smaller numbers of projects
in the European Union and the United States actually being realized. Our analysis shows that
increasingly report on their sustainability impact as many planned projects for key decarbonization
part of their financial disclosure requirements.11 technologies in the European Union and the United
States are falling short of announced targets, some
Such developments underscore a broader trend significantly so.
toward cleaner energy and reduced carbon
emissions, but are now set against an increasingly The extent of this shortfall varies by technology
complex and uncertain global energy space. and region—renewable energy generation
Energy security, affordability, reliability, and technologies, especially solar, are the closest to
industrial competitiveness can be challenging to meeting short-term goals, while electrification
achieve alongside sustainability, and investment is technologies have seen periods of rapid
harder to secure.12 growth but are now losing momentum. Many
innovative technologies that could be crucial
for decarbonizing “hard-to-electrify” sectors
The challenge of maintaining have ambitious project pipelines but are not yet
momentum deployed at scale. These technologies need to be
The question remains whether the world’s deployed as electrification is only a partial answer.
much-needed commitments can be translated
to action. McKinsey’s analysis of targets and Here, we look at the progress of each of these
announcements highlights a potential disconnect technologies and where they are falling short of
between climate ambitions and what is likely to be targets.
achieved in practice—at least at current course and
speed. Regarding NDCs, for example, the United
Nations acknowledges that “quality and ambition Solar PV and wind: Growth may lose
vary.”13 Where the SBTi is concerned, many of momentum
the companies that have signed up have made In the European Union and the United States,
commitments but have not yet articulated a clear renewable energy generation technologies, such
plan to achieve them.14 as solar PV, onshore and offshore wind, and battery
energy storage systems (BESS), have experienced
In the United States alone, more than 1,000 green rapid development, driven by supportive policies
or blue hydrogen projects have been announced and increasing private sector investment.
since 2015. However, fewer than 15 percent had
reached FID at the time of writing, indicating a high BESS has seen significant technological
risk for project fall-through.15 This discrepancy advancement over the last decade and has scaled
between announced projects and projects realized rapidly since 2015. In the United States, legislation

9
“Commitment issues: Markers of real climate action in the Fortune Global 500,” Climate Impact Partners.
10
“Ambitious corporate climate action,” Science Based Targets Initiative, July 2024.
11
“Corporate sustainability reporting,” European Commission, 2023.
12
“An affordable, reliable, competitive path to net zero,” McKinsey, November 30, 2023.
13
“All about the NDCs,” United Nations Climate Action, accessed July 2024.
14
SBTI monitoring report 2023, Science Based Targets initiative, July 2023.
15
Hydrogen Insights Project Tracker, McKinsey.

6 The energy transition: Where are we, really?

Exhibit 2
Investmentannouncements
Investment announcementshave
havebeen
beensignificant
significantbut
butmany
manyhave
havefailed
failedtoto
reach final
reach final investment
investment decision.
decision.

Technology deployment pipeline in EU27+3¹ and US vs targets,² % of target, normalized

Operational in 2023 FID/Expected by 2030³ Announced for 2030 2030 Target⁴

Clean commodities
Low-carbon power generation production End-use decarbonization
100
Announced Announced Announced
projects for solar PV projects for projects for
meet and exceed clean H₂ meet CCUS meet
target by 3% and exceed and exceed
target by 98% target by 473%

75

50

25

0
Offshore Onshore Solar PV Clean H₂ Sustainable Electric Heat CCUS⁵
wind wind fuels vehicles (EVs) pumps

2030 205 GW⁶ 695 GW 705 GW 15 mtpa⁷ 136 mtpa 56 156 75 mtpa
target⁴ million million

Additions 30 GW 165 GW On 11.8 mtpa 136 mtpa On 61 28

needed trajectory trajectory million mtpa

1
EU27 + Norway, Switzerland, and the United Kingdom. 2Technology deployment is a measurement to understand the gap between actual vs needed deployment.
3
Final investment decision (FID) except for EVs and heat pumps (expected sales based on average sales over the last few years). ⁴Target as defined for 2030 for
both EU27+3 and the US; for solar, sustainable fuels, and heat pumps, no target exists, and the McKinsey Sustainable Transformation scenario was used.
⁵Carbon capture, utilization, and storage. ⁶Gigawatts. ⁶Metric tons per annum.
Source: EHPA; EIA; Eurostat; IEA; Rystad; Wind 4C; McKinsey Energy Solutions; McKinsey Hydrogen Insights

McKinsey & Company

has supported a robust pipeline and project there is less risk of a supply gap (and therefore why
conversion, especially in states like California we excluded BESS from this analysis).
and Texas. In Europe, we expect the solar PV
project pipeline will in turn attract BESS projects, However, our analysis of offshore wind and solar
especially in places like Germany and Spain where PV shows that not all renewable pipelines are
colocation is favorable. All in all, battery production on track to meet 2030 targets and short-term
capacity appears healthy, leading us to believe deceleration is threatening the existing pipeline

The energy transition: Where are we, really? 7

 further (Exhibit 3). System bottlenecks need to be 180 gigawatts (GW) and 120 GW of solar PV
resolved faster to ensure deployment scales at the capacity added since 2015, respectively.16
required rate.
Despite this growth, Europe’s solar pipeline is not
Solar PV on track to meet 2030 capacity targets of 600
Solar PV has experienced significant growth in GW: less than 390 GW of capacity is planned
both Europe and the United States, with around to be online by end of the decade, leaving a

16
“Renewable capacity statistics 2023,” International Renewable Energy Agency, March 2023.

Exhibit 3
Clean generation
Clean generationpipelines
pipelinesare
arelargely
largely falling
falling below targets.

Installed Operational Additions in 2023¹ FID²/Committed Announced for 2030³

capacity,
Likely additions based With 2023 McKinsey’s Sustainable 2030
gigawatts (GW) on historical trend⁴ additions⁵ Transformation (ST) in 2030⁶ Target

US off- and US solar EU27+3⁷ off- and EU27+3⁷ solar

onshore wind photovoltaic onshore wind photovoltaic
750 750

~100 GW required ~200 GW required

from further projects from further projects
to reach target to reach target
600 600

+100

+199

450 450
~94 GW required ~61 GW required from
from further projects further projects to reach +228
to reach target McKinsey’s ST 2030⁶
+114
300 +61 300

+94
+84

+56
150 150

0 0
2023 2030 2023 2030 2023 2030 2023 2030
At risk At risk At risk On trajectory

1
Operational GW capacity added in 2023. 2Announced projects that have reached the final investment decision. 3Includes announced projects and prefinal
investment decision. 4Trajectory of capacity if GW addition average of past 3 years would be added every year. 5Trajectory of capacity of 3-year average plus
the additions from 2023. 6Continued momentum scenario. 7EU27 + Norway, Switzerland, and the United Kingdom.
Source: Rystad; WindEurope

McKinsey & Company

8 The energy transition: Where are we, really?

gap of approximately 200 GW. Moreover, of the target of 176 GW. But, again, of the announced
approximate 114 GW of additional solar capacity 124 GW of offshore wind capacity in the European
expected to come online over the next five years, pipeline, approximately 65 percent is still pending
less than 20 percent has reached FID. A catch- FID.
up is still possible: in contrast to wind, additional
solar capacity could be delivered rapidly, within 18 The United States currently has about 1 GW of
months, and the pipeline between now and 2030 installed offshore wind capacity—far off its national
could increase and become firmer. targets, which aim for 30 GW by 2030. The 17 GW
of offshore wind capacity that has been announced
In the United States, according to our analysis, to come online by 2030 still only represents 60
annual solar PV capacity additions will slow percent of this goal—of which, 90 percent are still
down after 2028, at about 220 GW of capacity in the pre-FID phase.
(operational and FID), because of a lack of firm
longer-term commitments. Of the announced
capacity to come online before 2030, around 60 Electric vehicles and heat pumps:
percent is still pending FID, putting a significant Momentum has slowed when it most
proportion of planned solar at risk. However, again, needs to pick up
here we would acknowledge that the nature of solar Of course, RES and BESS do not alone hold the
installation is such that the pipelines could indeed answer to the energy transition. Decarbonization
materialize in time. also involves replacing fossil fuel-powered
processes with electric alternatives in areas such
Offshore and onshore wind as transportation and residential and commercial
In wind, power projections vary significantly by heating.17
geography and technology. Wind projects typically
have longer lead times, too, which can make project Historically, EVs and heat pumps have seen strong
pipelines less secure. In Europe, the wind energy growth. Since the Paris Agreement, the adoption
pipeline is broadly on track to meet 2030 targets, of EVs and heat pumps has surged in both the
while in the United States, the pipeline appears to European Union and United States; however,
be less secure. particularly for EVs, this momentum has slowed
precisely at the time when acceleration is needed,
Europe currently has approximately 240 GW requiring action to put EVs back on track to meet
of onshore wind capacity in operation, with an targets (Exhibit 4).
additional 106 GW in the pipeline. If fully realized,
this would exceed the target of 314 GW of onshore Electric vehicles
wind capacity. However, this pipeline is not yet For the European Union to meet its target of 30
committed, with only 17 GW (16 percent) of planned million EVs by 2030, it would need to add almost
capacity having reached FID. The United States twice as many EVs as it currently has on the road
faces a more challenging situation, with only 39 GW (around 11 million) over the next five years.18 A similar
of onshore wind capacity expected to come online scale-up rate is required in the United States, which
after 2025, and just 16 GW (41 percent of the total is targeting 26 million EVs by 2030, but has only 5
pipeline) having secured FID. million EVs on the road today. Even with the ground
still to be made up, based on FID commitments, the
Offshore wind development in Europe has a gap
of only 18 GW remaining to meet its overall 2030

17
To achieve true zero-carbon status, these electric alternatives must be powered by green electricity—putting even more pressure on the
European Union and United States to meet their targets.
18
IEA Global EV Data Explorer.

The energy transition: Where are we, really? 9

 Exhibit 4
Growth in electric
Growth in electric vehicles and heat pumps is slowing after several
several years
years of
of
rapid
rapid development.
development.
Electric vehicle (EV) Operational Additions in 2023¹ FID²/Committed Announced for 2030³
parc and installed
heat pumps, million McKinsey’s Sustainable Transformation (ST) in 2030⁴ 2030 Target

EU27+3⁵ EV EU27+3⁵ heat

US EV passenger cars US heat pumps passenger cars pumps
100 100
~26 million ~47 million
additional heat pumps additional heat
required to reach pumps required to
McKinsey’s ST 2030⁴ reach target

+26

+47

+10
50 50
~21 million ~19 million
additional EVs additional EVs
required to required to
reach target reach target

+14

+19
+21

0 0
2023 2030 2023 2030 2023 2030 2023 2030
At risk On trajectory On trajectory On trajectory

1
Operational gigawatts (GW) capacity added in 2023. 2Announced projects that have reached the final investment decision. 3Includes announced projects and
prefinal investment decision. 4Continued momentum scenario. 5EU27 + Norway, Switzerland, and the United Kingdom.
Source: IEA EV data explorer; Global Energy Perspective 2023, McKinsey, October 2023; McKinsey analysis

McKinsey & Company

momentum in Europe is stronger than that in the the challenges that will still need to be overcome, to
United States. increase consumer confidence in EVs.

Despite optimistic forecasts for EV deployment, Heat pumps

lackluster sales figures over the past two years Heat pumps are seeing a similar mixed
suggest a continued US slowdown in EV growth to picture, creating a challenge to the successful
2030.19 A lack of charging infrastructure is one of decarbonization of residential heat in both regions.

19
Ibid.

10 The energy transition: Where are we, really?

Heat pumps have seen continued growth since around 60 times and nine times the amount
2016 due in part to policy action such as the EU of current CCUS capacity in Europe and the
Green Deal, which targets a 55 percent reduction United States to be available, respectively, over
in natural gas imports by 2030, and financial the next six years. However, while announced
incentives in the United States to lower the capacity is high, the vast majority of projects are
upfront costs of heat pump installation.20 still lacking FID and hence are at high risk of not
materializing (Exhibit 5). Regulatory approvals
While European heat pump sales are still on a can also be lengthy. Approximately 15 percent of
positive trajectory, the high cost of capital, among the announced projects are in more conventional
other factors, may impact this progress. In the segments (for example, gas processing) while the
United States, heat pump sales declined in 2023, rest is in new(er) segments, such as cement and
and, if this trend continues, the United States hydrogen.
could see a marked slowdown in heat pump
additions before 2030.21 Hydrogen
Clean hydrogen has also attracted significant
attention as a critical energy source, with both
CCUS, hydrogen, and sustainable Europe and the United States setting ambitious
fuels: Interdependencies put progress targets for clean hydrogen production.22 The
at risk European Union aims for 20 megatons (Mt)
Some sectors are, by their nature, hard to of clean hydrogen supply by 2030, with 10 Mt
decarbonize. Their successful decarbonization produced domestically and 10 Mt imported.23
relies on the deployment of electrification The United States is targeting 10 Mt of clean
technologies, combined with renewable hydrogen production by the same year.
technologies and newer technologies, such as
CCUS and hydrogen. The data suggest that there is a long way to
go in both regions. To meet 2030 targets,
For the most part, these technologies remain clean hydrogen production needs to increase
largely untested at scale and have the lowest approximately 25-fold in Europe and 20-fold in
levels of FID among all decarbonization levers. the United States over the next five years. Current
Project delays or cancellations here could hinder project pipelines are projected to meet about
the development of sustainable fuels and other 90 percent of European and 70 percent of US
critical components of the energy transition, with targets, but only around 11 percent of Europe’s
knock-on effects for energy transition targets. and 15 percent of US announced project pipelines
Further, the challenge with some of these value have reached FID. And, while Europe’s clean
chains is that they require the development not hydrogen project pipeline anticipates steady
just of a singular technology (for example, capture capacity addition until 2030, the US project
trains) but an entire value chain that coincides pipeline already shows a sharp decline after 2028
with the deployment of projects—further (Exhibit 6).
complicating the issue.
Sustainable fuels
Carbon capture, utilization, and storage Biobased sustainable fuels are also uncertain,
CCUS has emerged as a key decarbonization largely due to the unsettled hydrogen project
lever across Europe and the United States. pipeline, given hydrogen’s role as a critical
Project pipelines are full and ambitious, with input for sustainable fuels production. This may

20
“European green deal,” Council of the European Union, June 17, 2024; “Inflation reduction act overview,” US Environmental Protection
Agency, January 2023.
21
“AHRI releases December 2023 US heating and cooling equipment shipment data,” AHRI, February 9, 2024.
22
Clean hydrogen includes both green hydrogen (hydrogen produced from the electrolysis of water using renewable energy sources) and
blue hydrogen (produced using steam methane reforming or gasification with CCUS).
23
“Hydrogen,” European Commission.

The energy transition: Where are we, really? 11

 Exhibit 5
capture, utilization, and storage
Carbon capture, storageisison
onaatrajectory
trajectoryofofexponential
exponential
growth, but only small volumes are committed
volumes are committedtotodate.
date.

Installed capacity, Operational Additions in 2023¹ FID²/Committed Announced for 2030³

metric tons per
McKinsey’s Sustainable Transformation (ST) in 2030⁴ 2030 Target
annum (mtpa)
US CCUS EU27+3⁵ CCUS
200 200

150 150

~132 mtpa
from additional
~170 mtpa projects need
in pipeline to receive FID²
to 2030 to reach
McKinsey’s ST
100 100
2030⁴
~148 mtpa
in pipeline
to 2030

50 50
~44 mtpa
from additional
projects need to
receive FID² to
reach target

0 0
2023 2030 2023 2030
At risk At risk

1
Operational GW capacity added in 2023. 2Announced projects that have reached the final investment decision. 3Includes announced projects and prefinal
investment decision. 4Continued momentum scenario. 5EU27 + Norway, Switzerland, and the United Kingdom.
Source: CCUS project tracker

McKinsey & Company

slow the impetus for sustainable fuels following annum (mtpa) and 33 mtpa of sustainable fuel
policy developments, including ReFuelEU and capacity, respectively, with the vast majority of this
the US sustainable aviation fuels (SAF) “Grand being in hydrotreated vegetable oils (HVO) and
Challenge.”24 hydroprocessed esters and fatty acids (HEFA).25
Although the production of HVO and HEFA is
The current European and US announced largely on track, achieving these goals would
pipelines include around 21 million tons per entail more than quadrupling current European

24
Grand Challenge refers to the combined work of US DOE, DOT, USDA, and other federal government agencies working to scale up the
Sustainable Aviation Fuel value chain.
25
HVO/HEFA, advanced middle distillate and methanol.

12 The energy transition: Where are we, really?

Exhibit 6
Many hydrogen projects
Many hydrogen projects may not materialize, putting non-biobased
non-biobased
sustainable
sustainablefuels
fuelsat
atrisk.
risk.

Production capacity, Operational Additions in 2023¹ FID²/Committed Announced for 2030³

million tons per
annum (mtpa) McKinsey’s Sustainable Transformation (ST) in 2030⁴ 2030 Target

US blue and green EU27+3⁶ blue and green EU27+3⁶

hydrogen production US sustainable fuels⁵ hydrogen production sustainable fuels⁵
100 ~52 mtpa 100
required from further
projects to reach
McKinsey’s ST 2030⁴

~24 mtpa
+52 required from further
projects to reach
McKinsey’s ST 2030⁴
50 50

+24
~2 mtpa required ~3 mtpa from additional
from further projects need to
projects to receive FID² to
reach target reach target
+22

+21
+2
+7 +3
0 0
2023 2030 2023 2030 2023 2030 2023 2030
At risk At risk At risk On trajectory

1
Operational GW capacity added in 2023. 2Announced projects that have reached the final investment decision. 3Includes announced projects and prefinal
investment decision. 4Continued momentum scenario. 5Hydrotreated vegetable oil (HVO)/hydroprocessed esters and fatty acids (HEFA), advanced middle
distillate, methanol. ⁶EU27 + Norway, Switzerland, and the United Kingdom.
Source: Hydrogen Insights Project tracker, McKinsey’s Sustainable Fuels Project database

McKinsey & Company

SAF production and tripling that of the United Factors affecting market performance
States over the next five years. The evolving policy environment has done much
to accelerate the energy transition up till now, but
The SAF project pipeline—while ambitious—is more will be needed to help achieve key climate
largely not yet firm, with only around 25 percent goals as existing policies may be too narrow and
and 30 percent of capacity until 2030 having not long-dated enough. And, policy alone may not
achieved FID in Europe and the United States, be enough to overcome the converging factors
respectively. now affecting progress. Many of these factors

The energy transition: Where are we, really? 13

 and potential solutions have been discussed in Lack of reference projects: In contrast to
previous McKinsey articles (see sidebar “Further “incumbent” energy technologies such as refining
reading”). or upstream oil and gas, many of the emerging
technology business cases lack reference
In brief, they include the following factors. cases to show investors that industry-leading
companies are actually underwriting the projects.
Challenging macroeconomic environment: Moving forward requires pioneering thinking
Economic uncertainties and fluctuating given the uncertainties and investor pressures on
investment climates impact both the financing returns.
and prioritization of green projects. Even with
initiatives like the IRA in the United States, Long permitting procedures: Reported lengthy
rising inflation and interest rates have made and complex permitting processes are delaying
capital expenditure-intensive projects even the approval and deployment of new projects.
more expensive, likely contributing to project Across technologies, we have observed a high
cancellations and continued lack of FID due to the percentage of projects stuck in permitting phases,
changing financial environment. which is not helped by the heterogeneous nature
of permitting processes across geographies.
Technology and business case maturity: CCUS,
clean hydrogen, and some sustainable fuels are Specialized labor shortages: A lack of skilled
fundamental to the decarbonization pathways workers in green technologies is slowing the
of many geographies and corporations alike, installation and maintenance of new systems
yet many new technologies have not yet been across different supply chain stages, geographies,
tested at scale, creating uncertainty about their and technology maturity levels. For newer
effectiveness and reliability—and making them technologies such as sustainable fuels, there
less attractive to investors. is a shortage of engineering, procurement,

Further reading

In the coming weeks, McKinsey will publish its annual Global Energy Perspective, outlining various projected scenarios for the
energy transition in the years to 2050, alongside the new Global Materials Perspective 2024.

For further reading on the energy transition and what it will take to overcome bottlenecks and challenges, see:

“What would it take to scale critical climate technologies?,” McKinsey, December 1, 2023.

“The hard stuff: Navigating the physical realities of the energy transition,” McKinsey Global Institute, August 14, 2024.

“A radical approach to cost reduction at climate tech companies,” McKinsey, June 18, 2024.

14 The energy transition: Where are we, really?

and construction (EPC) contractors with the Nevertheless, there is still a window of
experience needed to develop the technology. opportunity for governments and companies
More mature technologies such as heat pumps, to deliver the growth needed to meet net-zero
grids, and solar do not have enough downstream ambitions. To do so, reevaluating existing
installers to keep up with installation demand. strategies in the light of changing global
conditions may be necessary. Many current
Raw material shortages: The supply chains decarbonization strategies assumed a different
for critical components such as batteries, solar economic and policy landscape than the one that
panels, and wind turbines are affected by raw exists today.
materials’ availability. The production of lithium-
ion batteries, essential for EVs and BESS, is With this clear view of current progress in hand,
particularly vulnerable due to high demand for now is the time for stakeholders across the energy
lithium, cobalt, and nickel. Potential shortages value chain to revisit decarbonization plans and
not only drive up costs but also cause delays in assess if these plans are still sufficient to achieve
manufacturing, potentially stalling the expansion their climate goals.
of EVs and BESS. Similarly, the supply chain of
rare earth elements such as neodymium and Companies will need to adjust portfolio focus,
dysprosium, crucial for wind turbine magnets, is given the rapid evolution of policies and
critical for the growth of wind energy projects. government targets. Those with more experience
in specific technologies could hold a significant
Geopolitical uncertainty: Strained supply chains advantage. But, they will also need to avoid
and limited availability of critical technologies getting too far ahead in regions and markets with
and raw materials are affected by factors such low pipeline firmness or small pipelines.
as international supply chain tensions and
trade disruptions. This is especially relevant for Relevant government stakeholders could
technologies where raw materials or production prioritize project- and market-enabling policies to
capacity are heavily concentrated in one specific improve project economics and to drive demand
region. from the market for new products and solutions.
For the former, options include financing schemes
(for example, tax credits such as the 45Q in
Accelerating action to meet the United States). For the latter, policymakers
climate goals may want to consider carbon pricing, product
Make no mistake—a lot of progress has been mandates, or other demand drivers.
made since the 2015 Paris Agreement. New policy
initiatives combined with progressive corporate After revising their portfolio strategy,
attitudes (spurred on by ever-increasing public stakeholders could actively derisk critical
pressure) mean the world is moving in the right developments integral to the company’s strategy,
direction where climate action is concerned. for instance, by:

At the current pace, however, Europe and the — Forming partnerships: industrial OEMs and
United States risk missing important 2030 engineering, procurement, and construction
climate targets across critical technologies. The (EPC) players face the challenge of delivering
interdependent nature of these technologies increasingly complex technologies at lower
means that delays could have cascading effects, costs. Forming industrial partnerships
hindering the development and successful could provide better visibility into product
deployment of subsequent innovations and development and help maintain a network of
putting 2050 net-zero goals at risk. trusted EPCs and partners.

The energy transition: Where are we, really? 15

 — Engaging actively: with policies and subsidies — Staying on top of developments: as the
becoming more complex, stakeholders could changing market landscape impacts the
actively engage in discussions and highlight attractiveness of merchant strategies,
the challenges, bottlenecks, and enablers that stakeholders can adjust these strategies
are needed to advance the net-zero transition. based on the latest market intelligence and
This engagement could help ensure that sector developments.
policies provide strong signals for investors
and enable positive returns. By revising their portfolio strategies and actively
derisking critical developments, stakeholders may
— Addressing offtakes and infrastructure be better able to navigate the uncertainties of the
needs: given that the possible reduced evolving market landscape, ensuring sustained
availability of specific technologies may affect growth to reach their climate goals.
the demand/supply balance, stakeholders
could proactively seek offtake agreements,
understand green premiums, and address
infrastructure needs.

Diego Hernandez Diaz is a partner in McKinsey’s Geneva office; Humayun Tai is a senior partner in the New York office;
Thomas Hundertmark is a senior partner in the Houston office; Michiel Nivard is a consultant in the Amsterdam office; and
Nicola Zanardi is an alumnus of the Munich office.

The authors wish to thank Corina Ai-Hua Lo, Eva Mühlebach, Marco Barbaro, Patrícia Ovídio, Sophie FitzGerald, and Tobias
Esswein for their contributions to this article.

Copyright © 2024 McKinsey & Company. All rights reserved.

16 The energy transition: Where are we, really?