The global energy transition is not occurring fast enough to meet Paris Agreement emissions targets despite countries funnelling some $2trn in annual investment thus far, according to a report by research analytics firm Wood Mackenzie.

It argued that making the changeover from fossil fuels was never going to be quick or easy on the road to meeting net zero by 2050.

“Patience is important because what we are trying to do here is change the global energy system which was set up over the last few 100 years,” said Prakash Sharma, vice president of energy transition and one of the authors of the report, Energy Transition Outlook, released Thursday.

It will require decreasing dependency on fossil fuels from the current 80% to 50%, while dramatically ramping deployment of clean energy, according to the report. Vast sums need to be invested in transmission and grid technologies as well to enable renewable energy to get to market.

Many clean energy technologies, particularly low-carbon hydrogen and carbon capture utilisation and storage (CCUS) “are still at very early stage, and they do require a lot of experimentation, operational excellence, and expertise that could come with time,” said Sharma.

But “these are the technologies that are going to get the world to a net-zero system in 30, 40 years’ time,” he added.

The global renewables sector has struggled recently with inflationary headwinds stoked by the war in Ukraine that has led to shortages of natural gas and critical materials.

“That's having quite a notable impact on some of the renewables developers, in some jurisdictions,” said Jonny Sultoon, vice president of power and renewables, leading to substantial project cancellations and contract renegotiations in key North American and European markets.

Yet new laws including the Inflation Reduction Act in the US and RePower in Europe is putting the world in a good position for further emissions cuts.

"Sustainability is still alive and kicking,” said Sultoon. “We feel there is a credible pathway to a one-and-a-half-degree scenario, the global net zero case, although it's extremely challenging, and much depends on actions taken this decade.”

The report's base case looks at the current trajectory of energy transition that includes some $1.9trn in annual investment into decarbonisation but would still result in global temperatures rising by 2.5 degrees Celsius by 2100. This is outside Paris Agreement targets and could result in devastating climate impacts, according to the Intergovernmental Panel on Climate Change.

National pledges in focus

The report also looks at a 'country pledge' scenario based on carbon emission promises made for the Paris Agreement.

"Rapid decarbonisation of power and electrification across multiple sectors drives emissions reduction in this scenario," according to the report, at investment levels of $2.2trn.

The report focuses on seven regions that are collectively responsible for 70% of global emissions, including China, the EU, Japan, the UK, and US, and highlights that while none are on track to reach their 2030 emissions targets, the EU and UK "come close".

Getting to global net zero will require raising expenditures to $2.7trn annually to reach 50% electrification of the global economy.

Central to the goals is building out supply chains, particularly as nations strive for energy security amid ongoing turmoil in global markets and reducing dependency on potentially hostile suppliers.

“This is a critical feature in North America,” said Sultoon, noting the generous incentives in the IRA aimed at stimulating domestic manufacturing and reducing dependence on China.

“This has a strong impact across many states, both red and blue states,” he added, referencing the colours of the Republican and Democratic political parties.

“That does lead to a bit of a slowdown in the near-term momentum, because building these factories these efficient factories isn't going to be as low cost as in China or as swift, but that will have longer lasting effects eventually,” Sultoon said.

It also provides some insulation from changing political winds. Despite the IRA passing the US Congress solely on Democratic votes, the majority of investment has gone to states dominated by the Republican party.

“In red [Republican] states, they criticise the IRA in public, [but] in private they support it because it's a it's a large job supporter and economic growth driver,” said David Brown, director of energy transition at WoodMac.