The world could be heading for a 3-degree C warming trajectory as political headwinds slow the energy transition, says a new report by Wood Mackenzie.

The risks of delays in the transition to low-carbon energy have grown, especially because of shifts in policy and politics in several key economies, said the consultancy. 

Several key economies, such as the US, face elections with climate deniers – such as ex-President Donald Trump – in a close race.

“With half of the global population heading to polls in 2024, political realities and climate scepticism in the major emitting countries, such as the US and Europe, could reduce the support for the transition as voters seek economic security and price stability,” said Prakash Sharma, vice president, scenarios and technologies at WoodMac and the report author.

Fossil fuel companies are also redoubling their efforts to drill oil and gas and are turning their backs on renewable energy.   

According to the Paris Agreement, global temperatures should be kept at or below about 2 degrees C to avoid the worst consequences of the climate crisis. And that is looking farther out of reach than ever.

A five-year delay to the energy transition could see the global average temperature rise to 3-degree Celsius above pre-industrial levels, said WoodMac’s new analysis, ‘A delayed energy transition’.

WoodMac’s new scenario, which analysed the impact a five-year delay might have on global decarbonisation efforts, expects annual average spending to fall to $1.7 trillion. This is 55% lower than WoodMac’s net zero 2050 scenario, which maps out what’s required to meet the Paris Agreement targets.

In terms of total investment, a delayed transition could cost up to $48 trillion, a significant decrease from WoodMac’s net zero scenario, which estimates a total of $75 trillion.

Under this delayed scenario, oil and gas sector CAPEX rises to 31%, as power sector spending is expected to remain at its current level of 60%. Spending could fall to less than 10% in the net zero scenario if the power sector gets 80% of total spending, said WoodMac.

For metals and mining sectors, CAPEX is the most resilient and remains around 6% of the total across all scenarios. In contrast, despite its key role in the overall energy transition, investment into hydrogen and carbon, capture, utilisation and storage (CCUS) drops to 2%, compared with 8% in Wood Mackenzie’s net zero scenario.

“The global stocktake at COP28 in December 2023 also confirmed that no major country was on track to meet the Paris aligned commitments and that strong policy action and capital investment were necessary to accelerate the transition. Indeed, Europe and the UK have already pushed back 2030 climate goals and other countries may follow suit,” Sharma added.

According to the delayed scenario, emissions are expected to peak in 2032 and the remaining carbon budget for a 1.5 ˚C world will be used up by 2027, further weakening countries’ ability to deliver the Paris Agreement goals in time by 2050.

Renewables-led electrification looks increasingly more challenging, in WoodMac’s delayed scenario. Solar and wind dominate power markets in the longer term, but near-term additions would be slowed due to transmission bottlenecks. Unabated thermal supply would provide much of the flexible generation to balance power grids.

Higher interest rates and supply chain bottlenecks raised renewables costs by 10% to 20% in recent years. Expensive renewables costs will further delay low-carbon hydrogen cost declines, reducing demand to 100mn tonnes in 2050, nearly 50% lower than the base case, said the report.

A slower transition means carbon capture and removal technologies would need to play a dominant role in restoring the carbon balance and achieving long-term climate goals. CCUS uptake reaches 225mn tonnes by 2030 in Wood Mackenzie’s delayed transition and continues to scale as policy incentives expand and storage infrastructure is built.

In the delayed transition scenario, oil demand peaks at 114mn barrels per day in 2033, nearly 6mn bpd higher than the base case due to slower electric vehicle (EV) adoption outside China. Gas demand peaks at 4,536bn cubic metres of natural gas in 2045, nearly 100 bcm higher than the base case. Meanwhile coal demand falls slowly, keeping a 3% higher trajectory than the base case in this decade.

“Lower renewables and hydrogen production create headroom for additional gas demand growth, but coal’s resilience limits upside. Commodity markets look tighter and volatile for longer unless investment in supply picks up,” Sharma said.