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mdc-u-ts-9"><span> </span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/mekala-krishnan" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Mekala Krishnan</span></a> </span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/chris-bradley" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Chris Bradley</span></a> </span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/humayun-tai" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Humayun Tai</span></a> </span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j">Tiago Devesa </span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/sven-smit" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Sven Smit</span></a><span> </span></span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/daniel-pacthod" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Daniel Pacthod</span></a></span></span></div><div class="mdc-u-grid-col-md-start-8 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-8 mdc-u-grid-col-lg-end-11 ArticleContent_mck-c-article-content__share-tools__kWRRw"></div></section><section class="mdc-u-grid mdc-u-grid-col-md-12 mck-u-animation-blur-in-400"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-5"><div class="mck-u-links-inline">The energy transition is a physical transformation in its early stages. What challenges lie ahead?</div></div></div></section><main data-layer-region="article-body" class="mdc-u-grid mdc-u-grid-gutter-xxl"><div class="mdc-u-grid mdc-u-grid-col-1 mdc-u-grid-col-md-12"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><div class="mdc-o-content-body mck-u-dropcap"> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="DownloadsSidebar_mck-c-downloads-sidebar__iFmyt mck-o-xs-right-span"><div data-layer-region="downloads-right-rail"><h3 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-c-heading--title___5qyOB_2734c4f mdc-c-heading--border___K8dj3_2734c4f"></h3><div><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f"><div class="mdc-u-align-center DownloadsSidebar_mck-c-downloads-sidebar__fullreport__pTrE3"><img class="DownloadsSidebar_mck-c-downloads-sidebar__fullreport__pTrE3 DownloadsSidebar_mck-c-downloads-sidebar__fullreport--image__RcOxJ" alt="" src="/~/media/mckinsey/mckinsey global institute/our research/the hard stuff navigating the physical realities of the energy transition/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final_thumbnail.jpeg"/></div><div><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-6 DownloadsSidebar_mck-c-downloads-sidebar__fullreport__pTrE3 DownloadsSidebar_mck-c-downloads-sidebar__fullreport--title__dsfYc">The hard stuff: Navigating the physical realities of the energy transition</h5></div><a data-component="mdc-c-link" href="#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse" class="DownloadsSidebar_mck-c-downloads-sidebar__download-link__fPqFQ mdc-c-link___lBbY1_2734c4f" target="_self" data-layer-event-prefix="Download Link" data-layer-action="click" data-layer-report-type="" data-layer-file-name="the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final" data-layer-report-name="the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final>"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-download-icon"></span><span class="mdc-c-link__label___Pfqtd_2734c4f"> (196 pages)</span></a><a data-component="mdc-c-link" href="#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-executive-summary-final.pdf%3FshouldIndex%3Dfalse" class="DownloadsSidebar_mck-c-downloads-sidebar__download-link__fPqFQ mdc-c-link___lBbY1_2734c4f" target="_self" data-layer-event-prefix="Download Link" data-layer-action="click" data-layer-report-type="" data-layer-file-name="the-hard-stuff-executive-summary-final" data-layer-report-name="the-hard-stuff-executive-summary-final>"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-download-icon"></span><span class="mdc-c-link__label___Pfqtd_2734c4f"> (15 pages)</span></a></div></div></div></div> <section id="toc-item-1" data-module-name="toc-item" class="TocItem_mck-c-toc-item__VqmeU mck-c-module-wrapper" data-title="At a glance" data-state="collapsed" data-alias="toc-at-a-glance" aria-label="At a glance" tabindex="-1"></section> <h3>At a glance</h3> <ul> <li><strong>The energy transition is in its early stages, with about 10 percent of required deployment of low-emissions technologies by 2050 achieved in most areas.</strong> Optimized over centuries, today’s energy system has many advantages, but the production and consumption of energy accounts for more than 85 percent of global carbon dioxide (CO<sub>2</sub>) emissions. Creating a low-emissions system, even while expanding energy access globally, would require deploying millions of new assets. Progress has occurred in some areas, but thus far has largely been in less difficult use cases.</li> <li><strong>Twenty-five interlinked physical challenges would need to be tackled to advance the transition. </strong> They involve developing and deploying new low-emissions technologies and entirely new supply chains and infrastructure to support them.</li> <li><strong>About half of energy-related CO<sub>2</sub> emissions reduction depends on addressing the most demanding physical challenges.</strong> Examples are managing power systems with a large share of variable renewables, addressing range and payload challenges in electric trucks, finding alternative heat sources and feedstocks for producing industrial materials, and deploying hydrogen and carbon capture in these and other use cases.</li> <li><strong>The most demanding challenges share three features.</strong> First, some use cases lack established low-emissions technologies that can deliver the same performance as high-emissions ones. Second, the most demanding challenges depend on addressing other difficult ones, calling for a systemic approach. Finally, the sheer scale of the deployment required is tough, given constraints and the lack of a track record.</li> <li><strong>Understanding these physical challenges can enable CEOs and policy makers to navigate a successful transition.</strong> They can determine where to play offense to capture viable opportunities today, where to anticipate and address bottlenecks, and how best to tackle the most demanding challenges through a blend of innovation and system reconfiguration.</li> </ul> <p><strong>Today’s energy system,</strong> encompassing both the production and consumption of energy resources, is massive and complex.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="d4f59f3e-f30b-4b88-ad77-cd2d5ae36675"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="d4f59f3e-f30b-4b88-ad77-cd2d5ae36675" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">This research considers both the use of energy resources like oil, gas, and coal to provide energy, as well as their nonenergy uses in materials production, namely as inputs or feedstocks (for example, the use of oil as a feedstock for the production of plastics). For comprehensive definitions relating to the energy system, see “Glossary” in <em>Climate change 2014: Mitigation of climate change</em>, Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPPC), Cambridge University Press, 2014.</span></span></span></a></span> The system has been optimized over centuries, is deeply embedded in the global economy, and serves billions of people, if not yet all of humanity.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="0f1ccc81-3cd2-4e82-aa26-67c590bacd9f"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="0f1ccc81-3cd2-4e82-aa26-67c590bacd9f" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>Number of people lacking access to reliable electricity services</em>, United Nations Development Programme, 2022.</span></span></span></a></span> And it is high-performing. Energy can be dispatched relatively easily where and when it is needed because current fuels are energy-dense and easily transportable. Supply can be ramped up and down quickly.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>Acknowledgments</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body"><p><span style="line-height:110%">The research was led by Mekala Krishnan, an MGI partner in Boston; Chris Bradley, a McKinsey senior partner and a director of MGI in Sydney; Humayun Tai, a senior partner in the New York office; Tiago Devesa, an MGI senior fellow in Lisbon; Sven Smit, McKinsey senior partner in Amsterdam and chairman of MGI; and Daniel Pacthod, a senior partner in the New York office. We give particular thanks to Lola Woetzel (alumna), a former McKinsey senior partner and director of MGI, who helped us drive the research that led to this report.</span></p> <p><span style="line-height:110%">A group of McKinsey colleagues coauthored</span> chapters dedicated to the seven domains of the energy system: for power, Jesse Noffsinger, a McKinsey partner in Seattle, and Diego Hernandez Diaz, a McKinsey partner in Geneva; for mobility, Timo Möller, a McKinsey partner in Cologne and coleader of the McKinsey Center for Future Mobility; for industry, Michel Van Hoey, a McKinsey senior partner in Luxembourg; Christian Hoffmann, a McKinsey partner in Düsseldorf; Ken Somers, a McKinsey partner in Brussels; and Adam Youngman, a McKinsey senior asset leader in Los Angeles; for buildings, Daniel Cramer, a senior McKinsey asset leader in New York; for raw materials, Michel Foucart, a McKinsey associate partner in Brussels; Michel Van Hoey; and Patricia Bingoto, a McKinsey senior expert in Zurich; for hydrogen and other energy carriers, Rory Clune, a senior partner in Boston; and for carbon and energy reductions, Clint Wood, a McKinsey partner in Houston, and Santhosh Shankar, a US-based McKinsey expert. For their considered contributions to the research, we also thank Olivia White, McKinsey senior partner and a director of MGI in San Francisco, and Jan Mischke, MGI partner in Zurich.</p> <p>The project team was led by Masud Ally, Francisco Galtieri, Kasmet Niyongabo, and Luc Oster-Pecqueur, and comprised Kemi Ajala, Sanjana Are, Maya Berlinger, Andrea Boza Zanatta, Susan Cheboror, Patrick Chen, Thibault Courqueux, Anurag Dash, John Grabda, Muriel Jacques, Myer Johnson-Potter, <span style="line-height:110%">Pauline Leeuwenburg,</span> Pierre Salvador, Girish Selvaraj, Anna Schneider, Casey Timmons, Tse Uwejamomere, Marnix Verhoeven, and David Wu. <span style="line-height:110%">We are grateful to Janet Bush, MGI executive editor, who helped write and edit the report, and Juan M. Velasco, who helped with data visualization.</span></p> <p>For kindly sharing their insights, we thank advisors Simon Dietz, professor, Grantham Research Institute on Climate Change and the Environment; Marion Dumas, professor, Grantham Research Institute; and John Ward, founder, Pengwern Associates, and visiting senior fellow, Grantham Research Institute.</p> <p>We are also grateful to the following for taking the time to discuss the findings of this research and sharing their views with us: Jesse Jenkins, assistant professor of mechanical and aerospace engineering at the Andlinger Center for Energy and the Environment at Princeton University; Ted Nordhaus, founder and executive director of the Breakthrough Institute; Vijay Modi, a professor of mechanical engineering at Columbia University and faculty member of the Earth Institute; and Gregory F. Nemet, Vilas Distinguished Achievement Professor, La Follette School of Public Affairs, University of Wisconsin-Madison; and Daniel Schrag, the Sturgis Hooper Professor of Geology, Professor of Environmental Science and Engineering at Harvard University, and Co-Director of the Science, Technology, and Public Policy Program at Harvard’s Kennedy School.</p> <p>Many McKinsey colleagues gave us input and guidance. We want to thank Enric Auladell Bernat, Deston Barger, Henrik Becker, Christian Begon, Michele Benoit, Krysta Biniek, Milo Boers, Brodie Boland, Janice Bolen, Michaela Brandl, Greg Callaway, Julian Conzade, Peter Cooper, Andreas Cornet, Matteo Cutrera, Thomas Czigler, Danny Van Dooren, Treina Fabre, Javier Ferrer, Lauritz Fischer, Wenting Gao, Godart van Gendt, Nicolas Goffaux, Jose Luis Gonzalez, Anna Granskog, <span style="line-height:110%">Darya Guettler, </span>Rajat Gupta, Marcin Hajlasz, Bernd Heid, Tom Hellstern, Russell Hensley, Anna Herlt, Ruth Heuss, Ann Hewitt, Autumn Hong, Blake Houghton, Thomas Hundertmark, Lionel Johnnes, Adam Kendall, Arjen Kersing, Per Klevnäs, Anna (Orthofer) Kortis, Kevin Laczkowski, Joh Hann Lee, Mateusz Lesniak, Christopher Martens, Eduardo Mencarini, Takashi Nakachi, Tomas Nauclér, Geoff Olynyk, Alex Panas, Jan Paulitschek, Sebastian Reiter, Gustavo Ribeiro, Daniel Riefer, Alexandre Van de Rijt, Moritz Rittstieg, Giulio Scopacasa, Suvojoy Sengupta, Bram Smeets, Hady Soliman, Brandon Stackhouse, Stephanie Stefanski, Michelle Stitz, Carlo Tanghetti, Tom Thys, Felix Tigges, Joaquin Ubogui, José Urgel, Steven Vercammen, Tom Voet, Maurits Waardenburg, Jeremy Wallach, Markus Wilthaner, <span style="line-height:110%">Marita Winslade, </span>and Nicola Zanardi.</p> <span style="line-height:110%">In MGI’s operations team, we would like to thank Rachel Robinson and Rishabh Chaturvedi. For their help with digital production, we thank Chuck Burke and David Batcheck; and for their communications expertise, Rebeca Robboy, Nienke Beuwer, Shannon Ensor, and Ashley Grant. We are also grateful to communications colleagues in McKinsey’s Global Energy and Materials Practice and McKinsey’s Sustainability Practice, Lisa Farrugia and Kristen Jennings. Thanks also go to McKinsey’s design team, especially to Nathan R. Wilson and Janet Michaud. Finally, we appreciate the collaboration with other members of McKinsey’s digital production team, including Sean M. Conrad, Mary Gayen, Paromita Ghosh, Stephen Landau, and Regina Small.</span><br/> <br/> As with all MGI research, this work is independent and has not been commissioned or sponsored in any way by any business, government, or other institution. While we gathered a variety of perspectives, our views have been independently formed and articulated in this report. Any errors are our own.</div></div></div></div></div></div> <p>For all its advantages, today’s system also has critical flaws. About two-thirds of energy is currently wasted.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="51bbe4fc-40ed-4f5c-923d-6b0440658c63"><sup class="FootNote_footnotesup__e73z_">3</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="51bbe4fc-40ed-4f5c-923d-6b0440658c63" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Clemens Forman et al., “Estimating the global waste heat potential,” <em>Renewable and Sustainable Energy Reviews, volume 57, May 2016; Energy flow charts</em>, Flowcharts, Lawrence Livermore National Laboratory and Department of Energy, accessed July 2024; and Paul Martin, <em>The primary energy fallacy – or, committest thou NOT the 2nd sin of thermodynamics!</em>, June 25, 2024.</span></span></span></a></span> And the system generates more than 85 percent of global emissions of carbon dioxide (CO<sub>2</sub>).<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="269403ac-ed4c-4f69-b061-d588db07aad6"><sup class="FootNote_footnotesup__e73z_">4</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="269403ac-ed4c-4f69-b061-d588db07aad6" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Global CO<sub>2</sub> emissions from energy combustion and industrial processes total about 37 gigatons, with about five gigatons in agriculture, forestry, and other land use. In the case of methane, more than approximately 35 percent of global emissions arise from the energy system, from combustion and industrial processes, with the remaining 65 percent divided between agriculture, at about 40 percent, and waste and other sectors at about 25 percent (data for 2021); McKinsey EMIT database, 2023.</span></span></span></a></span></p> <p>Companies and countries are now engaged in an effort to transition the energy system and reduce those emissions—and to do so in just a few decades. That is a big ask. In the digital age, we have become accustomed to lightning-fast transformations. TikTok took nine months and ChatGPT only two months to gain 100 million users.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="b43488ba-3b28-4116-a6c0-04fb9b8abbe0"><sup class="FootNote_footnotesup__e73z_">5</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="b43488ba-3b28-4116-a6c0-04fb9b8abbe0" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">“ChatGPT witnesses massive rise, Chatbot gains 100 million users in two months,” <em>Economic Times</em>, March 2023.</span></span></span></a></span> But an energy system is a physical entity, and historical energy transitions have taken many decades or even centuries. Complicating the task of building a new low-emissions energy system is that it coincides with the need for it to continue to grow to expand access to energy for billions of people who still do not have it, thereby economically empowering them.</p> <p>Real progress has been made, but the transition remains in its early stages. Thus far, deployment of low-emissions technologies is only at about 10 percent of the levels required by 2050 in most areas, and that has been in comparatively easy use cases. More demanding challenges are bound to emerge as the world confronts more difficult use cases across geographies.</p>  <p>Low-emissions technologies such as solar and wind power and electric vehicles (EVs) have advantageous properties and can be brought together to deliver high performance. But deploying them well and progressing the transition further requires understanding the physical realities of the energy transition—the “hard stuff.” Recognizing that the energy transition is first and foremost a physical transformation is a truth that can get lost in the abstraction of net-zero scenarios. But it is vital if the new energy system is to retain, or even improve on, the performance of the current one and secure an affordable, reliable, competitive path to net zero.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="9eff1ddd-edc7-4dcd-9815-035d2db0003d"><sup class="FootNote_footnotesup__e73z_">6</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="9eff1ddd-edc7-4dcd-9815-035d2db0003d" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>An affordable, reliable, competitive path to net zero</em>, McKinsey Sustainability, November 2023. It is also important to take a holistic view of the socioeconomic impacts of different transition pathways and to use this perspective to help inform decision making. See <em>Climate Transition Impact Framework: Essential elements for an equitable and inclusive transition</em>, McKinsey Sustainability, December 2023; and “Solving the net-zero equation: Nine requirements for a more orderly transition,” McKinsey Sustainability, October 2021.</span></span></span></a></span></p> <p>The observation has widely been attributed to Albert Einstein that, given an hour to solve a problem, he would spend 55 minutes defining the problem and five thinking about solutions.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="618c1811-2315-4d86-aef8-3b56ff8248dc"><sup class="FootNote_footnotesup__e73z_">7</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="618c1811-2315-4d86-aef8-3b56ff8248dc" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Nell Derick Debevoise, “The third critical step in problem solving that Einstein missed,” <em>Forbes</em>, January 26, 2021.</span></span></span></a></span> It is in that spirit that this research builds on the vast body of literature on the energy transition and pathways to net zero. Across seven domains, it identifies 25 significant physical challenges that must be overcome if the transition is to succeed. Three aspects stand out across these challenges: the maturity and performance of low-emissions technologies; the degree of scaling these technologies and their support infrastructure and supply chains would need as this massive energy system is transformed; and interdependencies across the different parts of the system.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-disruptor1up mck-o-md-center mck-u-inline-module-border-top mck-u-inline-module-border-bottom mck-u-screen-only" data-layer-region="disruptor-1up"><div class="mdc-u-grid mdc-u-grid-gutter-md mdc-u-grid-col-lg-12 mdc-u-grid-col-md-12 "><div class="mdc-u-grid-col-lg-span-4 mdc-u-grid-col-md-span-5 Disruptor1Up_mck-c-disruptor1up__image___2Gc4"><picture data-component="mdc-c-picture"><img alt="Move from plans to progress." src="/~/media/mckinsey/business%20functions/sustainability/how%20we%20help%20clients/sustainability-campaign_promo-thumb_1536x1536.jpg?cq=50&mh=145&car=16:9&cpy=Center" loading="lazy"/></picture></div><div class="mdc-u-grid-col-lg-span-8 mdc-u-grid-col-md-span-7"><header data-component="mdc-c-header" class="mdc-c-header"><div class="mdc-c-header__block___i1Lg-_2734c4f"><h3 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f"><div><span class="disrupt-ab">Move from plans to progress.</span></div></h3><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-7"><p><div>Sustainability matters. Together we’ll make it real.</div></p></div></div></header><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f mck-c-disruptor1up__content Disruptor1Up_mck-c-disruptor1up__content--links__VV4lE mdc-u-grid-gutter-md"><a data-component="mdc-c-link" href="https://www.mckinsey.com/capabilities/sustainability/how-we-help-clients/?cid=susti24-ste-crk-mbm-m01-other-glb-web" class="mdc-c-link-cta___NBQVi_2734c4f" target="_blank"><span class="mdc-c-link__label___Pfqtd_2734c4f">Get started</span><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mck-external-icon"></span></a></div></div></div></div> <hr/> <section id="toc-item-2" data-module-name="toc-item" class="TocItem_mck-c-toc-item__VqmeU mck-c-module-wrapper" data-title="Explore the 25 physical challenges" data-state="collapsed" data-alias="toc-explore-the-25-physical-challenges" aria-label="Explore the 25 physical challenges" tabindex="-1"></section> <h3 style="text-align:center">Click on the tiles for summaries of 25 challenges across 7 domains</h3> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-o-edge-to-edge mck-c-module-wrapper"><div class="mck-u-screen-only" id="interactive-bespoke-the-hard-stuff" aria-label="Tiles for summaries of 25 challenges across 7 domains" role="document"></div></div> <p><strong>Download the <a href="https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse">full report</a> for an in-depth review of each domain and associated physical challenges.</strong></p> <hr/> <section id="toc-item-3" data-module-name="toc-item" class="TocItem_mck-c-toc-item__VqmeU mck-c-module-wrapper" data-title="Energy transition at an early stage" data-state="collapsed" data-alias="toc-energy-transition-at-an-early-stage" aria-label="Energy transition at an early stage" tabindex="-1"></section> <h2 style="text-align:center">Seven domains of the energy system would need to be transformed, and this effort is in its early stages </h2> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-o-md-center Image_mck-c-image__fhx5v"><picture data-component="mdc-c-picture" class="Image_mck-c-image__img-container__JusDB"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/the-hard-stuff-sh1-1290916862-1536x512.jpg?cq=50&mw=1180&cpy=Center"/><img alt="Wide view image of wind turbines in the ocean with turbulent cloudy skies and an oil tanker going by in the distance." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/the-hard-stuff-sh1-1290916862-1536x512.jpg?cq=50&mw=767&cpy=Center" loading="lazy"/></picture><div class="mck-u-sr-only">Wide view image of wind turbines in the ocean with turbulent cloudy skies and an oil tanker going by in the distance.</div></div> <p>The energy transition involves the physical transformation of seven deeply interlinked domains. The first is the <strong>power</strong> domain, which needs to reduce its own emissions and to scale dramatically to provide low-emissions energy to the three large consuming domains: <strong>mobility</strong>, <strong>industry</strong>, and <strong>buildings</strong>. The final three domains are enablers of the energy transition: <strong>raw materials</strong>, especially critical minerals; new fuels, such as <strong>hydrogen and other energy carriers</strong>; and <strong>carbon and energy reduction</strong> (see sidebar, “Why understanding the physical realities of the transition matters”).</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><div data-component="mdc-c-dropdown-menu" class="mdc-c-drop-down"><button data-component="mdc-c-button" aria-label="" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-drop-down__rootmenu___yJzvz_2734c4f" aria-expanded="false" aria-haspopup="menu"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--default___f-hQM_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-share2-icon"></span></button><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class=""></div></div><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>Why understanding the physical realities of the transition matters</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body"><p>Understanding the physical realities of the energy transition—namely the physical properties of low-emissions solutions and the nature of the physical transformation—is critical to many aspects of designing a successful transition.</p> <p>First, understanding the physical properties of low-emissions solutions can help design a new system that delivers performance on a par with the current system and does so reliably. This matters because the energy system is vital for driving economic growth and progress. As discussed later, this is not a trivial task and it requires a careful understanding of the performance and advantages of low-emissions technologies, innovation needs, and how such technologies can effectively be brought together in an interconnected system to deliver performance.</p> <p>Second, looking at the nature and scale of the underlying physical transformation helps design a feasible transition. In an energy system made up of thousands or millions, and in some cases billions, of individual assets, the transformation that would be needed is monumental. With such a massive scale-up, bottlenecks in the build-out of supply chains could lead to shortages of critical minerals and manufactured goods. Installing or building new low-emissions assets at the scale and pace needed may be similarly difficult if not planned for well.</p> <p>Third, and relatedly, applying a physical lens to different components of the energy system can highlight critical interdependencies, which similarly need to be factored into the design of a reliable and feasible energy transition.</p> <p>Fourth, understanding the physical properties and maturity of different technologies, and the nature of the physical transformation, also helps to shed light on their costs and therefore on the affordability of the transition.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="2c403827-81a2-4366-94cf-b445ddd46667"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="2c403827-81a2-4366-94cf-b445ddd46667" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">It is also important to take a holistic view of the socioeconomic impacts of different transition pathways, and to use this to help inform decision making. See <em><a href="/capabilities/sustainability/our-insights/climate-transition-impact-framework-essential-elements-for-an-equitable-and-inclusive-transition">Climate Transition Impact Framework: Essential elements for an equitable and inclusive transition</a></em>, McKinsey Sustainability, December 2023; and “<a href="/capabilities/sustainability/our-insights/solving-the-net-zero-equation-nine-requirements-for-a-more-orderly-transition">Solving the net-zero equation: Nine requirements for a more orderly transition</a>, McKinsey Sustainability, October 27, 2021.</span></span></span></a></span> Prior McKinsey research has highlighted the large scale-up needed in low-emissions capital spending and various challenges associated with the affordability of the transition.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="338f62f4-b1f9-4195-b481-2361b96569d8"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="338f62f4-b1f9-4195-b481-2361b96569d8" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">See, for example, <em><a href="/capabilities/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring">The net-zero transition: What it would cost, what it could bring</a></em>, McKinsey Global Institute, January 2022; <em><em><a href="/capabilities/sustainability/our-insights/an-affordable-reliable-competitive-path-to-net-zero">An affordable, reliable, competitive path to net zero</a></em></em>, McKinsey Sustainability, November 30, 2023; and <em><a href="/mgi/our-research/from-poverty-to-empowerment-raising-the-bar-for-sustainable-and-inclusive-growth">From poverty to empowerment: Raising the bar for sustainable and inclusive growth</a></em>, McKinsey Global Institute, September 2023.</span></span></span></a></span> While costs associated with the transition are not the core focus of this research, appreciating the physical realities of the transition is crucial to better understand cost challenges. For example, in the case of carbon capture technologies, expanding their use to new use cases would require deploying them in processes where CO<sub>2</sub> makes up a small portion of the gases that are emitted (that is, is present in lower concentration in flue gases) and is therefore harder to capture. This could be about three times more expensive than the cost of capture of higher-concentration use cases deployed today.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="393780b3-c3b5-42a8-b461-8e3c822ed4a0"><sup class="FootNote_footnotesup__e73z_">3</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="393780b3-c3b5-42a8-b461-8e3c822ed4a0" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">See chapter 7, Challenge 24.</span></span></span></a></span> The massive physical scale-up of the assets needed for a new system could also lead to shortages of raw materials and, as a result, contribute to price increases and create volatility. In 2022, prices of cobalt, lithium, and nickel surged, leading to an increase in the price of batteries of nearly 10 percent globally.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="b78ba490-960d-4784-b7aa-8c18253d251e"><sup class="FootNote_footnotesup__e73z_">4</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="b78ba490-960d-4784-b7aa-8c18253d251e" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>Energy technology perspectives 2023</em>, IEA, January 2023; <em>IEA clean energy equipment price index, 2014–2023</em>, IEA, September 7, 2023; and <em>Trends in electric vehicle batteries</em>, IEA, April 2023.</span></span></span></a></span> A sharp drop in prices quickly followed. This volatility generated uncertainty that contributed to the postponement of new mining projects.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="ffedd17e-bf99-4bdf-b563-2edd57697a97"><sup class="FootNote_footnotesup__e73z_">5</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="ffedd17e-bf99-4bdf-b563-2edd57697a97" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Thomas Biesheuvel, “Battery metal price plunge is closing mines and killing deals,” Bloomberg Law, January 9, 2024; and Aya Dufour, “Some minerals are ‘critical’ to the digital economy, but current prices don’t reflect that,” CBC News, March 4, 2024.</span></span></span></a></span></p> <p>Thus, a physical lens brings focus on not just how to achieve emissions reduction feasibly but also to do so while ensuring affordability, maintaining the reliability of the energy system, and thus also securing the competitiveness of companies and economies—three other objectives that McKinsey research has identified as vital for a successful transition.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="63634da5-cb4f-4672-81dd-84c4cd79b606"><sup class="FootNote_footnotesup__e73z_">6</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="63634da5-cb4f-4672-81dd-84c4cd79b606" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em><a href="/capabilities/sustainability/our-insights/an-affordable-reliable-competitive-path-to-net-zero">An affordable, reliable, competitive path to net zero</a></em>, McKinsey Sustainability, November 2023.</span></span></span></a></span></p></div></div></div></div></div></div> <p>This research primarily uses the 2023 McKinsey Achieved Commitments scenario, not as a forecast, but to understand the physical challenges to overcome.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="40066d35-3788-49c5-861c-640b841878b1"><sup class="FootNote_footnotesup__e73z_">8</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="40066d35-3788-49c5-861c-640b841878b1" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">This scenario assumes that countries that have committed to net zero (some by 2050, some later) meet those commitments and that warming reaches 1.6ºC relative to preindustrial levels by 2100. See <em>Global energy perspective 2023</em>, McKinsey, October 2023. Other net-zero scenarios may contain slightly different combinations of technologies and rates of deployment, but the broad trends and themes described in this research would still apply. This report is based on analysis as of September 2023. Subsequent developments in the energy system may lead to different outcomes, which will be covered in forthcoming McKinsey research.</span></span></span></a></span> Under this scenario, billions of low-emissions assets—for instance, about one billion EVs, over 1.5 billion heat pumps, and about 35 terawatts of low-emissions power generation capacity—would need to be deployed by 2050 alongside scaling supporting infrastructure such as the grid, EV charging stations, and supply chains (Exhibit 1).</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 1</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/mgi-hardstuff-executive-summary-ex1-v4.svgz?cq=50&cpy=Center"/><img alt="The energy transition is at an early stage." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/mgi-hardstuff-executive-summary-ex1-v4.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>A stacked area chart shows that primary energy consumption grew steadily from 1990 to 2022. Fossil fuels accounted for about 80 percent of the total in 2022. Other non-fossil fuels accounted for most of the rest, and variable renewable energy (VRE) had a very small but growing presence. On the right side, two line charts show energy system emissions have not started to decline, with a six percent increase from 2012 to 2022. But emissions intensity, measured in million tonnes of CO2 per exajoule of primary energy consumption, decreased by 7 percent over the same period.At the bottom, a Gantt chart shows the 2022 deployment of low-emissions technologies as a share of their needed 2050 deployment in each of 7 domains, or sectors. The 2050 deployment needs are based on the McKinsey 2023 Achieved Commitment Scenario, in which most countries reach their net-zero commitments by or before 2050. In the power sector, low-emissions installed capacity is at 8–12 percent of its needed 2050 deployment. In the mobility sector, deployment has reached three percent of its needed deployment for electric vehicles (EV) stock and 15 percent of its needed deployment for EV sales. The industry sector has reached 0–10% of its needed deployment for low-emissions production of steel and cement. The buildings sector has reached 5–7 percent of its needed deployment for heat pump stock and 9–12 percent of its needed deployment for heat pump sales. The raw materials sector has reached 10–35 percent of its needed deployment for the supply of critical minerals. The hydrogen and energy carriers sector has reached less than one percent of its needed deployment for the production of low-emissions hydrogen. Finally, the carbon and energy reduction sector has reached less than one percent of its needed deployment for CO<sub>2</sub> capture by point-source facilities.Overall, the charts show that the energy transition is at an early stage.</p> <p>End of image description.</p></div></div>  <p>Recent years have seen momentum on many—but not all—fronts. For instance, about 90 percent of all battery EV sales and almost 60 percent of solar and wind power capacity added was in the past five years.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="66bd4f6f-5ac3-471b-b773-d75dbb831574"><sup class="FootNote_footnotesup__e73z_">9</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="66bd4f6f-5ac3-471b-b773-d75dbb831574" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>Global EV Data Explorer</em>, IEA, April 23, 2024; <em>Renewable capacity statistics 2023</em>, International Renewable Energy Agency, 2023.</span></span></span></a></span> But overall, the transition is in its early stages. Deployment of low-emissions technologies is currently only about 10 percent of the levels required by 2050 in most domains—and largely in comparatively easy use cases. </p> <p>While some areas like solar have grown rapidly, others have not. In cases such as low-emissions hydrogen, carbon capture, and low-emissions primary production (excluding recycling) of large industrial materials, less than 1 percent of required deployment by 2050 has been achieved thus far.</p> <hr/> <section id="toc-item-4" data-module-name="toc-item" class="TocItem_mck-c-toc-item__VqmeU mck-c-module-wrapper" data-title="Half of emissions hinge on the hardest challenges" data-state="collapsed" data-alias="toc-half-of-emissions-hinge-on-the-hardest-challenges" aria-label="Half of emissions hinge on the hardest challenges" tabindex="-1"></section> <h2 style="text-align:center">Abating about half of energy-related emissions depends on addressing the hardest of 25 physical challenges</h2> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-o-md-center Image_mck-c-image__fhx5v"><picture data-component="mdc-c-picture" class="Image_mck-c-image__img-container__JusDB"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/the-hard-stuff-sh2-1186090916-1536x512.jpg?cq=50&mw=1180&cpy=Center"/><img alt="Steelworkers in heat protective gear starting a glowing molten steel pour in a steelworks factory." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/the-hard-stuff-sh2-1186090916-1536x512.jpg?cq=50&mw=767&cpy=Center" loading="lazy"/></picture><div class="mck-u-sr-only">Steelworkers in heat protective gear starting a glowing molten steel pour in a steelworks factory.</div></div> <p>To progress the transition further, 25 physical challenges—defined as barriers to switching from high-emissions physical assets and processes to low-emissions ones—across the seven domains would need to be addressed (Exhibit 2).</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 2</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/mgi-hardstuff-executive-summary-ex2-v1.svgz?cq=50&cpy=Center"/><img alt="Twenty-five physical challenges would need to be addressed for the energy transition to succeed." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/mgi-hardstuff-executive-summary-ex2-v1.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>An hexagon chart presents 25 physical challenges that must be addressed for a successful energy transition, categorized by domain. The challenges are grouped into three levels, according to the level of difficulty of addressing them. Level one challenges require deploying established technologies that face the least physical hurdles. Level two challenges require deploying known technologies to accelerate and scale them. Level three challenges occur when technological performance gaps meet demanding use cases and the transformation is just beginning. The challenges are arranged in a honeycomb pattern. The first domain is the power sector, with six challenges: managing renewables' variability (level 3); scaling emerging power systems (level 3); flexing power demand (level 2); securing land for renewables (level 2); connecting through grid expansion (level 2); and navigating nuclear and other clean energy (level 2). End-Use Sectors include three domains: mobility, industry, and buildings. Mobility challenges include driving battery electric vehicles (BEVs) beyond breakeven (level 1); going the distance on BEV range (level 1); loading up electric trucks (level 3); charging up EVs (level 2); and refueling aviation and shipping (level 3). The challenges in the industry domain are furnacing low-emissions steel (level 3); cementing change for construction (level 3); heating other industries (level 3); synthesizing low-emissions ammonia (level 3); cracking the challenge of plastics (level 3); synthesizing low-emissions ammonia (level 3); and heating other industries (level 2). Challenges in the buildings domain include facing the cold with heat pumps (level 1); and bracing for winter peaks (level 2). The last three domains are categorized as enablers. They are: raw materials, H2 and other energy carriers, and carbon & energy reduction. Raw materials include one challenge: unearthing critical minerals (level 2). H2 and other energy carriers include harnessing hydrogen (level 3); scaling hydrogen infrastructure (level 3); and managing biofuels footprint (level 2). Carbon and energy reduction challenges are expanding energy efficiency (level 2); capturing point-source carbon (level 3); and capturing atmospheric carbon (level 3).</p> <p>End of image description.</p></div></div> <p>Some challenges are harder to address than others, and they have been categorized into three levels of difficulty based on technological performance, interdependencies across different challenges, and scaling needs:</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="StandalonePromo" data-module-gradient-position="top-right" class="Accordion_mck-c-accordion__D1U2s mck-c-module-wrapper mck-o-container--inline-module mck-c-inline-module-container mck-o-md-center" data-module-name="accordion" data-layer-region="accordion"><div class="mck-o-container"><div class="UpModule_mck-c-up__irSw8"><div data-component="mdc-c-accordion" class="mdc-c-accordion"><div class="mdc-c-accordion__items___yF0jA_2734c4f"><div class="mdc-c-accordion__item___TaDQ0_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><button data-component="mdc-c-button" aria-label="" type="button" id="accordion-panel-0" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-accordion__title-wrapper___ujaRh_2734c4f" aria-controls="accordion-panel-0" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-location="accordion" data-layer-text="expand"><span class="mdc-c-accordion__title___S2Csf_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f"><div><p style="text-align: left;"><strong>Three Level 1 challenges require progress in deploying established technologies and face the least physical hurdles.</strong></p></div></h5></span><span class="mdc-c-accordion__icon___MnUrM_2734c4f"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-lg___5rPck_2734c4f mck-arrow-down-thin-icon"></span></span></button></div><div class="mdc-c-accordion__item___TaDQ0_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><button data-component="mdc-c-button" aria-label="" type="button" id="accordion-panel-1" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-accordion__title-wrapper___ujaRh_2734c4f" aria-controls="accordion-panel-1" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-location="accordion" data-layer-text="expand"><span class="mdc-c-accordion__title___S2Csf_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f"><div><p style="text-align: left;"><strong>Ten Level 2 challenges require the deployment of known technologies to accelerate, and associated infrastructure and inputs to be scaled.</strong></p></div></h5></span><span class="mdc-c-accordion__icon___MnUrM_2734c4f"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-lg___5rPck_2734c4f mck-arrow-down-thin-icon"></span></span></button></div><div class="mdc-c-accordion__item___TaDQ0_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><button data-component="mdc-c-button" aria-label="" type="button" id="accordion-panel-2" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-accordion__title-wrapper___ujaRh_2734c4f" aria-controls="accordion-panel-2" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-location="accordion" data-layer-text="expand"><span class="mdc-c-accordion__title___S2Csf_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f"><div><p style="text-align: left;"><strong>Twelve Level 3 challenges have technological performance gaps and interdependencies, and are early in their transformation.</strong></p></div></h5></span><span class="mdc-c-accordion__icon___MnUrM_2734c4f"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-lg___5rPck_2734c4f mck-arrow-down-thin-icon"></span></span></button></div></div></div></div></div></div> <p>Eliminating between 40 and 60 percent of the energy system’s CO<sub>2</sub> emissions depends on addressing Level 3 challenges (Exhibit 3).</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 3</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/mgi-hardstuff-executive-summary-ex3-v1.svgz?cq=50&cpy=Center"/><img alt="Level 3 challenges are associated with 40 to 60 percent of the emissions of the energy system." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/mgi-hardstuff-executive-summary-ex3-v1.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>A donut chart shows the share of direct and indirect emissions in 2022 that are associated with Level 3 challenges, which are defined as the most challenging physical aspects of the energy transition. The chart shows that Level three challenges account for 40–60 percent of total emissions from the energy system. The chart further shows that the power domain is responsible for about 40 percent of the emissions associated with Level three challenges, while mobility and industry contribute about 20 percent and 40 percent, respectively. The challenge levels are based on the McKinsey 2023 Achieved Commitment Scenario, in which most countries reach their net-zero commitments by or before 2050.</p> <p>End of image description.</p></div></div> <p><strong>Download the <a href="https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse">full report</a> for an in-depth review of each domain and associated physical challenges.</strong></p> <hr/> <section id="toc-item-5" data-module-name="toc-item" class="TocItem_mck-c-toc-item__VqmeU mck-c-module-wrapper" data-title="Each domain faces physical challenges" data-state="collapsed" data-alias="toc-each-domain-faces-physical-challenges" aria-label="Each domain faces physical challenges" tabindex="-1"></section> <h2 style="text-align:center">Each domain faces physical challenges</h2> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-o-md-center Image_mck-c-image__fhx5v"><picture data-component="mdc-c-picture" class="Image_mck-c-image__img-container__JusDB"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/the-hard-stuff-sh3-1733213132-1536x512.jpg?cq=50&mw=1180&cpy=Center"/><img alt="Image of an EV battery pack being assembled under an electric car on a production line, inside a modern factory." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/the-hard-stuff-sh3-1733213132-1536x512.jpg?cq=50&mw=767&cpy=Center" loading="lazy"/></picture><div class="mck-u-sr-only">Image of an EV battery pack being assembled under an electric car on a production line, inside a modern factory.</div></div> <p>The research looks at physical challenges in seven domains (see sidebar, “Scope and methodology”). Click on each domain name to go to the chapter in the full report.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><div data-component="mdc-c-dropdown-menu" class="mdc-c-drop-down"><button data-component="mdc-c-button" aria-label="" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-drop-down__rootmenu___yJzvz_2734c4f" aria-expanded="false" aria-haspopup="menu"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--default___f-hQM_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-share2-icon"></span></button><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class=""></div></div><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>Scope and methodology</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body"><p>This research focuses on understanding the physical challenges of the energy transition. Important methodological choices were made to do this.</p> <p>The focus is the energy system, encompassing both production and use (including the current use of fossil fuels as feedstock for industrial processes). The system accounts for more than 85 percent of current CO<sub>2</sub> emissions.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="5e3ddf6a-bde8-40b1-810c-d8a7138e5fcd"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="5e3ddf6a-bde8-40b1-810c-d8a7138e5fcd" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Global CO<sub>2</sub> emissions from energy combustion and industrial processes total about 37 gigatonnes, with about five gigatonnes in agriculture, forestry, and other land use. In the case of methane, more than 35 percent of global emissions arise from the energy system, from combustion and industrial processes, with the remainder split between agriculture at about 40 percent and waste and other sectors at about 25 percent; McKinsey EMIT database, 2023.</span></span></span></a></span> Sources of emissions outside the energy system, including in agriculture, forestry, and other land use, are not included. Other important sustainability topics, including the preservation of natural capital and the impact of pollution beyond greenhouse gas emissions, are also not within scope. In each domain of the energy system, the analysis explores what physical asset and process transformations would be required when switching from high-emissions assets to low-emissions alternatives. Examples include switches from fossil-fuel-based power generation, such as coal power plants, to low-emissions sources like variable renewable energy in the form of solar and wind, and clean firm power like nuclear or hydropower in the power domain; from ICE vehicles to EVs in the mobility domain; and from gas boilers to low-emissions heat sources in industry or buildings. The associated infrastructure and supply chains that would need to be built to support these switches are also analyzed.</p> <p>Based on these transformations, the research then identifies 25 physical challenges that must be addressed for CO<sub>2</sub> emissions of the energy system to be reduced while replicating the performance of the existing energy system. These challenges were identified in consultation with more than 50 industry experts and academics within and outside McKinsey alongside an extensive literature review of analysis of the energy system.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="4be4c574-ba91-431e-9af0-e144cc783624"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="4be4c574-ba91-431e-9af0-e144cc783624" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">This includes reviews of the level of progress in clean technologies and associated challenges by McKinsey and others. Among other research, see, for instance, Hauke Engel, Mekala Krishnan, Hamid Samandari, Humayun Tai, Daniel Pacthod, Simran Khural, and Mackenzie Murphy,<em> <a href="/capabilities/sustainability/our-insights/a-sector-progress-tracker-for-the-net-zero-transition">A sector progress tracker for the net-zero transition</a></em>, McKinsey Sustainability, November 2023; <em>Energy technology perspectives 2023</em>, IEA, January 2023; <em>Tracking clean energy progress 2023</em>, IEA, July 2023; <em>Net zero roadmap: A global pathway to keep the 1.5ºC goal in reach</em>, IEA, September 2023; <em>World energy transitions outlook 2023</em>, International Renewable Energy Agency, 2023; Systems Change Lab data dashboard, accessed May 2024; <em>Climate change 2022: Impacts, adaptation, and vulnerability</em>, Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, 2022; <em>ETP Clean energy technology guide</em>, IEA, updated September 14, 2023; <em>The state of clean technology manufacturing</em>, IEA, May 2023; <em>New energy outlook 2023</em>, BloombergNEF, 2023; <em>Global critical minerals outlook 2024</em>, IEA, May 2024; <em>The state of clean technology manufacturing</em>, IEA, May 2023; <em>Material and resource requirements for the energy transition</em>, Energy Transitions Commission, July 2023; and <em>Better, faster, cleaner: Securing clean energy technology supply chains</em>, Energy Transitions Commission, June 2023.</span></span></span></a></span></p> <p>The 25 challenges are prioritized based on the potential of new, low-emissions technologies to abate emissions. Some exclusions help bound the scope of the work.</p> <p>First, challenges that are expected to affect only a small portion of total emissions are not included. Second, incremental improvements to existing assets that do not involve major switches in technologies are not directly discussed as individual challenges; two examples are improved ICE fuel efficiency and insulation in buildings. Nevertheless, their collective impact is recognized in Challenge 23. Third, as noted, the challenges focus only on the energy system; those related to the transition of agriculture and other land use are not discussed directly, although the role of land as a physical challenge is discussed as part of the power domain challenges. Fourth, the focus is on challenges of a physical nature; any challenges that are purely related to market adoption or policies are excluded. Fifth, this research does not explicitly cover challenges related to labor. Finally, since this work focuses on analyzing the physical realities of the transition, costs are not the main focus, although, as noted, physical realities can help shed light on cost challenges.</p> <p>The choice and precise boundaries of the 25 challenges is subjective to a degree, and some challenges are broader in scope than others. Different taxonomies, granularity, or segmentation of some challenges would certainly be possible. For example, circularity and recycling are important cross-cutting challenges that are discussed in the context of individual materials, such as plastics and critical minerals, but they could be deemed challenges in themselves. The list of 25 is neither collectively exhaustive (as noted, a prioritization lens has been used) nor mutually exclusive (many challenges share interdependencies).</p> <p>The challenges are categorized into three levels, reflecting both the progress made to date in addressing them and the nature of the hurdles to overcome. Three features of difficulty, discussed further in chapter 3, are considered to do this: technological performance; gnarly interdependencies with other challenges; and degree of, and constraints on, scaling.</p> <p>In examining the 25 challenges, this research builds on existing analyses of the transition in three ways. First, the examination of the performance of individual technologies is done in the context of specific use cases rather than their technological maturity in general. Second, this analysis goes beyond assessing technological maturity to consider other physical challenges, such as the required scale-up of supply of critical minerals. Finally, it considers how the system as a whole interacts—including how a particular individual technology relies on others—and the implications of that interaction.</p> <p>Of course, the precise boundaries between the levels of challenges can be debated, and the classification into levels can vary by region. Parts of a Level 3 challenge could be categorized as Level 1 or 2. For instance, overall, decarbonizing cement is a Level 3 challenge that requires substantial technological innovation, but some decarbonization approaches, such as using biomass for heating or deploying clinker substitutes, are already widespread in some markets.</p> <p>A global view of challenges is taken, but deployment of different technologies varies among regions. Some challenges may be more or less important—and difficult—depending on the region.</p> <p>Across challenges, the research looks at the required deployment of low-emissions assets in 2050, comparing it with today’s levels using McKinsey’s 2023 Achieved Commitments scenario.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="4ec2a31d-07dc-418a-a7bd-7a1e712d880a"><sup class="FootNote_footnotesup__e73z_">3</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="4ec2a31d-07dc-418a-a7bd-7a1e712d880a" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">This research uses the 2023 McKinsey Achieved Commitments scenario because it provides detail across different economies and types of assets about the deployment levels that would be required for those economies to meet the climate commitments they have made. The scenario assumes that countries that have committed to net zero (some by 2050, some later) meet those commitments, and that warming reaches 1.6ºC relative to preindustrial levels by 2100. See <em><a href="/industries/oil-and-gas/our-insights/global-energy-perspective-2023">Global energy perspective 2023</a></em>, McKinsey, October 2023.</span></span></span></a></span> Other net-zero scenarios may have slightly different combinations of technologies and rates of deployment, but the broad trends and themes described in this research would still apply. In some instances, this research also uses insights from other external scenarios for reasons of data availability.</p> <p>Among the external sources of data used in this report are publicly available data from the International Energy Agency (IEA) in Paris, namely <em>Energy technology perspectives 2023</em>, IEA, January 2023; and <em>Net zero roadmap: A global pathway to keep the 1.5ºC goal in reach 2023 update</em>, IEA, September 2023. All are license CC BY 4.0. We note that some analysis in this research was derived from IEA material, and MGI is solely liable and responsible for it; it is not endorsed by the IEA in any manner. This holds true for all providers of the data that went into our analysis. We gratefully acknowledge their input, but the conclusions and any errors are our own.</p></div></div></div></div></div></div> <ul> <li><em><a href="https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse">Power</a></em>. Overall, low-emissions power generation capacity would have to increase about ten times by 2050. There are two Level 3 challenges: managing variability in the power system as solar and wind generate a greater share of power, and doing so in emerging power systems that need to grow particularly rapidly. The flexible capacity that would be required to manage this variability, including backup generation, storage, and interconnections of grids in different regions, would need to grow two to seven times faster than power demand, but all face barriers.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="3726d618-afc3-4261-a855-3f7ad42960ae"><sup class="FootNote_footnotesup__e73z_">10</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="3726d618-afc3-4261-a855-3f7ad42960ae" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Simulations are based on the McKinsey Power Model using the McKinsey 2023 Achieved Commitments scenario.</span></span></span></a></span> Four other Level 2 challenges relate to securing enough land for renewables, investing in current transmission and distribution infrastructure and even expanding the grid, accelerating deployment of nuclear and other clean firm energy power, and increasing flexibility in power demand<span>.</span></li> <li><em><a target="_blank" href="https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse" rel="noopener noreferrer">Mobility</a>.</em> The number of EVs would need to surge from about 30 million on the road today to about one billion by 2050. Two challenges are Level 1: ensuring lifetime emissions savings from passenger battery EVs relative to ICEs, and ensuring that EVs have sufficient range for all needs.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="c0be3459-d0b9-4f7d-89af-4693c8e05e29"><sup class="FootNote_footnotesup__e73z_">11</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="c0be3459-d0b9-4f7d-89af-4693c8e05e29" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">A range of nonphysical factors, notably cost and consumer preferences, could also be important in determining EV adoption, but these are not the focus of this research.</span></span></span></a></span> For the latter, battery EVs already do so for roughly 70 percent of households. Scaling EV charging infrastructure and supply chains has further to go and is Level 2. Trucking, aviation, and shipping are harder to decarbonize, given that they require travelling long distances with heavy payloads, and are Level 3 challenges.</li> <li><em><a target="_blank" href="https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse" rel="noopener noreferrer">Industry</a>.</em> Decarbonization of the “big four” industrial material pillars of modern civilization—steel, cement, plastics, and ammonia—are all Level 3 challenges, where the transformation is just beginning. All rely heavily on fossil fuels as inputs and/or fuel for high-temperature heat.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="ef5d1a57-1486-4361-b118-d58adf9896b5"><sup class="FootNote_footnotesup__e73z_">12</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="ef5d1a57-1486-4361-b118-d58adf9896b5" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Vaclav Smil, “The modern world can’t exist without these four ingredients. They all require fossil fuels,” <em>Time</em>, May 12, 2022; and <em>Global energy perspective 2023</em>, McKinsey, October 2023.</span></span></span></a></span> A combination of more energy efficiency; different feedstock s, including hydrogen and recycled inputs; use of alternative materials; electrification; alternative fuels like biomass; and carbon capture would be needed. Other industries, such as general manufacturing, generally do not need high-temperature heat and tend not to use fossil fuels as feedstocks, but low-emissions processes to deliver heat would still need to be scaled and this constitutes a Level 2 challenge.</li> <li><em><a target="_blank" href="https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse" rel="noopener noreferrer">Buildings</a>.</em> Heating accounts for the largest share of buildings-related emissions. Heat pumps are already established technologies and perform well, but still face two physical challenges.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="18c3c5f5-14ff-4428-be65-473c6bf326bb"><sup class="FootNote_footnotesup__e73z_">13</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="18c3c5f5-14ff-4428-be65-473c6bf326bb" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Other operational challenges related to the scale-up of heat pumps are not discussed in this research. They include the need to scale up manufacturing capacity for heat pumps, whether sufficient skilled labor is available to install them, whether consumers adopt them given their associated costs, and the large turnover and retrofits that the installation of heat pumps would entail so that they can perform effectively.</span></span></span></a></span> Ensuring that they are efficient at cold temperatures is a Level 1 challenge, reflecting the fact that more than 95 percent of people live in places where existing heat-pump technologies do the job. More demanding, and therefore Level 2, is managing a potential doubling or tripling in peak power demand in some regions if heat pump use expands.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="e46e333d-0b9c-403e-8ce9-cf241f9255fb"><sup class="FootNote_footnotesup__e73z_">14</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="e46e333d-0b9c-403e-8ce9-cf241f9255fb" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Under a scenario in which all heating of buildings is electrified. See Michael Waite and Vijay Modi, “Electricity load implications of space heating decarbonization pathways,” <em>Joule</em>, volume 4, issue 2, February 2020. Other McKinsey and external research found similar increases of two to three times for colder states. <em>The role of natural gas in the move to cleaner, more reliable power</em>, McKinsey, September 2023; and <em>2050 transition study</em>, ISO New England Inc. Transmission Planning, February 2024.</span></span></span></a></span></li> <li><em><a target="_blank" href="https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse" rel="noopener noreferrer">Raw materials</a>.</em> Demand for critical minerals, like lithium, cobalt, and rare earths, is expected to surge, but current supply is only about 10 to 35 percent of what would be needed by 2050.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="4cfdfadc-9a85-4fdb-b3aa-c5adea1c3f66"><sup class="FootNote_footnotesup__e73z_">15</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="4cfdfadc-9a85-4fdb-b3aa-c5adea1c3f66" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">This depends on the specific critical mineral. McKinsey MineSpans.</span></span></span></a></span> This is a Level 2 challenge, where supply would need to be scaled, alongside managing demand for such minerals.</li> <li><em><a target="_blank" href="https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse" rel="noopener noreferrer">Hydrogen and other energy carriers</a>.</em> New energy carriers would be needed to serve as alternative fuels and feedstocks for industrial processes. One option is hydrogen, which faces two Level 3 challenges. First, the hydrogen molecule goes through many steps and, therefore, energy losses before it can be used; these would need to be minimized and considered against its advantageous properties to identify appropriate use cases for hydrogen. Second, hydrogen production and infrastructure would need to expand hugely. Few large-scale low-emissions hydrogen projects are currently operational.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="6f4d595c-d43a-48a8-a954-2a632d8b8468"><sup class="FootNote_footnotesup__e73z_">16</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="6f4d595c-d43a-48a8-a954-2a632d8b8468" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>Hydrogen insights 2023</em>, Hydrogen Council and McKinsey, May 2023, updated December 2023.</span></span></span></a></span> Managing the growing land footprint of biofuels is Level 2.</li> <li><em><a target="_blank" href="https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse" rel="noopener noreferrer">Carbon and energy reduction</a>.</em> Alongside measures to substitute high-emissions technologies for low-emissions ones, reducing the amount of energy consumed and the emissions of current technologies would also be needed. Expanding energy efficiency through established approaches—for example, improving building insulation—is a Level 2 challenge. Carbon capture from new “point sources” such as cement could be three times harder—and costlier—than for less demanding current use cases, and removing carbon from the atmosphere through direct air capture could be even more costly. Both are Level 3 challenges.</li> </ul> <hr/> <section id="toc-item-6" data-module-name="toc-item" class="TocItem_mck-c-toc-item__VqmeU mck-c-module-wrapper" data-title="Understanding physical challenges is vital" data-state="collapsed" data-alias="toc-understanding-physical-challenges-is-vital" aria-label="Understanding physical challenges is vital" tabindex="-1"></section> <h2 style="text-align:center">Understanding the physical challenges can help CEOs and policy makers navigate the transition</h2> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-o-md-center Image_mck-c-image__fhx5v"><picture data-component="mdc-c-picture" class="Image_mck-c-image__img-container__JusDB"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/the-hard-stuff-sh4-1499218409-1536x512.jpg?cq=50&mw=1180&cpy=Center"/><img alt="Image of an EV battery pack being assembled under an electric car on a production line, inside a modern factory." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/the-hard-stuff-sh4-1499218409-1536x512.jpg?cq=50&mw=767&cpy=Center" loading="lazy"/></picture><div class="mck-u-sr-only">Image of an EV battery pack being assembled under an electric car on a production line, inside a modern factory.</div></div> <p>Making progress on the transition requires understanding physical challenges. If the most demanding challenges are to be addressed, performance gaps would need to be confronted. Innovation of technologies, such as improving the energy density of batteries and developing more efficient hydrogen electrolyzers, would need to continue and be scaled. Broader system-level changes would also be needed—shifting the way technologies mesh together. For instance, the potential increased variability of low-emissions power supplies could be balanced by making demand for power more flexible and using gas peaker plants as backup power. Even the way energy and materials are consumed could be adapted. For instance, alternative materials could replace industrial materials that are difficult to decarbonize.</p>  <p>It would be important to consider how to ramp down the old system and ramp up the new one smoothly, and what investments could both support today’s energy system and lay the groundwork for tackling future emissions and physical challenges. Examples include investing in energy efficiency, transmission and distribution infrastructure, and considering the role of “hybrid” technologies, such as hybrid passenger cars to address vehicle range issues.</p> <p>CEOs and policy makers both have a role to play in tackling physical challenges. Their plans for the way forward could be calibrated by carefully considering challenges across the three levels:</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="StandalonePromo" data-module-gradient-position="top-right" class="Accordion_mck-c-accordion__D1U2s mck-c-module-wrapper mck-o-container--inline-module mck-c-inline-module-container mck-o-md-center" data-module-name="accordion" data-layer-region="accordion"><div class="mck-o-container"><div class="UpModule_mck-c-up__irSw8"><div data-component="mdc-c-accordion" class="mdc-c-accordion"><div class="mdc-c-accordion__items___yF0jA_2734c4f"><div class="mdc-c-accordion__item___TaDQ0_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><button data-component="mdc-c-button" aria-label="" type="button" id="accordion-panel-0" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-accordion__title-wrapper___ujaRh_2734c4f" aria-controls="accordion-panel-0" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-location="accordion" data-layer-text="expand"><span class="mdc-c-accordion__title___S2Csf_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f"><div><p style="text-align: left;"><strong>For Level 1 challenges, how can near-term opportunities from the deployment of fast-maturing technologies be captured?</strong></p></div></h5></span><span class="mdc-c-accordion__icon___MnUrM_2734c4f"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-lg___5rPck_2734c4f mck-arrow-down-thin-icon"></span></span></button></div><div class="mdc-c-accordion__item___TaDQ0_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><button data-component="mdc-c-button" aria-label="" type="button" id="accordion-panel-1" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-accordion__title-wrapper___ujaRh_2734c4f" aria-controls="accordion-panel-1" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-location="accordion" data-layer-text="expand"><span class="mdc-c-accordion__title___S2Csf_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f"><div><p style="text-align: left;"><strong>For Level 2 challenges, what bottlenecks need to be addressed today to unlock the next tranche of opportunities?</strong></p></div></h5></span><span class="mdc-c-accordion__icon___MnUrM_2734c4f"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-lg___5rPck_2734c4f mck-arrow-down-thin-icon"></span></span></button></div><div class="mdc-c-accordion__item___TaDQ0_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><button data-component="mdc-c-button" aria-label="" type="button" id="accordion-panel-2" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-accordion__title-wrapper___ujaRh_2734c4f" aria-controls="accordion-panel-2" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-location="accordion" data-layer-text="expand"><span class="mdc-c-accordion__title___S2Csf_2734c4f Accordion_mck-c-accordion__item__vmGJ9"><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f"><div><p style="text-align: left;"><strong>For Level 3 challenges, where and how can these hardest challenges be addressed?</strong></p></div></h5></span><span class="mdc-c-accordion__icon___MnUrM_2734c4f"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-lg___5rPck_2734c4f mck-arrow-down-thin-icon"></span></span></button></div></div></div></div></div></div> <p>The physical transformation of the energy system is complex and difficult, and the path forward uncertain. What lies ahead is a new energy transition on a monumental scale that would require setting a bold aspiration and proceeding with commitment and action. Above all, understanding the physical realities can help navigate the way forward to success.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-disruptor1up mck-o-md-center mck-u-inline-module-border-top mck-u-inline-module-border-bottom mck-u-screen-only" data-layer-region="disruptor-1up"><div class="mdc-u-grid mdc-u-grid-gutter-md mdc-u-grid-col-lg-12 mdc-u-grid-col-md-12 "><div class="mdc-u-grid-col-lg-span-4 mdc-u-grid-col-md-span-5 Disruptor1Up_mck-c-disruptor1up__image___2Gc4"><picture data-component="mdc-c-picture"><img alt="Image of a spinning sphere with dark hexagon shapes pealing off and floating away revealing a green sphere underneath." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition/the-hard-stuff-thumb-1536x1536.jpg?cq=50&mh=145&car=16:9&cpy=Center" loading="lazy"/></picture></div><div class="mdc-u-grid-col-lg-span-8 mdc-u-grid-col-md-span-7"><header data-component="mdc-c-header" class="mdc-c-header"><div class="mdc-c-header__block___i1Lg-_2734c4f"><h3 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f"><div>Want to know more about the physical realities of the energy transition?</div></h3><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-7"><p><div><strong><a href="https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse">Download the full report</a></strong></div></p></div></div></header></div></div></div></div><div class="container-placeholder"></div></div></div><div class="mdc-u-grid mdc-u-grid-gutter-xl"><section role="contentinfo" data-layer-region="article-about-authors" class="mdc-u-grid mdc-u-grid-col-md-12 AboutAuthor_mck-c-about-author__nRJzu"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-c-heading--title___5qyOB_2734c4f mdc-c-heading--border___K8dj3_2734c4f mdc-u-align-center"></h5><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline mck-u-links-inline--secondary mdc-u-mt-5"><div><p><strong><a href="/our-people/mekala-krishnan">Mekala Krishnan</a></strong> is an MGI partner in Boston. <strong><a href="/our-people/chris-bradley">Chris Bradley</a></strong> is a McKinsey senior partner and an MGI director in Sydney. <strong><a href="/our-people/humayun-tai">Humayun Tai</a></strong> is a McKinsey senior partner and coleader of McKinsey’s Global Energy & Materials practice in New York. <strong>Tiago Devesa</strong> is an MGI senior fellow in Lisbon. <strong><a href="/our-people/sven-smit">Sven Smit</a></strong> is a McKinsey senior partner and MGI chairman in Amsterdam. <strong><a href="/our-people/daniel-pacthod">Daniel Pacthod</a></strong> is a McKinsey senior partner in New York. </p> <p>This article was edited by MGI executive editor Janet Bush with data visualizations by Juan M. 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What challenges lie ahead?"}},"sEODescription":{"value":"McKinsey Global Institute research examines 25 physical challenges that must be overcome as part of the energy transition to achieve net-zero emissions by 2050."},"displayDate":{"jsonValue":{"value":"2024-08-14T00:00:00Z"}},"body":{"value":"[[Audio 1]]\n[[DownloadsSidebar]]\n[[tocItem 1]]\n\u003ch3\u003eAt a glance\u003c/h3\u003e\n\u003cul\u003e\n \u003cli\u003e\u003cstrong\u003eThe energy transition is in its early stages, with about 10 percent of required deployment of low-emissions technologies by 2050 achieved in most areas.\u003c/strong\u003e Optimized over centuries, today\u0026rsquo;s energy system has many advantages, but the production and consumption of energy accounts for more than 85 percent of global carbon dioxide (CO\u003csub\u003e2\u003c/sub\u003e) emissions. Creating a low-emissions system, even while expanding energy access globally, would require deploying millions of new assets. Progress has occurred in some areas, but thus far has largely been in less difficult use cases.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eTwenty-five interlinked physical challenges would need to be tackled to advance the transition. \u003c/strong\u003e They involve developing and deploying new low-emissions technologies and entirely new supply chains and infrastructure to support them.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eAbout half of energy-related CO\u003csub\u003e2\u003c/sub\u003e emissions reduction depends on addressing the most demanding physical challenges.\u003c/strong\u003e Examples are managing power systems with a large share of variable renewables, addressing range and payload challenges in electric trucks, finding alternative heat sources and feedstocks for producing industrial materials, and deploying hydrogen and carbon capture in these and other use cases.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eThe most demanding challenges share three features.\u003c/strong\u003e First, some use cases lack established low-emissions technologies that can deliver the same performance as high-emissions ones. Second, the most demanding challenges depend on addressing other difficult ones, calling for a systemic approach. Finally, the sheer scale of the deployment required is tough, given constraints and the lack of a track record.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eUnderstanding these physical challenges can enable CEOs and policy makers to navigate a successful transition.\u003c/strong\u003e They can determine where to play offense to capture viable opportunities today, where to anticipate and address bottlenecks, and how best to tackle the most demanding challenges through a blend of innovation and system reconfiguration.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003e\u003cstrong\u003eToday\u0026rsquo;s energy system,\u003c/strong\u003e encompassing both the production and consumption of energy resources, is massive and complex.[[footnote 1]] The system has been optimized over centuries, is deeply embedded in the global economy, and serves billions of people, if not yet all of humanity.[[footnote 2]] And it is high-performing. Energy can be dispatched relatively easily where and when it is needed because current fuels are energy-dense and easily transportable. Supply can be ramped up and down quickly.\u003c/p\u003e\n[[Sidebar 1]]\n\u003cp\u003eFor all its advantages, today\u0026rsquo;s system also has critical flaws. About two-thirds of energy is currently wasted.[[footnote 3]] And the system generates more than 85 percent of global emissions of carbon dioxide (CO\u003csub\u003e2\u003c/sub\u003e).[[footnote 4]]\u003c/p\u003e\n\u003cp\u003eCompanies and countries are now engaged in an effort to transition the energy system and reduce those emissions\u0026mdash;and to do so in just a few decades. That is a big ask. In the digital age, we have become accustomed to lightning-fast transformations. TikTok took nine months and ChatGPT only two months to gain 100 million users.[[footnote 5]] But an energy system is a physical entity, and historical energy transitions have taken many decades or even centuries. Complicating the task of building a new low-emissions energy system is that it coincides with the need for it to continue to grow to expand access to energy for billions of people who still do not have it, thereby economically empowering them.\u003c/p\u003e\n\u003cp\u003eReal progress has been made, but the transition remains in its early stages. Thus far, deployment of low-emissions technologies is only at about 10 percent of the levels required by 2050 in most areas, and that has been in comparatively easy use cases. More demanding challenges are bound to emerge as the world confronts more difficult use cases across geographies.\u003c/p\u003e\n[[Video 3]]\n\u003cp\u003eLow-emissions technologies such as solar and wind power and electric vehicles (EVs) have advantageous properties and can be brought together to deliver high performance. But deploying them well and progressing the transition further requires understanding the physical realities of the energy transition\u0026mdash;the \u0026ldquo;hard stuff.\u0026rdquo; Recognizing that the energy transition is first and foremost a physical transformation is a truth that can get lost in the abstraction of net-zero scenarios. But it is vital if the new energy system is to retain, or even improve on, the performance of the current one and secure an affordable, reliable, competitive path to net zero.[[footnote 6]]\u003c/p\u003e\n\u003cp\u003eThe observation has widely been attributed to Albert Einstein that, given an hour to solve a problem, he would spend 55 minutes defining the problem and five thinking about solutions.[[footnote 7]] It is in that spirit that this research builds on the vast body of literature on the energy transition and pathways to net zero. Across seven domains, it identifies 25 significant physical challenges that must be overcome if the transition is to succeed. Three aspects stand out across these challenges: the maturity and performance of low-emissions technologies; the degree of scaling these technologies and their support infrastructure and supply chains would need as this massive energy system is transformed; and interdependencies across the different parts of the system.\u003c/p\u003e\n[[disruptor1up sust]]\n\u003chr /\u003e\n[[tocItem 2]]\n\u003ch3 style=\"text-align: center;\"\u003eClick on the tiles for summaries of 25 challenges across 7 domains\u003c/h3\u003e\n[[BespokeInteractive 1]]\n\u003cp\u003e\u003cstrong\u003eDownload the \u003ca href=\"https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse\"\u003efull report\u003c/a\u003e\u0026nbsp;for an in-depth review of each domain and associated physical challenges.\u003c/strong\u003e\u003c/p\u003e\n\u003chr /\u003e\n[[tocItem 3]]\n\u003ch2 style=\"text-align: center;\"\u003eSeven domains of the energy system would need to be transformed, and this effort is in its early stages \u003c/h2\u003e\n[[Image 1]]\n\u003cp\u003eThe energy transition involves the physical transformation of seven deeply interlinked domains. The first is the \u003cstrong\u003epower\u003c/strong\u003e domain, which needs to reduce its own emissions and to scale dramatically to provide low-emissions energy to the three large consuming domains: \u003cstrong\u003emobility\u003c/strong\u003e, \u003cstrong\u003eindustry\u003c/strong\u003e, and \u003cstrong\u003ebuildings\u003c/strong\u003e. The final three domains are enablers of the energy transition: \u003cstrong\u003eraw materials\u003c/strong\u003e, especially critical minerals; new fuels, such as \u003cstrong\u003ehydrogen and other energy carriers\u003c/strong\u003e; and \u003cstrong\u003ecarbon and energy reduction\u003c/strong\u003e (see sidebar, \u0026ldquo;Why understanding the physical realities of the transition matters\u0026rdquo;).\u003c/p\u003e\n[[Sidebar 2]]\n\u003cp\u003eThis research primarily uses the 2023 McKinsey Achieved Commitments scenario, not as a forecast, but to understand the physical challenges to overcome.[[footnote 8]] Under this scenario, billions of low-emissions assets\u0026mdash;for instance, about one billion EVs, over 1.5 billion heat pumps, and about 35 terawatts of low-emissions power generation capacity\u0026mdash;would need to be deployed by 2050 alongside scaling supporting infrastructure such as the grid, EV charging stations, and supply chains (Exhibit 1).\u003c/p\u003e\n[[Exhibit 1]]\n[[Video 1]]\n\u003cp\u003eRecent years have seen momentum on many\u0026mdash;but not all\u0026mdash;fronts. For instance, about 90 percent of all battery EV sales and almost 60 percent of solar and wind power capacity added was in the past five years.[[footnote 9]] But overall, the transition is in its early stages. Deployment of low-emissions technologies is currently only about 10 percent of the levels required by 2050 in most domains\u0026mdash;and largely in comparatively easy use cases.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eWhile some areas like solar have grown rapidly, others have not. In cases such as low-emissions hydrogen, carbon capture, and low-emissions primary production (excluding recycling) of large industrial materials, less than 1 percent of required deployment by 2050 has been achieved thus far.\u003c/p\u003e\n\u003chr /\u003e\n[[tocItem 4]]\n\u003ch2 style=\"text-align: center;\"\u003eAbating about half of energy-related emissions depends on addressing the hardest of 25 physical challenges\u003c/h2\u003e\n[[Image 2]]\n\u003cp\u003eTo progress the transition further, 25 physical challenges\u0026mdash;defined as barriers to switching from high-emissions physical assets and processes to low-emissions ones\u0026mdash;across the seven domains would need to be addressed (Exhibit 2).\u003c/p\u003e\n[[Exhibit 2]]\n\u003cp\u003eSome challenges are harder to address than others, and they have been categorized into three levels of difficulty based on technological performance, interdependencies across different challenges, and scaling needs:\u003c/p\u003e\n[[Accordion 1]]\n\u003cp\u003eEliminating between 40 and 60 percent of the energy system\u0026rsquo;s CO\u003csub\u003e2\u003c/sub\u003e emissions depends on addressing Level 3 challenges (Exhibit 3).\u003c/p\u003e\n[[Exhibit 3]]\n\u003cp\u003e\u003cstrong\u003eDownload the \u003ca href=\"https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse\"\u003efull report\u003c/a\u003e\u0026nbsp;for an in-depth review of each domain and associated physical challenges.\u003c/strong\u003e\u003c/p\u003e\n\u003chr /\u003e\n[[tocItem 5]]\n\u003ch2 style=\"text-align: center;\"\u003eEach domain faces physical challenges\u003c/h2\u003e\n[[Image 3]]\n\u003cp\u003eThe research looks at physical challenges in seven domains (see sidebar, \u0026ldquo;Scope and methodology\u0026rdquo;). Click on each domain name to go to the chapter in the full report.\u003c/p\u003e\n[[Sidebar 3]]\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003e\u003ca href=\"https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse\"\u003ePower\u003c/a\u003e\u003c/em\u003e. Overall, low-emissions power generation capacity would have to increase about ten times by 2050. There are two Level 3 challenges: managing variability in the power system as solar and wind generate a greater share of power, and doing so in emerging power systems that need to grow particularly rapidly. The flexible capacity that would be required to manage this variability, including backup generation, storage, and interconnections of grids in different regions, would need to grow two to seven times faster than power demand, but all face barriers.[[footnote 10]] Four other Level 2 challenges relate to securing enough land for renewables, investing in current transmission and distribution infrastructure and even expanding the grid, accelerating deployment of nuclear and other clean firm energy power, and increasing flexibility in power demand\u003cspan\u003e.\u003c/span\u003e\u003c/li\u003e\n \u003cli\u003e\u003cem\u003e\u003ca rel=\"noopener noreferrer\" href=\"https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse\" target=\"_blank\"\u003eMobility\u003c/a\u003e.\u003c/em\u003e The number of EVs would need to surge from about 30 million on the road today to about one billion by 2050. Two challenges are Level 1: ensuring lifetime emissions savings from passenger battery EVs relative to ICEs, and ensuring that EVs have sufficient range for all needs.[[footnote 11]] For the latter, battery EVs already do so for roughly 70 percent of households. Scaling EV charging infrastructure and supply chains has further to go and is Level 2. Trucking, aviation, and shipping are harder to decarbonize, given that they require travelling long distances with heavy payloads, and are Level 3 challenges.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003e\u003ca rel=\"noopener noreferrer\" href=\"https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse\" target=\"_blank\"\u003eIndustry\u003c/a\u003e.\u003c/em\u003e Decarbonization of the \u0026ldquo;big four\u0026rdquo; industrial material pillars of modern civilization\u0026mdash;steel, cement, plastics, and ammonia\u0026mdash;are all Level 3 challenges, where the transformation is just beginning. All rely heavily on fossil fuels as inputs and/or fuel for high-temperature heat.[[footnote 12]] A combination of more energy efficiency; different feedstock\n s, including hydrogen and recycled inputs; use of alternative materials; electrification; alternative fuels like biomass; and carbon capture would be needed. Other industries, such as general manufacturing, generally do not need high-temperature heat and tend not to use fossil fuels as feedstocks, but low-emissions processes to deliver heat would still need to be scaled and this constitutes a Level 2 challenge.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003e\u003ca rel=\"noopener noreferrer\" href=\"https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse\" target=\"_blank\"\u003eBuildings\u003c/a\u003e.\u003c/em\u003e Heating accounts for the largest share of buildings-related emissions. Heat pumps are already established technologies and perform well, but still face two physical challenges.[[footnote 13]] Ensuring that they are efficient at cold temperatures is a Level 1 challenge, reflecting the fact that more than 95 percent of people live in places where existing heat-pump technologies do the job. More demanding, and therefore Level 2, is managing a potential doubling or tripling in peak power demand in some regions if heat pump use expands.[[footnote 14]]\u003c/li\u003e\n \u003cli\u003e\u003cem\u003e\u003ca rel=\"noopener noreferrer\" href=\"https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse\" target=\"_blank\"\u003eRaw materials\u003c/a\u003e.\u003c/em\u003e Demand for critical minerals, like lithium, cobalt, and rare earths, is expected to surge, but current supply is only about 10 to 35 percent of what would be needed by 2050.[[footnote 15]] This is a Level 2 challenge, where supply would need to be scaled, alongside managing demand for such minerals.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003e\u003ca rel=\"noopener noreferrer\" href=\"https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse\" target=\"_blank\"\u003eHydrogen and other energy carriers\u003c/a\u003e.\u003c/em\u003e New energy carriers would be needed to serve as alternative fuels and feedstocks for industrial processes. One option is hydrogen, which faces two Level 3 challenges. First, the hydrogen molecule goes through many steps and, therefore, energy losses before it can be used; these would need to be minimized and considered against its advantageous properties to identify appropriate use cases for hydrogen. Second, hydrogen production and infrastructure would need to expand hugely. Few large-scale low-emissions hydrogen projects are currently operational.[[footnote 16]] Managing the growing land footprint of biofuels is Level 2.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003e\u003ca rel=\"noopener noreferrer\" href=\"https://www.mckinsey.com/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fthe%20hard%20stuff%20navigating%20the%20physical%20realities%20of%20the%20energy%20transition%2Fthe-hard-stuff-navigating-the-physical-realities-of-the-energy-transition-final.pdf%3FshouldIndex%3Dfalse\" target=\"_blank\"\u003eCarbon and energy reduction\u003c/a\u003e.\u003c/em\u003e Alongside measures to substitute high-emissions technologies for low-emissions ones, reducing the amount of energy consumed and the emissions of current technologies would also be needed. Expanding energy efficiency through established approaches\u0026mdash;for example, improving building insulation\u0026mdash;is a Level 2 challenge. Carbon capture from new \u0026ldquo;point sources\u0026rdquo; such as cement could be three times harder\u0026mdash;and costlier\u0026mdash;than for less demanding current use cases, and removing carbon from the atmosphere through direct air capture could be even more costly. Both are Level 3 challenges.\u003c/li\u003e\n\u003c/ul\u003e\n\u003chr /\u003e\n[[tocItem 6]]\n\u003ch2 style=\"text-align: center;\"\u003eUnderstanding the physical challenges can help CEOs and policy makers navigate the transition\u003c/h2\u003e\n[[Image 4]]\n\u003cp\u003eMaking progress on the transition requires understanding physical challenges. If the most demanding challenges are to be addressed, performance gaps would need to be confronted. Innovation of technologies, such as improving the energy density of batteries and developing more efficient hydrogen electrolyzers, would need to continue and be scaled. Broader system-level changes would also be needed\u0026mdash;shifting the way technologies mesh together. For instance, the potential increased variability of low-emissions power supplies could be balanced by making demand for power more flexible and using gas peaker plants as backup power. Even the way energy and materials are consumed could be adapted. For instance, alternative materials could replace industrial materials that are difficult to decarbonize.\u003c/p\u003e\n[[Video 2]]\n\u003cp\u003eIt would be important to consider how to ramp down the old system and ramp up the new one smoothly, and what investments could both support today\u0026rsquo;s energy system and lay the groundwork for tackling future emissions and physical challenges. Examples include investing in energy efficiency, transmission and distribution infrastructure, and considering the role of \u0026ldquo;hybrid\u0026rdquo; technologies, such as hybrid passenger cars to address vehicle range issues.\u003c/p\u003e\n\u003cp\u003eCEOs and policy makers both have a role to play in tackling physical challenges. Their plans for the way forward could be calibrated by carefully considering challenges across the three levels:\u003c/p\u003e\n[[Accordion 2]]\n\u003cp\u003eThe physical transformation of the energy system is complex and difficult, and the path forward uncertain. What lies ahead is a new energy transition on a monumental scale that would require setting a bold aspiration and proceeding with commitment and action. Above all, understanding the physical realities can help navigate the way forward to success.\u003c/p\u003e\n[[disruptor1Up dis2]]"},"isFullScreenInteractive":{"boolValue":false},"hideStickySocialShareBar":{"boolValue":false},"desktopID":{"value":""},"mobileID":{"value":""},"desktopURL":{"value":""},"mobileURL":{"value":""},"desktopPaddingPercentage":{"value":""},"mobilePaddingPercentage":{"value":""},"desktopOverrideHeight":{"value":""},"mobileOverrideHeight":{"value":""},"cerosOembedURL":{"value":""},"cerosRenderMode":{"targetItem":null},"cerosBackgroundColor":{"targetItem":null},"hideByLine":{"boolValue":false},"tableOfContentsTitle":{"value":"TABLE OF CONTENTS"},"accessStatus":{"targetItem":{"key":{"value":"RegisteredUsers"},"value":{"value":"Registered Users"}}},"articleType":{"targetItem":{"displayName":"Report"}},"hasSpecialReport":{"boolValue":true},"contentType":{"targetItem":{"displayName":"Article"}},"sourcePublication":{"targetItem":{"name":"MGI Research","displayName":"MGI Research","title":{"value":"MGI Research"},"relatedlinks":{"url":"/mgi/overview"},"landinglinks":{"jsonValue":{"value":[]}}}},"externalPublication":{"value":""},"mobileReady":{"boolValue":false},"forClientsOnly":{"boolValue":false},"excludeFromClientLink":{"boolValue":false},"originalPublishDate":{"jsonValue":{"value":"2024-08-14T00:00:00Z"}},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eThis research considers both the use of energy resources like oil, gas, and coal to provide energy, as well as their nonenergy uses in materials production, namely as inputs or feedstocks (for example, the use of oil as a feedstock for the production of plastics). For comprehensive definitions relating to the energy system, see \u0026ldquo;Glossary\u0026rdquo; in \u003cem\u003eClimate change 2014: Mitigation of climate change\u003c/em\u003e, Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPPC), Cambridge University Press, 2014.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eNumber of people lacking access to reliable electricity services\u003c/em\u003e, United Nations Development Programme, 2022.\u003c/li\u003e\n \u003cli\u003eClemens Forman et al., \u0026ldquo;Estimating the global waste heat potential,\u0026rdquo; \u003cem\u003eRenewable and Sustainable Energy Reviews, volume 57, May 2016; Energy flow charts\u003c/em\u003e, Flowcharts, Lawrence Livermore National Laboratory and Department of Energy, accessed July 2024; and Paul Martin, \u003cem\u003eThe primary energy fallacy \u0026ndash; or, committest thou NOT the 2nd sin of thermodynamics!\u003c/em\u003e, June 25, 2024.\u003c/li\u003e\n \u003cli\u003eGlobal CO\u003csub\u003e2\u003c/sub\u003e emissions from energy combustion and industrial processes total about 37 gigatons, with about five gigatons in agriculture, forestry, and other land use. In the case of methane, more than approximately 35 percent of global emissions arise from the energy system, from combustion and industrial processes, with the remaining 65 percent divided between agriculture, at about 40 percent, and waste and other sectors at about 25 percent (data for 2021); McKinsey EMIT database, 2023.\u003c/li\u003e\n \u003cli\u003e\u0026ldquo;ChatGPT witnesses massive rise, Chatbot gains 100 million users in two months,\u0026rdquo; \u003cem\u003eEconomic Times\u003c/em\u003e, March 2023.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eAn affordable, reliable, competitive path to net zero\u003c/em\u003e, McKinsey Sustainability, November 2023. It is also important to take a holistic view of the socioeconomic impacts of different transition pathways and to use this perspective to help inform decision making. See \u003cem\u003eClimate Transition Impact Framework: Essential elements for an equitable and inclusive transition\u003c/em\u003e, McKinsey Sustainability, December 2023; and \u0026ldquo;Solving the net-zero equation: Nine requirements for a more orderly transition,\u0026rdquo; McKinsey Sustainability, October 2021.\u003c/li\u003e\n \u003cli\u003eNell Derick Debevoise, \u0026ldquo;The third critical step in problem solving that Einstein missed,\u0026rdquo; \u003cem\u003eForbes\u003c/em\u003e, January 26, 2021.\u003c/li\u003e\n \u003cli\u003eThis scenario assumes that countries that have committed to net zero (some by 2050, some later) meet those commitments and that warming reaches 1.6\u0026ordm;C relative to preindustrial levels by 2100. See \u003cem\u003eGlobal energy perspective 2023\u003c/em\u003e, McKinsey, October 2023. Other net-zero scenarios may contain slightly different combinations of technologies and rates of deployment, but the broad trends and themes described in this research would still apply. This report is based on analysis as of September 2023. Subsequent developments in the energy system may lead to different outcomes, which will be covered in forthcoming McKinsey research.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eGlobal EV Data Explorer\u003c/em\u003e, IEA, April 23, 2024; \u003cem\u003eRenewable capacity statistics 2023\u003c/em\u003e, International Renewable Energy Agency, 2023.\u003c/li\u003e\n \u003cli\u003eSimulations are based on the McKinsey Power Model using the McKinsey 2023 Achieved Commitments scenario.\u003c/li\u003e\n \u003cli\u003eA range of nonphysical factors, notably cost and consumer preferences, could also be important in determining EV adoption, but these are not the focus of this research.\u003c/li\u003e\n \u003cli\u003eVaclav Smil, \u0026ldquo;The modern world can\u0026rsquo;t exist without these four ingredients. They all require fossil fuels,\u0026rdquo; \u003cem\u003eTime\u003c/em\u003e, May 12, 2022; and \u003cem\u003eGlobal energy perspective 2023\u003c/em\u003e, McKinsey, October 2023.\u003c/li\u003e\n \u003cli\u003eOther operational challenges related to the scale-up of heat pumps are not discussed in this research. They include the need to scale up manufacturing capacity for heat pumps, whether sufficient skilled labor is available to install them, whether consumers adopt them given their associated costs, and the large turnover and retrofits that the installation of heat pumps would entail so that they can perform effectively.\u003c/li\u003e\n \u003cli\u003eUnder a scenario in which all heating of buildings is electrified. See Michael Waite and Vijay Modi, \u0026ldquo;Electricity load implications of space heating decarbonization pathways,\u0026rdquo; \u003cem\u003eJoule\u003c/em\u003e, volume 4, issue 2, February 2020. Other McKinsey and external research found similar increases of two to three times for colder states. \u003cem\u003eThe role of natural gas in the move to cleaner, more reliable power\u003c/em\u003e, McKinsey, September 2023; and \u003cem\u003e2050 transition study\u003c/em\u003e, ISO New England Inc. Transmission Planning, February 2024.\u003c/li\u003e\n \u003cli\u003eThis depends on the specific critical mineral. McKinsey MineSpans.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eHydrogen insights 2023\u003c/em\u003e, Hydrogen Council and McKinsey, May 2023, updated December 2023.\u003c/li\u003e\n\u003c/ol\u003e"},"contributoryPractice":{"targetItems":[{"displayName":"McKinsey Global Institute"}]},"aboutTheAuthors":{"value":"\u003cp\u003e\u003cstrong\u003e\u003ca href=\"/our-people/mekala-krishnan\"\u003eMekala Krishnan\u003c/a\u003e\u003c/strong\u003e is an MGI partner in Boston. \u003cstrong\u003e\u003ca href=\"/our-people/chris-bradley\"\u003eChris Bradley\u003c/a\u003e\u003c/strong\u003e is a McKinsey senior partner and an MGI director in Sydney. \u003cstrong\u003e\u003ca href=\"/our-people/humayun-tai\"\u003eHumayun Tai\u003c/a\u003e\u003c/strong\u003e is a McKinsey senior partner and coleader of McKinsey\u0026rsquo;s Global Energy \u0026amp; Materials practice in New York. \u003cstrong\u003eTiago Devesa\u003c/strong\u003e\u0026nbsp;is an MGI senior fellow in Lisbon.\u0026nbsp;\u003cstrong\u003e\u003ca href=\"/our-people/sven-smit\"\u003eSven Smit\u003c/a\u003e\u003c/strong\u003e\u0026nbsp;is a McKinsey senior partner and MGI chairman in Amsterdam.\u0026nbsp;\u003cstrong\u003e\u003ca href=\"/our-people/daniel-pacthod\"\u003eDaniel Pacthod\u003c/a\u003e\u003c/strong\u003e is a McKinsey senior partner in New York.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eThis article was edited by MGI executive editor Janet Bush with data visualizations by Juan M. Velasco and visuals by Nathan R. Wilson.\u003c/p\u003e"},"authors":{"targetItems":[{"template":{"id":"3FBABDB63A094F68B1F8E1BBE1BA124E","name":"Author"},"id":"202E8298372A43CD9AD30A760F5FB2A5","name":"Mekala Krishnan","authorTitle":{"value":"Mekala Krishnan"},"description":{"value":""},"thumbnailImage":{"alt":"","src":null},"profile":{"targetItems":[{"standardImage":{"src":"/~/media/mckinsey/our people/mekala krishnan/mekala-krishnan-profile_1536x1152.jpg","alt":"Mekala Krishnan"},"emailLinks":{"value":" Mekala_Krishnan@mckinsey.com"},"linkedInUrl":{"value":"https://www.linkedin.com/in/mekala-krishnan-1571a342/"},"description":{"value":"Leads the McKinsey Global Institute’s research on topics related to sustainable and inclusive growth, including climate risk and the net-zero transition, globalization, productivity growth, and gender economics"},"locations":{"targetItems":[{"name":"Boston","displayName":"Boston"}]},"firmTitle":{"value":"McKinsey Global Institute Partner"},"thumbnailImage":{"alt":"Mekala Krishnan","src":"/~/media/mckinsey/our people/mekala krishnan/mekala-krishnan-headshot_988x741.jpg"},"url":{"path":"/our-people/mekala-krishnan"}}]}},{"template":{"id":"3FBABDB63A094F68B1F8E1BBE1BA124E","name":"Author"},"id":"8AAB71EC20FD41579E4F9561358725D9","name":"Chris Bradley","authorTitle":{"value":"Chris Bradley"},"description":{"value":""},"thumbnailImage":{"alt":"","src":null},"profile":{"targetItems":[{"standardImage":{"src":"/~/media/mckinsey/our people/chris bradley/chris-bradley_8317_fc-mask_1536x1152.png","alt":"Chris Bradley"},"emailLinks":{"value":"Chris_Bradley@mckinsey.com"},"linkedInUrl":{"value":"https://www.linkedin.com/in/chrisdbbradley"},"description":{"value":"Leads research on global economic, business, and tech trends and works on strategic transformations for organizations across sectors"},"locations":{"targetItems":[{"name":"Sydney","displayName":"Sydney"}]},"firmTitle":{"value":"McKinsey Global Institute Director and Senior 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The challenge levels are based on the McKinsey 2023 Achieved Commitment Scenario, in which most countries reach their net-zero commitments by or before 2050.\u003c/p\u003e\n\u003cp\u003eEnd of image description.\u003c/p\u003e"},"mobileImage":{"alt":"","src":null},"renderMode":{"targetItem":null},"flourishDataVisualizationID":{"value":""},"pNGImage":{"src":null,"alt":""},"height":{"value":""},"width":{"value":""},"mobileSVGImage":{"src":null,"alt":""},"mobilePNGImage":{"src":null,"alt":""}}]},"image":{"results":[{"mediaID":{"value":"1"},"description":{"value":""},"libraryMediaFile":{"src":"/~/media/mckinsey/mckinsey global institute/our research/the hard stuff navigating the physical realities of the energy transition/the-hard-stuff-sh1-1290916862-1536x512.jpg","alt":"Wide view image of wind turbines in the ocean with turbulent cloudy skies and an oil tanker going by in the distance."},"height":{"value":""},"width":{"value":""},"renderMode":{"targetItem":{"key":{"value":"Center"},"value":{"value":"Center"}}}},{"mediaID":{"value":"2"},"description":{"value":""},"libraryMediaFile":{"src":"/~/media/mckinsey/mckinsey global institute/our research/the hard stuff navigating the physical realities of the energy transition/the-hard-stuff-sh2-1186090916-1536x512.jpg","alt":"Steelworkers in heat protective gear starting a glowing molten steel pour in a steelworks factory."},"height":{"value":""},"width":{"value":""},"renderMode":{"targetItem":{"key":{"value":"Center"},"value":{"value":"Center"}}}},{"mediaID":{"value":"3"},"description":{"value":""},"libraryMediaFile":{"src":"/~/media/mckinsey/mckinsey global institute/our research/the hard stuff navigating the physical realities of the energy transition/the-hard-stuff-sh3-1733213132-1536x512.jpg","alt":"Image of an EV battery pack being assembled under an electric car on a production line, inside a modern factory."},"height":{"value":""},"width":{"value":""},"renderMode":{"targetItem":{"key":{"value":"Center"},"value":{"value":"Center"}}}},{"mediaID":{"value":"4"},"description":{"value":""},"libraryMediaFile":{"src":"/~/media/mckinsey/mckinsey global institute/our research/the hard stuff navigating the physical realities of the energy transition/the-hard-stuff-sh4-1499218409-1536x512.jpg","alt":"Image of an EV battery pack being assembled under an electric car on a production line, inside a modern factory."},"height":{"value":""},"width":{"value":""},"renderMode":{"targetItem":{"key":{"value":"Center"},"value":{"value":"Center"}}}}]},"exhibitcarousel":{"results":[]},"pullquote":{"results":[{"description":{"value":"About two-thirds of energy is currently wasted. And the energy system generates more than 85 percent of global emissions of carbon dioxide (CO\u003csub\u003e2\u003c/sub\u003e)."},"mediaID":{"value":"1"},"renderMode":{"targetItem":{"key":{"value":"left"},"value":{"value":"left-align"}}},"citation":{"value":""},"enableQuotes":{"boolValue":false},"CTA":{"url":"","linkType":"internal","text":"","target":"","className":"","queryString":"","anchor":"","targetItem":null}},{"description":{"value":"Overall, the transition is in its early stages. Deployment of low-emissions technologies is currently only about 10 percent of the levels required by 2050—and largely in comparatively easy use cases."},"mediaID":{"value":"2"},"renderMode":{"targetItem":{"key":{"value":"right"},"value":{"value":"right-align"}}},"citation":{"value":""},"enableQuotes":{"boolValue":false},"CTA":{"url":"","linkType":"internal","text":"","target":"","className":"","queryString":"","anchor":"","targetItem":null}},{"description":{"value":"If the most demanding challenges are to be addressed, performance gaps would need to be confronted."},"mediaID":{"value":"3"},"renderMode":{"targetItem":{"key":{"value":"right"},"value":{"value":"right-align"}}},"citation":{"value":""},"enableQuotes":{"boolValue":false},"CTA":{"url":"","linkType":"internal","text":"","target":"","className":"","queryString":"","anchor":"","targetItem":null}}]},"disruptorsignup":{"results":[{"mediaID":{"value":"full-width"},"renderMode":{"targetItem":{"key":{"value":"fullwidth"},"value":{"value":"Full Width"}}},"callToAction":{"url":"/user-registration/register-mvc","text":"Subscribe"},"title":{"jsonValue":{"value":"Stay current on your favorite topics"}}},{"mediaID":{"value":"left"},"renderMode":{"targetItem":{"key":{"value":"left"},"value":{"value":"Left"}}},"callToAction":{"url":"/user-registration/register-mvc","text":"Subscribe"},"title":{"jsonValue":{"value":"Stay current on your favorite topics"}}}]},"articlesidebar":{"results":[{"mediaID":{"value":"1"},"description":{"jsonValue":{"value":"\u003cp\u003e\u003cspan style=\"line-height: 110%;\"\u003eThe research was led by Mekala Krishnan, an MGI partner in Boston; Chris Bradley, a McKinsey senior partner and a director of MGI in Sydney; Humayun Tai, a senior partner in the New York office; Tiago Devesa, an MGI senior fellow in Lisbon; Sven Smit, McKinsey senior partner in Amsterdam and chairman of MGI; and Daniel Pacthod, a senior partner in the New York office. We give particular thanks to Lola Woetzel (alumna), a former McKinsey senior partner and director of MGI, who helped us drive the research that led to this report.\u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cspan style=\"line-height: 110%;\"\u003eA group of McKinsey colleagues coauthored\u003c/span\u003e\u0026nbsp;chapters dedicated to the seven domains of the energy system: for power, Jesse Noffsinger, a McKinsey partner in Seattle, and Diego Hernandez Diaz, a McKinsey partner in Geneva; for mobility, Timo M\u0026ouml;ller, a McKinsey partner in Cologne and coleader of the McKinsey Center for Future Mobility; for industry, Michel Van Hoey, a McKinsey senior partner in Luxembourg; Christian Hoffmann, a McKinsey partner in D\u0026uuml;sseldorf; Ken Somers, a McKinsey partner in Brussels; and Adam Youngman, a McKinsey senior asset leader in Los Angeles; for buildings, Daniel Cramer, a senior McKinsey asset leader in New York; for raw materials, Michel Foucart, a McKinsey associate partner in Brussels; Michel Van Hoey; and Patricia Bingoto, a McKinsey senior expert in Zurich; for hydrogen and other energy carriers, Rory Clune, a senior partner in Boston; and for carbon and energy reductions, Clint Wood, a McKinsey partner in Houston, and Santhosh Shankar, a US-based McKinsey expert. For their considered contributions to the research, we also thank Olivia White, McKinsey senior partner and a director of MGI in San Francisco, and Jan Mischke, MGI partner in Zurich.\u003c/p\u003e\n\u003cp\u003eThe project team was led by Masud Ally, Francisco Galtieri, Kasmet Niyongabo, and Luc Oster-Pecqueur, and comprised Kemi Ajala, Sanjana Are, Maya Berlinger, Andrea Boza Zanatta, Susan Cheboror, Patrick Chen, Thibault Courqueux, Anurag Dash, John Grabda, Muriel Jacques, Myer Johnson-Potter,\u0026nbsp;\u003cspan style=\"line-height: 110%;\"\u003ePauline Leeuwenburg,\u003c/span\u003e Pierre Salvador, Girish Selvaraj, Anna Schneider, Casey Timmons, Tse Uwejamomere, Marnix Verhoeven, and David Wu. \u003cspan style=\"line-height: 110%;\"\u003eWe are grateful to Janet Bush, MGI executive editor, who helped write and edit the report, and Juan M. Velasco, who helped with data visualization.\u003c/span\u003e\u003c/p\u003e\n\u003cp\u003eFor kindly sharing their insights, we thank advisors Simon Dietz, professor, Grantham Research Institute on Climate Change and the Environment; Marion Dumas, professor, Grantham Research Institute; and John Ward, founder, Pengwern Associates, and visiting senior fellow, Grantham Research Institute.\u003c/p\u003e\n\u003cp\u003eWe are also grateful to the following for taking the time to discuss the findings of this research and sharing their views with us: Jesse Jenkins, assistant professor of mechanical and aerospace engineering at the Andlinger Center for Energy and the Environment at Princeton University; Ted Nordhaus, founder and executive director of the Breakthrough Institute; Vijay Modi, a professor of mechanical engineering at Columbia University and faculty member of the Earth Institute; and Gregory F. Nemet, Vilas Distinguished Achievement Professor, La Follette School of Public Affairs, University of Wisconsin-Madison; and Daniel Schrag, the Sturgis Hooper Professor of Geology, Professor of Environmental Science and Engineering at Harvard University, and Co-Director of the Science, Technology, and Public Policy Program at Harvard\u0026rsquo;s Kennedy School.\u003c/p\u003e\n\u003cp\u003eMany McKinsey colleagues gave us input and guidance. We want to thank Enric Auladell Bernat, Deston Barger, Henrik Becker, Christian Begon, Michele Benoit, Krysta Biniek, Milo Boers, Brodie Boland,\u0026nbsp;Janice Bolen, Michaela Brandl, Greg Callaway, Julian Conzade, Peter Cooper, Andreas Cornet, Matteo Cutrera, Thomas Czigler, Danny Van Dooren, Treina Fabre, Javier Ferrer, Lauritz Fischer, Wenting Gao, Godart van Gendt, Nicolas Goffaux, Jose Luis Gonzalez, Anna Granskog, \u003cspan style=\"line-height: 110%;\"\u003eDarya Guettler,\u0026nbsp;\u003c/span\u003eRajat Gupta, Marcin Hajlasz, Bernd Heid, Tom Hellstern, Russell Hensley, Anna Herlt, Ruth Heuss, Ann Hewitt, Autumn Hong, Blake Houghton, Thomas Hundertmark, Lionel Johnnes, Adam Kendall, Arjen Kersing, Per Klevn\u0026auml;s, Anna (Orthofer) Kortis, Kevin Laczkowski, Joh Hann Lee, Mateusz Lesniak, Christopher Martens, Eduardo Mencarini, Takashi Nakachi, Tomas Naucl\u0026eacute;r, Geoff Olynyk, Alex Panas, Jan Paulitschek, Sebastian Reiter, Gustavo Ribeiro, Daniel Riefer, Alexandre Van de Rijt, Moritz Rittstieg, Giulio Scopacasa, Suvojoy Sengupta, Bram Smeets, Hady Soliman, Brandon Stackhouse, Stephanie Stefanski, Michelle Stitz, Carlo Tanghetti, Tom Thys, Felix Tigges, Joaquin Ubogui, Jos\u0026eacute; Urgel, Steven Vercammen, Tom Voet, Maurits Waardenburg, Jeremy Wallach, Markus Wilthaner, \u003cspan style=\"line-height: 110%;\"\u003eMarita Winslade,\u0026nbsp;\u003c/span\u003eand Nicola Zanardi.\u003c/p\u003e\n\u003cspan style=\"line-height: 110%;\"\u003eIn MGI\u0026rsquo;s operations team, we would like to thank Rachel Robinson and Rishabh Chaturvedi. For their help with digital production, we thank Chuck Burke and David Batcheck; and for their communications expertise, Rebeca Robboy, Nienke Beuwer, Shannon Ensor, and Ashley Grant. We are also grateful to communications colleagues in McKinsey\u0026rsquo;s Global Energy and Materials Practice and McKinsey\u0026rsquo;s Sustainability Practice, Lisa Farrugia and Kristen Jennings. Thanks also go to McKinsey\u0026rsquo;s design team, especially to Nathan R. Wilson and Janet Michaud. Finally, we appreciate the collaboration with other members of McKinsey\u0026rsquo;s digital production team, including Sean M. Conrad, Mary Gayen, Paromita Ghosh, Stephen Landau, and Regina Small.\u003c/span\u003e\u003cbr /\u003e\n\u003cbr /\u003e\nAs with all MGI research, this work is independent and has not been commissioned or sponsored in any way by any business, government, or other institution. While we gathered a variety of perspectives, our views have been independently formed and articulated in this report. Any errors are our own."}},"aboutTheAuthors":{"jsonValue":{"value":""}},"headline":{"jsonValue":{"value":"Acknowledgments"}},"footnotes":{"value":""},"showShareTools":{"boolValue":false},"backgroundColor":{"targetItem":null},"gradientDirection":{"targetItem":{"key":{"value":"Bottom Right"},"value":{"value":"bottom-right"}}},"renderMode":{"targetItem":{"key":{"value":"Collapsible"},"value":{"value":"default"}}},"isAboutAuthor":{"boolValue":false},"background":{"targetItem":null},"image":{"src":null,"alt":""}},{"mediaID":{"value":"2"},"description":{"jsonValue":{"value":"\u003cp\u003eUnderstanding the physical realities of the energy transition\u0026mdash;namely the physical properties of low-emissions solutions and the nature of the physical transformation\u0026mdash;is critical to many aspects of designing a successful transition.\u003c/p\u003e\n\u003cp\u003eFirst, understanding the physical properties of low-emissions solutions can help design a new system that delivers performance on a par with the current system and does so reliably. This matters because the energy system is vital for driving economic growth and progress. As discussed later, this is not a trivial task and it requires a careful understanding of the performance and advantages of low-emissions technologies, innovation needs, and how such technologies can effectively be brought together in an interconnected system to deliver performance.\u003c/p\u003e\n\u003cp\u003eSecond, looking at the nature and scale of the underlying physical transformation helps design a feasible transition. In an energy system made up of thousands or millions, and in some cases billions, of individual assets, the transformation that would be needed is monumental. With such a massive scale-up, bottlenecks in the build-out of supply chains could lead to shortages of critical minerals and manufactured goods. Installing or building new low-emissions assets at the scale and pace needed may be similarly difficult if not planned for well.\u003c/p\u003e\n\u003cp\u003eThird, and relatedly, applying a physical lens to different components of the energy system can highlight critical interdependencies, which similarly need to be factored into the design of a reliable and feasible energy transition.\u003c/p\u003e\n\u003cp\u003eFourth, understanding the physical properties and maturity of different technologies, and the nature of the physical transformation, also helps to shed light on their costs and therefore on the affordability of the transition.[[footnote 1]] Prior McKinsey research has highlighted the large scale-up needed in low-emissions capital spending and various challenges associated with the affordability of the transition.[[footnote 2]] While costs associated with the transition are not the core focus of this research, appreciating the physical realities of the transition is crucial to better understand cost challenges. For example, in the case of carbon capture technologies, expanding their use to new use cases would require deploying them in processes where CO\u003csub\u003e2\u003c/sub\u003e makes up a small portion of the gases that are emitted (that is, is present in lower concentration in flue gases) and is therefore harder to capture. This could be about three times more expensive than the cost of capture of higher-concentration use cases deployed today.[[footnote 3]] The massive physical scale-up of the assets needed for a new system could also lead to shortages of raw materials and, as a result, contribute to price increases and create volatility. In 2022, prices of cobalt, lithium, and nickel surged, leading to an increase in the price of batteries of nearly 10 percent globally.[[footnote 4]] A sharp drop in prices quickly followed. This volatility generated uncertainty that contributed to the postponement of new mining projects.[[footnote 5]]\u003c/p\u003e\n\u003cp\u003eThus, a physical lens brings focus on not just how to achieve emissions reduction feasibly but also to do so while ensuring affordability, maintaining the reliability of the energy system, and thus also securing the competitiveness of companies and economies\u0026mdash;three other objectives that McKinsey research has identified as vital for a successful transition.[[footnote 6]]\u003c/p\u003e"}},"aboutTheAuthors":{"jsonValue":{"value":""}},"headline":{"jsonValue":{"value":"Why understanding the physical realities of the transition matters"}},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eIt is also important to take a holistic view of the socioeconomic impacts of different transition pathways, and to use this to help inform decision making. See \u003cem\u003e\u003ca href=\"/capabilities/sustainability/our-insights/climate-transition-impact-framework-essential-elements-for-an-equitable-and-inclusive-transition\"\u003eClimate Transition Impact Framework: Essential elements for an equitable and inclusive transition\u003c/a\u003e\u003c/em\u003e, McKinsey Sustainability, December 2023; and \u0026ldquo;\u003ca href=\"/capabilities/sustainability/our-insights/solving-the-net-zero-equation-nine-requirements-for-a-more-orderly-transition\"\u003eSolving the net-zero equation: Nine requirements for a more orderly transition\u003c/a\u003e, McKinsey Sustainability, October 27, 2021.\u003c/li\u003e\n \u003cli\u003eSee, for example, \u003cem\u003e\u003ca href=\"/capabilities/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring\"\u003eThe net-zero transition: What it would cost, what it could bring\u003c/a\u003e\u003c/em\u003e, McKinsey Global Institute, January 2022; \u003cem\u003e\u003cem\u003e\u003ca href=\"/capabilities/sustainability/our-insights/an-affordable-reliable-competitive-path-to-net-zero\"\u003eAn affordable, reliable, competitive path to net zero\u003c/a\u003e\u003c/em\u003e\u003c/em\u003e, McKinsey Sustainability, November 30, 2023; and \u003cem\u003e\u003ca href=\"/mgi/our-research/from-poverty-to-empowerment-raising-the-bar-for-sustainable-and-inclusive-growth\"\u003eFrom poverty to empowerment: Raising the bar for sustainable and inclusive growth\u003c/a\u003e\u003c/em\u003e, McKinsey Global Institute, September 2023.\u003c/li\u003e\n \u003cli\u003eSee chapter 7, Challenge 24.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eEnergy technology perspectives 2023\u003c/em\u003e, IEA, January 2023; \u003cem\u003eIEA clean energy equipment price index, 2014\u0026ndash;2023\u003c/em\u003e, IEA, September 7, 2023; and \u003cem\u003eTrends in electric vehicle batteries\u003c/em\u003e, IEA, April 2023.\u003c/li\u003e\n \u003cli\u003eThomas Biesheuvel, \u0026ldquo;Battery metal price plunge is closing mines and killing deals,\u0026rdquo; Bloomberg Law, January 9, 2024; and Aya Dufour, \u0026ldquo;Some minerals are \u0026lsquo;critical\u0026rsquo; to the digital economy, but current prices don\u0026rsquo;t reflect that,\u0026rdquo; CBC News, March 4, 2024.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003e\u003ca href=\"/capabilities/sustainability/our-insights/an-affordable-reliable-competitive-path-to-net-zero\"\u003eAn affordable, reliable, competitive path to net zero\u003c/a\u003e\u003c/em\u003e, McKinsey Sustainability, November 2023.\u003c/li\u003e\n\u003c/ol\u003e"},"showShareTools":{"boolValue":true},"backgroundColor":{"targetItem":null},"gradientDirection":{"targetItem":{"key":{"value":"Bottom Right"},"value":{"value":"bottom-right"}}},"renderMode":{"targetItem":{"key":{"value":"Collapsible"},"value":{"value":"default"}}},"isAboutAuthor":{"boolValue":false},"background":{"targetItem":null},"image":{"src":null,"alt":""}},{"mediaID":{"value":"3"},"description":{"jsonValue":{"value":"\u003cp\u003eThis research focuses on understanding the physical challenges of the energy transition. Important methodological choices were made to do this.\u003c/p\u003e\n\u003cp\u003eThe focus is the energy system, encompassing both production and use (including the current use of fossil fuels as feedstock for industrial processes). The system accounts for more than 85 percent of current CO\u003csub\u003e2\u003c/sub\u003e emissions.[[footnote 1]] Sources of emissions outside the energy system, including in agriculture, forestry, and other land use, are not included. Other important sustainability topics, including the preservation of natural capital and the impact of pollution beyond greenhouse gas emissions, are also not within scope. In each domain of the energy system, the analysis explores what physical asset and process transformations would be required when switching from high-emissions assets to low-emissions alternatives. Examples include switches from fossil-fuel-based power generation, such as coal power plants, to low-emissions sources like variable renewable energy in the form of solar and wind, and clean firm power like nuclear or hydropower in the power domain; from ICE vehicles to EVs in the mobility domain; and from gas boilers to low-emissions heat sources in industry or buildings. The associated infrastructure and supply chains that would need to be built to support these switches are also analyzed.\u003c/p\u003e\n\u003cp\u003eBased on these transformations, the research then identifies 25 physical challenges that must be addressed for CO\u003csub\u003e2\u003c/sub\u003e emissions of the energy system to be reduced while replicating the performance of the existing energy system. These challenges were identified in consultation with more than 50 industry experts and academics within and outside McKinsey alongside an extensive literature review of analysis of the energy system.[[footnote 2]]\u003c/p\u003e\n\u003cp\u003eThe 25 challenges are prioritized based on the potential of new, low-emissions technologies to abate emissions. Some exclusions help bound the scope of the work.\u003c/p\u003e\n\u003cp\u003eFirst, challenges that are expected to affect only a small portion of total emissions are not included. Second, incremental improvements to existing assets that do not involve major switches in technologies are not directly discussed as individual challenges; two examples are improved ICE fuel efficiency and insulation in buildings. Nevertheless, their collective impact is recognized in Challenge 23. Third, as noted, the challenges focus only on the energy system; those related to the transition of agriculture and other land use are not discussed directly, although the role of land as a physical challenge is discussed as part of the power domain challenges. Fourth, the focus is on challenges of a physical nature; any challenges that are purely related to market adoption or policies are excluded. Fifth, this research does not explicitly cover challenges related to labor. Finally, since this work focuses on analyzing the physical realities of the transition, costs are not the main focus, although, as noted, physical realities can help shed light on cost challenges.\u003c/p\u003e\n\u003cp\u003eThe choice and precise boundaries of the 25 challenges is subjective to a degree, and some challenges are broader in scope than others. Different taxonomies, granularity, or segmentation of some challenges would certainly be possible. For example, circularity and recycling are important cross-cutting challenges that are discussed in the context of individual materials, such as plastics and critical minerals, but they could be deemed challenges in themselves. The list of 25 is neither collectively exhaustive (as noted, a prioritization lens has been used) nor mutually exclusive (many challenges share interdependencies).\u003c/p\u003e\n\u003cp\u003eThe challenges are categorized into three levels, reflecting both the progress made to date in addressing them and the nature of the hurdles to overcome. Three features of difficulty, discussed further in chapter 3, are considered to do this: technological performance; gnarly interdependencies with other challenges; and degree of, and constraints on, scaling.\u003c/p\u003e\n\u003cp\u003eIn examining the 25 challenges, this research builds on existing analyses of the transition in three ways. First, the examination of the performance of individual technologies is done in the context of specific use cases rather than their technological maturity in general. Second, this analysis goes beyond assessing technological maturity to consider other physical challenges, such as the required scale-up of supply of critical minerals. Finally, it considers how the system as a whole interacts\u0026mdash;including how a particular individual technology relies on others\u0026mdash;and the implications of that interaction.\u003c/p\u003e\n\u003cp\u003eOf course, the precise boundaries between the levels of challenges can be debated, and the classification into levels can vary by region. Parts of a Level 3 challenge could be categorized as Level 1 or 2. For instance, overall, decarbonizing cement is a Level 3 challenge that requires substantial technological innovation, but some decarbonization approaches, such as using biomass for heating or deploying clinker substitutes, are already widespread in some markets.\u003c/p\u003e\n\u003cp\u003eA global view of challenges is taken, but deployment of different technologies varies among regions. Some challenges may be more or less important\u0026mdash;and difficult\u0026mdash;depending on the region.\u003c/p\u003e\n\u003cp\u003eAcross challenges, the research looks at the required deployment of low-emissions assets in 2050, comparing it with today\u0026rsquo;s levels using McKinsey\u0026rsquo;s 2023 Achieved Commitments scenario.[[footnote 3]] Other net-zero scenarios may have slightly different combinations of technologies and rates of deployment, but the broad trends and themes described in this research would still apply. In some instances, this research also uses insights from other external scenarios for reasons of data availability.\u003c/p\u003e\n\u003cp\u003eAmong the external sources of data used in this report are publicly available data from the International Energy Agency (IEA) in Paris, namely \u003cem\u003eEnergy technology perspectives 2023\u003c/em\u003e, IEA, January 2023; and \u003cem\u003eNet zero roadmap: A global pathway to keep the 1.5\u0026ordm;C goal in reach 2023 update\u003c/em\u003e, IEA, September 2023. All are license CC BY 4.0. We note that some analysis in this research was derived from IEA material, and MGI is solely liable and responsible for it; it is not endorsed by the IEA in any manner. This holds true for all providers of the data that went into our analysis. We gratefully acknowledge their input, but the conclusions and any errors are our own.\u003c/p\u003e"}},"aboutTheAuthors":{"jsonValue":{"value":""}},"headline":{"jsonValue":{"value":"Scope and methodology"}},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eGlobal CO\u003csub\u003e2\u003c/sub\u003e emissions from energy combustion and industrial processes total about 37 gigatonnes, with about five gigatonnes in agriculture, forestry, and other land use. In the case of methane, more than 35 percent of global emissions arise from the energy system, from combustion and industrial processes, with the remainder split between agriculture at about 40 percent and waste and other sectors at about 25 percent; McKinsey EMIT database, 2023.\u003c/li\u003e\n \u003cli\u003eThis includes reviews of the level of progress in clean technologies and associated challenges by McKinsey and others. Among other research, see, for instance, Hauke Engel, Mekala Krishnan, Hamid Samandari, Humayun Tai, Daniel Pacthod, Simran Khural, and Mackenzie Murphy,\u003cem\u003e \u003ca href=\"/capabilities/sustainability/our-insights/a-sector-progress-tracker-for-the-net-zero-transition\"\u003eA sector progress tracker for the net-zero transition\u003c/a\u003e\u003c/em\u003e, McKinsey Sustainability, November 2023; \u003cem\u003eEnergy technology perspectives 2023\u003c/em\u003e, IEA, January 2023; \u003cem\u003eTracking clean energy progress 2023\u003c/em\u003e, IEA, July 2023; \u003cem\u003eNet zero roadmap: A global pathway to keep the 1.5\u0026ordm;C goal in reach\u003c/em\u003e, IEA, September 2023; \u003cem\u003eWorld energy transitions outlook 2023\u003c/em\u003e, International Renewable Energy Agency, 2023; Systems Change Lab data dashboard, accessed May 2024; \u003cem\u003eClimate change 2022: Impacts, adaptation, and vulnerability\u003c/em\u003e, Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, 2022; \u003cem\u003eETP Clean energy technology guide\u003c/em\u003e, IEA, updated September 14, 2023; \u003cem\u003eThe state of clean technology manufacturing\u003c/em\u003e, IEA, May 2023; \u003cem\u003eNew energy outlook 2023\u003c/em\u003e, BloombergNEF, 2023; \u003cem\u003eGlobal critical minerals outlook 2024\u003c/em\u003e, IEA, May 2024; \u003cem\u003eThe state of clean technology manufacturing\u003c/em\u003e, IEA, May 2023; \u003cem\u003eMaterial and resource requirements for the energy transition\u003c/em\u003e, Energy Transitions Commission, July 2023; and \u003cem\u003eBetter, faster, cleaner: Securing clean energy technology supply chains\u003c/em\u003e, Energy Transitions Commission, June 2023.\u003c/li\u003e\n \u003cli\u003eThis research uses the 2023 McKinsey Achieved Commitments scenario because it provides detail across different economies and types of assets about the deployment levels that would be required for those economies to meet the climate commitments they have made. The scenario assumes that countries that have committed to net zero (some by 2050, some later) meet those commitments, and that warming reaches 1.6\u0026ordm;C relative to preindustrial levels by 2100. 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Some interdependencies may exist with other challenges, but they are not critical bottlenecks for most use cases. In addition, where applicable, scaling is progressing roughly on pace with the needs of the energy transition.\u003c/p\u003e\n\u003cp\u003eIn mobility, for example, ensuring that passenger battery electric vehicles (BEVs) reach the range drivers need is a Level 1 challenge. BEVs can go shorter distances than internal combustion engine vehicles, or ICEs, before they need to refuel; an average passenger BEV currently has a reported range of about 400 kilometers, in comparison with about 650 kilometers for an ICE. Moreover, charging a BEV takes at least 25 to 50 times longer than filling up an ICE vehicle.[[footnote 1]] However, even with a safety margin for range deteriorating due to weather conditions and other factors, today\u0026rsquo;s average BEV is estimated to meet daily needs of roughly 70 percent of households.[[footnote 2]] Overall, therefore, a substantial portion of use cases is already addressed by today\u0026rsquo;s levels of technological performance. In addition, substantial progress has been made in addressing remaining use cases where performance still lags. For example, the energy density of batteries is increasing by about 3 percent a year, and the average range of a BEV has risen by about 200 kilometers in the past decade.[[footnote 3]]\u003c/p\u003e"}},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003e\u003cem\u003eFuel economy and EV range testing\u003c/em\u003e, US Environmental Protection Agency, November 2023; and \u003cem\u003eUS: Median EPA range of 2022 BEVs amounted to 257 miles\u003c/em\u003e, Inside EVs, May 2023;\u0026rdquo; Electric Vehicle Database, accessed May 26, 2024; and \u003cem\u003eCharger types and speeds\u003c/em\u003e, US Department of Transportation, June 2023.\u003c/li\u003e\n \u003cli\u003eThe McKinsey Center for Future Mobility; Matthias Steinstr\u0026auml;ter, Tobias Heinrich, and Markus Lienkamp, \u0026ldquo;Effect of low temperature on electric vehicle range,\u0026rdquo; \u003cem\u003eWorld Electric Vehicle Journal\u003c/em\u003e, volume 12, issue 3, August 2021. The analysis is based on adapted data from the US Federal Highway Administration on household trips measured as the number of days per household. See \u003cem\u003eExploring national long distance passenger travel demand modeling and simulation\u003c/em\u003e, Traveler Analysis Framework, Office of Highway Policy Information, Federal Highway Administration, accessed May 2024.\u003c/li\u003e\n \u003cli\u003eMcKinsey Battery Insights; and \u0026ldquo;Evolution of average range of electric vehicles by powertrain, 2010\u0026ndash;2021,\u0026rdquo; IEA, May 2022.\u003c/li\u003e\n\u003c/ol\u003e"},"standardImage":null,"callToActionLinks":{"jsonValue":{"value":[]}},"ceros":{"results":[]},"image":{"results":[]},"video":{"results":[]}},{"id":"B86E576EF8A64F5C982CACBDC5592FAB","url":{"path":"/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition/accordion-inline-1/accordion-item-2"},"name":"Accordion Item 2","displayName":"Accordion Item 2","title":{"jsonValue":{"value":"\u003cp style=\"text-align: left;\"\u003e\u003cstrong\u003eTen Level 2 challenges require the deployment of known technologies to accelerate, and associated infrastructure and inputs to be scaled.\u003c/strong\u003e\u003c/p\u003e"}},"body":{"jsonValue":{"value":"\u003cp\u003eLevel 2 challenges require the deployment of known technologies to accelerate, and for associated infrastructure and inputs to be scaled. For these challenges, mature technological options are available. Their deployment or the scaling of important inputs and infrastructure faces constraints, however, and this sometimes also creates interdependencies with other challenges. Further acceleration would be needed to address these challenges.\u003c/p\u003e\n\u003cp\u003eIn mobility, for example, building more extensive charging infrastructure and supply chains for BEVs and fuel-cell EVs (FCEVs) is a Level 2 challenge. In McKinsey\u0026rsquo;s 2023 Achieved Commitments scenario, global public charging infrastructure would need to grow by 24 percent per year between 2022 and 2030, from 2.8 million charging points to about 16 million.[[footnote 1]] In the case of hydrogen refueling stations, the scale-up would be from a very low base.[[footnote 2]] Manufacturing capacity for batteries used in mobility would need to grow tenfold, to about 5,800 gigawatt-hours by 2030.[[footnote 3]] The concomitant scale-up of critical minerals supply that would be needed for batteries also creates an interdependency with challenges in the raw materials domain.\u003c/p\u003e"}},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eMcKinsey Center for Future Mobility; McKinsey 2023 Achieved Commitments scenario.\u003c/li\u003e\n \u003cli\u003eCurrently, there are just over 1,000 hydrogen fueling stations around the world, the majority of which are in China, Japan, and South Korea. See \u003cem\u003eGlobal hydrogen review 2023\u003c/em\u003e, IEA, September 2023.\u003c/li\u003e\n \u003cli\u003eUnder McKinsey\u0026rsquo;s 2023 Achieved Commitments scenario; McKinsey Battery Insights.\u003c/li\u003e\n\u003c/ol\u003e"},"standardImage":null,"callToActionLinks":{"jsonValue":{"value":[]}},"ceros":{"results":[]},"image":{"results":[]},"video":{"results":[]}},{"id":"09C501DD9F9A488F8B1A314111404C6D","url":{"path":"/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition/accordion-inline-1/accordion-item-3"},"name":"Accordion Item 3","displayName":"Accordion Item 3","title":{"jsonValue":{"value":"\u003cp style=\"text-align: left;\"\u003e\u003cstrong\u003eTwelve Level 3 challenges have technological performance gaps and interdependencies, and are early in their transformation.\u003c/strong\u003e\u003c/p\u003e"}},"body":{"jsonValue":{"value":"\u003cp\u003eLevel 3 challenges occur when there are gaps in technological performance (often with demanding use cases), large interdependencies exist, and the transformation is just beginning. For these challenges, technological performance gaps exist for a large portion of use cases, which often have more demanding needs. Substantial progress is needed toward bridging these gaps. Moreover, such challenges often have critical interdependencies with other Level 3 challenges, and the transformation is just beginning.\u003c/p\u003e\n\u003cp\u003eSome low-emissions technologies in mobility, for example, do not yet offer the performance that would be needed by more demanding cases. Trucking, for instance, is difficult to decarbonize because it entails carrying heavy payloads over long distances, and this is particularly challenging for battery-powered vehicles with current levels of battery energy density. That density does not matter as much for passenger EVs because they tend to travel shorter distances with lighter payloads. Even the best battery electric trucks available today could fail to meet 20 to 45 percent of use cases with a single charge if weight regulations are not changed.[[footnote 1]] Moreover, the transformation is just getting started\u0026mdash;fewer than 1 percent of trucks on the road today are electric, and almost none of those run on long-haul routes.[[footnote 2]] A new transformation would need to be kick-started to get electric trucks on the road in greater numbers.\u003c/p\u003e"}},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eThis is based on a 2022 simulation using EU trucking regulations from 2019 as a regulatory baseline for the weight of a truck, with the battery density in the simulation at 180 watt-hours per kilogram to reflect improvements in the technology in 2023. Fleet payloads and distances are based on 2018 survey results. See Hussein Basma and Felipe Rodr\u0026iacute;guez, \u003cem\u003eFuel cell electric tractor-trailers: Technology overview and fuel economy\u003c/em\u003e, International Council on Clean Transportation, July 2022; \u003cem\u003eGuidance report: Electric trucks where they make sense\u003c/em\u003e, North American Council for Freight Efficiency, 2018; and McKinsey Center for Future Mobility.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eGlobal EV outlook 2024: Moving towards increased affordability\u003c/em\u003e, IEA, April 2024.\u003c/li\u003e\n\u003c/ol\u003e"},"standardImage":null,"callToActionLinks":{"jsonValue":{"value":[]}},"ceros":{"results":[]},"image":{"results":[]},"video":{"results":[]}}]}},{"id":"AF2EC80CFC254FDA9943B007506CF24B","sectionTitle":{"value":""},"mediaID":{"value":"2"},"enableFullWidthContainerForContent":{"boolValue":false},"hideInactiveItems":{"boolValue":false},"backgroundColor":{"jsonValue":{"id":"a699f0c4-185d-46e5-b247-f832de67a3f9","url":"/sitecore/content/repository/rendering-parameters/jss/background-colors/white","name":"White","displayName":"White","fields":{"Value":{"value":"white"},"Key":{"value":"White"}}}},"gradientDirection":{"jsonValue":{"id":"fe7d5f87-23a2-4d63-8792-5049643fb8eb","url":"/sitecore/content/repository/rendering-parameters/jss/gradient-directions/top-right","name":"Top Right","displayName":"Top Right","fields":{"Value":{"value":"top-right"},"Key":{"value":"Top Right"}}}},"renderMode":{"jsonValue":{"id":"c3177096-415f-48e1-9df6-29d9a4ae6cc0","url":"/sitecore/content/repository/next-generation-article/exhibit-render-modes/medium-column-width","name":"Medium column width","displayName":"Medium - Content column width","fields":{"Value":{"value":"medium"},"Key":{"value":"Medium content column width"}}}},"fontChoiceForSubhead":{"jsonValue":{"id":"80756351-fc3b-44a5-b0ab-8a3c2fe199a9","url":"/sitecore/content/repository/rendering-parameters/accordion-font-choice-for-subhead/functional","name":"Functional","displayName":"Functional","fields":{"Value":{"value":"functional"},"Key":{"value":"Functional"}}}},"selectItem":{"targetItems":[{"id":"97B53E563F134052B4C75EEB96B84529","url":{"path":"/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition/accordion-inline-2/accordion-item-1"},"name":"Accordion Item 1","displayName":"Accordion Item 1","title":{"jsonValue":{"value":"\u003cp style=\"text-align: left;\"\u003e\u003cstrong\u003eFor Level 1 challenges, how can near-term opportunities from the deployment of fast-maturing technologies be captured?\u003c/strong\u003e\u003c/p\u003e"}},"body":{"jsonValue":{"value":"\u003cp\u003eSuch challenges correspond to areas in which technologies are mature today, minimal interdependencies exist, and scaling is well under way. They offer potential opportunities for near-term value creation for organizations. Companies could explore areas in which they have a strategic advantage and the geographies that offer the most attractive prospects to play offense and create value. Doing so would also require understanding both the current and potential future costs of low-emissions technologies relative to high-emissions ones. Policy makers similarly need to understand what it would take to drive deployment in these areas in their regions as well as how to best unleash the potential of the private sector to capture these opportunities, for example via incentives and sending appropriate demand signals.\u003c/p\u003e"}},"footnotes":{"value":""},"standardImage":null,"callToActionLinks":{"jsonValue":{"value":[]}},"ceros":{"results":[]},"image":{"results":[]},"video":{"results":[]}},{"id":"6A8E32CBD2174A05BB71C18D7201907B","url":{"path":"/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition/accordion-inline-2/accordion-item-2"},"name":"Accordion Item 2","displayName":"Accordion Item 2","title":{"jsonValue":{"value":"\u003cp style=\"text-align: left;\"\u003e\u003cstrong\u003eFor Level 2 challenges, what bottlenecks need to be addressed today to unlock the next tranche of opportunities?\u003c/strong\u003e\u003c/p\u003e"}},"body":{"jsonValue":{"value":"\u003cp\u003eThese challenges entail deploying mature technologies, but they face immediate or short-term constraints. The key is identifying and anticipating which bottlenecks are particularly important and the options to address them. For companies, this might mean actions toward securing the supply of critical inputs through collaborations with suppliers, building capabilities in supply chains to unlock supply, and considering how innovation could help manage the magnitude of demand for such inputs. In some cases, playing a role in unblocking bottlenecks also represents an opportunity for value creation. For example, regions and companies that are major players in the global supply of critical inputs and technologies could become critical to scaling the decarbonization of other organizations. Policy makers can play a role in helping coordinate action across stakeholders and in untangling constraints\u0026mdash;for example, related to permitting for transmission and distribution or to land availability.\u003c/p\u003e"}},"footnotes":{"value":""},"standardImage":null,"callToActionLinks":{"jsonValue":{"value":[]}},"ceros":{"results":[]},"image":{"results":[]},"video":{"results":[]}},{"id":"A81815993BA54810B358F14F7C725FDB","url":{"path":"/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition/accordion-inline-2/accordion-item-3"},"name":"Accordion Item 3","displayName":"Accordion Item 3","title":{"jsonValue":{"value":"\u003cp style=\"text-align: left;\"\u003e\u003cstrong\u003eFor Level 3 challenges, where and how can these hardest challenges be addressed?\u003c/strong\u003e\u003c/p\u003e"}},"body":{"jsonValue":{"value":"\u003cp\u003eAddressing these challenges is subject to the greatest uncertainty, and they have the furthest to go to scale. Companies can consider where they may be best positioned to resolve these challenges, and how. Approaches should be guided by where companies can create a comparative advantage, where there is potential for value creation, and based on a deep understanding of the features that make Level 3 challenges particularly difficult. Companies should consider where they individually may be able to innovate to address performance gaps or weigh\u0026mdash;often in collaboration with others\u0026mdash;the broader system-level changes in how technologies mesh together and how end-use sectors employ technologies that could also address performance gaps. Importantly, while these challenges are the farthest from being fully solved, there are still opportunities to make some progress in the short term, such as using energy efficiency or recycled inputs in industrial processes. Policy makers will have a critical role to play in helping to create the incentives to invest in innovation and in fostering cross-sector collaborations for broader systemwide changes.\u003c/p\u003e"}},"footnotes":{"value":""},"standardImage":null,"callToActionLinks":{"jsonValue":{"value":[]}},"ceros":{"results":[]},"image":{"results":[]},"video":{"results":[]}}]}}]},"factoid":{"results":[]},"promobarwithquote":{"results":[]},"oneupmedium":{"results":[]},"oneupmediumquote":{"results":[]},"gridwall":{"results":[]},"twoupsmall":{"results":[]},"oneclicksubscribe":{"results":[]},"promobar":{"results":[]},"promobanner":{"results":[]},"sectionhero":{"results":[]},"threeuplinklist":{"results":[]},"table":{"results":[]},"explainertooltip":{"results":[]},"isFiveFiftyHorizontalArticle":{"boolValue":false},"fiveFifty":{"results":[]}},"contextItem":{"ancestors":[{"breadCrumbUrl":{"path":"/mgi/our-research/all-research"},"breadCrumbTitle":null,"isMiniSite":{"boolValue":false},"displayName":"Our Research","template":{"id":"414C6C64AD35440E9668CF39D8A18CCF"}},{"breadCrumbUrl":{"path":"/mgi"},"breadCrumbTitle":{"value":"McKinsey Global Institute"},"isMiniSite":{"boolValue":true},"displayName":"McKinsey Global Institute","template":{"id":"85FF05307883480F9A4C82123F72FFD8"}},{"breadCrumbUrl":{"path":"/"},"breadCrumbTitle":{"value":""},"isMiniSite":{"boolValue":false},"displayName":"Home","template":{"id":"85FF05307883480F9A4C82123F72FFD8"}}]}}},"placeholders":{"main-area":[],"sidebar-area":[]}}]}},"itemId":"7ed8871b-52b4-4d94-838c-7909f749b501","pageEditing":false,"site":{"name":"website"},"pageState":"normal","language":"en","pageMetaData":{"alternateLanguages":[{"languageCode":"en","displayName":"English","url":"/mgi/our-research/the-hard-stuff-navigating-the-physical-realities-of-the-energy-transition"}],"currentLanguage":"en","navigationLink":"mgi","activeItemId":"{7ED8871B-52B4-4D94-838C-7909F749B501}","miniSiteId":"{294ECF7A-4855-485B-A361-CC965D56C4A1}","officeCode":"","officeDisplayName":"","subscriptionPracticeData":[{"key":"practice-name-newsletter","value":"McKinsey Global Institute"},{"key":"practice-code-newsletter","value":"N33"}],"isAlaisedPage":false,"originalHostName":"www.mckinsey.com","updatedDate":"2024-10-23T11:34:51Z","createdDate":"2024-09-19T22:19:04Z","practice":{"isDefaultPractice":false,"name":"McKinsey Global Institute","code":"N33","stickyTitle":"Sign up for emails on new McKinsey Global Institute articles","stickySubtitle":"Never miss an insight. 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