We are almost halfway through what has been dubbed the decisive decade for climate action, so what better time to take stock.
The energy system, a vast and intricate physical network, requires a fundamental overhaul to accommodate a sustainable, low-emissions future. This transformation is deeply rooted in the physical components—infrastructure, technology, and supply chains—that make up our energy landscape.
We have, therefore, taken a physical lens to understand the transformation that lies ahead as the energy transition unfolds, what we call the hard stuff.
Across the entire energy system, we identified 25 significant physical challenges and classified them into three levels to indicate the extent of progress so far and how difficult they are to address.
Four major points are worth highlighting from this exercise:
1. Despite the momentum of recent years, only about 10 percent of the low-emissions technologies that would be needed by 2050 to meet global commitments have been deployed.
2. Of the 25 physical challenges, there has been progress on 13, although substantial scaling is still needed. Examples include enhancing the range of passenger battery electric vehicles, and improving the effectiveness of heat pumps so that they can be efficient even at the very lowest temperatures. But 12 of the challenges—which we call the “demanding dozen”—are more difficult to address. They include, for instance, addressing the challenge of intermittency as renewables like solar and wind increase their share of power generation, and decarbonizing the production of the big four industrial materials: steel, cement, plastics, and ammonia.
3. The demanding dozen have three main features that make them hard. There are often significant gaps in technological performance to overcome. Progress is at such an early stage that there is no track record to draw on in order to scale. In some parts of the energy system, such as hydrogen, carbon capture, and industrial production, deployment is still only at about 1 percent of what would be needed. And often one of these challenges cannot be addressed without addressing others at the same time.
4. It is sobering that about half of the energy-related carbon dioxide emissions that need to be abated depends on finding solutions to the 12 most difficult physical challenges.
Understanding the physical realities of the transition helps clarify the path forward. For the 13 challenges where progress has been made, there is an imperative for business leaders to focus on execution and scaling rapidly maturing low-emissions technologies. In some cases, this will involve removing critical bottlenecks, for instance, addressing a potential shortage in the next decade in the supply of critical minerals needed for these technologies. Policy makers can play a role to unleash the potential of the private sector to capture these opportunities.
Addressing the demanding dozen will take more work. Here, three approaches can help address the performance and scaling issues that make these dozen hard. First, innovation of individual technologies needs to continue, from increasing the energy density of batteries to improving the efficiency of hydrogen electrolyzers. Second, beyond innovation for individual technologies, the entire system can be reengineered so that technologies mesh together to deliver performance. For example, power systems could be redesigned so that cars, buildings, and industry become not only consumers of power but providers and sources to flexibly manage demand for power, too, for periods when renewable energy is not available. Third, the very way energy and energy-related resources are used could be changed. Alongside efforts to decarbonize cement production, for instance, cement could be replaced with alternative materials like cross-laminated timber, where feasible.
For these demanding dozen, companies will need to consider opportunities to collaborate to help drive the innovation and the system reconfigurations that are needed to make new low-emissions technologies work. Policy makers would need to help create the right incentives to invest in innovation and encourage fruitful partnerships.
At the same time, thought should also be given to how best to run the current system and the new one in parallel, and ramp down the former and ramp up the latter as smoothly as possible. It would be important to consider 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 and transmission and distribution infrastructure.
In the past, new ways of transforming energy have been achieved that had been unthinkable, from liquefying natural gas to splitting the atom. Such ingenuity is now needed again.
Mekala Krishnan is a partner at the McKinsey Global Institute.