The global economy is on the cusp of a major shift where most future global energy demand growth will come from emerging markets and developing economies (EMDEs). The new realities of meeting this demand alongside the need for energy security, resilience, and affordability render more-ambitious climate goals infeasible, even with exponential growth of renewables and rapid electrification, according to a new S&P Global Energy study.
The study, Multidimensional Global Energy Pathways, suggests energy demand from EMDEs could rise by over 60% by 2060, adding the equivalent of another China to global primary energy demand. By contrast, demand from advanced economies and China is expected to be broadly flat over the longer term, despite the rise of artificial intelligence and data centers, as final energy consumption rises only slowly with more electrification and improvements in energy efficiency, the study says.
As a result, most advanced economies will focus on transforming existing energy systems while EMDEs will be driven to greatly expand their systems to meet increasing demand. A large share of new low-carbon supply will be deployed in addition to—rather than in place of—existing fossil-fuel sources.
“The thinking and policies that have sought to shape the energy transition over the last decade have collided with the realities of economic development, growing energy demand, geopolitics, and the pace of technological progress,” said Daniel Yergin, vice chairman of S&P Global. “The fundamental fact is that the largest source of long-term energy demand growth will come from emerging markets and developing economies where energy needs are driven by economic development, industrialization, urbanization, and rising incomes. We hope that this study will contribute to a deeper dialogue about the realities and challenges of the energy transition.”
Multidimensional Global Energy Pathways provides a nationally differentiated approach to long-term energy and emissions projections, with a specific focus on the EMDEs. The analysis takes a bottom-up, country-level view of demand that considers factors such as differences in levels of economic development, resource endowments, institutional capacity, and development priorities, as well as finance, infrastructure, supply chains, land availability, and the pace of technology adoption.
Paris Climate Targets
The study finds that the most ambitious climate targets, such as limiting global temperature rise to 1.5°C, are not reachable under any plausible trajectory and globally reaching net-zero emissions before the end of the century is unlikely. While some advanced economies may achieve or come close to carbon neutrality by 2060, most EMDEs will not achieve the goal until late century at the earliest, the study says.
Limiting global temperature rise to 2°C by the end of this century remains possible but only under the study’s most aggressive decarbonization pathway. In this emissions-reduction pathway, installed solar and wind generation capacity would rise eightfold globally (eighteenfold in EMDEs) and supply 73% of global electricity by 2060, grid battery capacity increases 25-fold over the same period, and total greenhouse-gas emissions decline 65% by 2060, assuming commensurate actions on nonenergy emissions.
By comparison, the study’s current-realities pathway—a more likely pathway that considers the current policy environment—shows total greenhouse-gas emissions declining by only 17% over that period, with global warming reaching 2.8°C by the end of the century. A third, diverging-priorities pathway sees a hybrid trajectory where advanced economies prioritize emissions reduction while EMDEs prioritize the growth of gross domestic product, energy affordability, security, and economic competitiveness, with intermediate global emissions and warming outcomes (2.5°C by end of century).
Holding Temperature Rise to 2°C
While the 2°C emissions-reduction pathway remains possible, it is increasingly challenged by technical and commercial realities, the study says.
“Electrification based on renewable energy sources is key to emissions reduction, and the rate of growth will be substantial,” said Atul Arya, senior vice president and chief energy strategist at S&P Global Energy. “Nevertheless, there are practical limits to how much power systems can expand, decarbonize, and remain reliable at the required pace, at affordable cost, and within the limits of available finance.”
In part because integration costs rise rapidly once variable solar and wind share exceeds approximately 50–60% of generation, global capital investment of $50 trillion—more than the combined market capitalization of all companies listed on the Nasdaq—would be required through 2060 for power generation, storage, transmission, and distribution.
While electricity demand would double to over 60,000 TW-hr by 2060, practical limits to total electrification become apparent, the study says. Sectors such as heavy industry and air and marine transport will remain difficult to electrify. The most challenging sector to electrify, transportation—in particular, medium and heavy-duty transportation—sees electricity provide less than 30% of its total energy by 2060 in all pathways.
A Transition Defined by Expansion
Across all plausible pathways, the result is a prolonged period of coexistence in which multiple energy sources operate in parallel. Fossil fuels remain structurally embedded in the energy system even as their overall share of demand declines. Under the study’s 2°C pathway, more than $11 trillion in upstream capital investment will be required to meet oil and gas demand through 2060, even though oil demand declines over 40% to close to 60 million B/D. The current-realities pathway, where oil demand declines by a modest 7% and gas demand rises by 35%, sees nearly $14 trillion of upstream investment over the same period.
Each country’s energy sources and emissions trajectory will be shaped by geography, infrastructure, and resource endowment rather than a single optimal path, the study says.
The study shows a wide range of energy-related carbon-dioxide-emissions outcomes at the country level—from a decline of close to 100% to an increase of over 90% by 2060—reflecting the complex, country-specific realities inherent to national energy systems. Energy security and affordability may mean faster electrification and renewables for fossil-fuel importers; for resource-rich countries, it may mean greater domestic fossil fuel production.
A more sophisticated and flexible approach, therefore, may be required when developing location-relevant decarbonization pathways for industrial sectors, one that accounts for where emissions occur and where energy is ultimately used, the study says.
“The energy transition will be increasingly defined by how the world meets large volumes of new demand while also reducing emissions, strengthening security, and preserving affordability,” said Nick Lowes, vice president of consulting at S&P Global Energy. “It will be multidimensional, regionally differentiated, and multispeed. This will require objective and inclusive discussion about the very different perspectives between advanced and developing economies on their respective energy and climate priorities.”