Can the Energy Industry Rise to the Challenge of Climate Change?

How Does Wood Mackenzie Define the Energy Transition?

Rapid technological advancement across a variety of industries is enabling society’s quest for sustainability at an unprecedented pace. The resulting energy transition is causing an epochal shift in how the world’s population consumes energy and natural resources, driven by a range of factors, including climate change and emerging technologies.  

Wood Mackenzie so far has modeled two energy transition scenarios to explore the many what-ifs inherent in any long-term cross-commodity forecast. 

The Energy Transition Outlook: This is Wood Mackenzie's base case view across all global commodity and technology markets. It doesn't represent business as usual. Instead, it reflects an evolution of current policies and technology advancement. It accounts for some degree of business and consumer inertia. The outlook is broadly consistent with an approximately 3°C global warming view.

The Carbon-Constrained Scenario. The scenario outlook is leveraged from the base case. It represents an accelerated view of the energy transition. It is a much deeper view on decarbonization and electrification and best efforts on technology, policy, and cost reduction. It also reflects heightened societal preference for sustainability. It is what Wood Mackenzie thinks could happen over the long term if there is more radical change in the short term. It is broadly consistent with an approximately 2.5°C global warming view.

The firm is also doing some work on a third scenario, the International Energy Agency's (IEA's) Sustainable Development Scenario (SDS) to understand what a more ambitious target such as this could mean for technology and commodities. That analysis is expected to be released later this year. 

The IEA’s SDS. Also know as the 2° scenario, it quantifies the effect of successfully implementing major climate goals to limit global warming to 2°C. It is the most common and standardized framework for quantifying a 2° or lower outlook. Wood Mackenzie is not particularly confident that 2°C can be achieved because of the challenges across technology, policy, regulation, and cost; intergovernmental constraints; trade and consumer choice; and what is built into the current energy systems of today.

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