by consumers, whereas supply chain constraints are impacting manufacturers. For example, 33% of households in China have heat pumps, while only 12% of households in Europe do. The outlook for hydrogen remains uncertain. Renewable and low-carbon hydrogen will play a critical role in reducing emissions from hard-to-electrify sectors and achieving the objectives outlined in the Paris Agreement. To meet these targets, hydrogen must account for approximately 15% of the world’s energy demand by 2050. However, DNV’s projections indicate that the global adoption of hydrogen and its derivatives will lag those ambitions with hydrogen making up just 0.5% of the global final energy mix in 2030 and 5% in 2050. While we have achieved significant progress in many countries in terms of advancing the energy transition, it can be argued that we have addressed the low-hanging fruit mainly. The next steps will require fundamental changes in the actual energy system closer to the end user – physical changes to heating, transportation, and manufacturing equipment. This will be much harder. Cost of inaction According to the International Renewable Energy Agency (IRENA), the energy transition is estimated to cost an additional $110 trillion by 2050 ( IRENA, 2023 ). However, the cost of inaction is $178 trillion by 2070, as stated by Deloitte, whereas the global economy could gain $43 trillion over the next five decades by rapidly accelerating the transition to net zero ( Deloitte, 2022 ). Energy spending currently sits at 3.2% of GDP, with three-quarters of this allocated to unabated fossil fuels. If the world were to maintain today’s level of spending in GDP terms, this would clearly be enough to realise a clean energy future, but it would require a massive redirection of capital. Maintaining the 3.2% of GDP dedicated to energy today would be a good investment when the cost of climate impacts is considered, with projections that even 2ºC warming could reduce world GDP by 11%. A Paris-compliant transition is affordable. DNV forecasts that energy costs will diminish from 3.2% of GDP in 2019 to 1.6% in 2050 (see Figure 5 ). While we can place a monetary cost on the
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Figure 5 World energy expenditures (© DNV 2024)
Transition challenges There is a clear consensus that electrification sits at the heart of the energy transition. However, the pace of the energy transformation has been incremental. Planning and permitting cycles for new renewable capacity and grid transmission lines are slow, and waiting times for connection to the grid can still take up to five to 10 years. Difficulties with planning and permitting cause problems at nearly every stage of renewables deployment, making project timelines much longer and shrinking project pipelines. There is also still opposition from local communities regarding the impact of such infrastructure development on their immediate environment. In addition, there is a lack of incentive for end consumers to embrace electrification in many countries. For example, the current electricity market design in the UK results in an electricity price that is four times higher than the equivalent cost of natural gas per KWh – partially linked to environmental levies on electricity ( Ofgem, 2024 ). With the current cost of living crisis impacting citizens around the world, this will actively reduce the drive for consumers to consider electrical alternatives to gas and petrol, even if electrical systems are more efficient. Another challenge for decarbonisation is heating for homes, particularly where oil and gas energy sources are used. A significant solution will be the replacement of fossil fuel heating technology with heat pumps. There has been a partial adoption of the technology, but this varies greatly by region as costs and home insulation concerns hamper large-scale uptake
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