Quantifying the decarbonization 'reality gap'

There’s a cleantech deployment gap: Only 10% of announced projects globally have actually been funded and deployed. Despite the sector’s growth in the United States and globally, clean energy and other cleantech projects have been plagued by delays that threaten fast-approaching 2030 targets. 

A recent report from McKinsey quantifies that gap in the U.S. and Europe — and the progress that different technologies have made to date. These include clean energy, electric vehicles, heat pumps, hydrogen, and carbon capture.

As a group, cleantech projects have historically high failure rates, with only a small number reaching final investment decisions, McKinsey found. But a few technologies are at higher risk than others.

McKinsey’s analysis suggests that corporate, public, and private equity investors “are hesitating about deploying capital” to key technology deployments. That’s in large part because of unpredictability in economic returns and policy, the fact that many technologies aren’t yet cost-competitive for consumers, and haven’t yet been tested at scale.

“The question remains whether the world’s much-needed commitments can be translated to action,” the report said. “Our analysis shows that many planned projects for key decarbonization technologies in the European Union and the United States are falling short of announced targets, some significantly so.”

Clean hydrogen, and carbon management technologies in particular, have fallen well behind deployment targets, despite relatively robust pipelines of planned projects.

Clean hydrogen is among the most at-risk technologies, McKinsey found. Although current U.S. project pipelines could account for 70% of the country’s 10 megaton 2030 goal, for instance, just 15% of that pipeline has reached FID. In Europe, the current pipeline is projected to meet 90% of its targets, but only about 11% has reached FID. And, the report found, while Europe’s clean hydrogen project pipeline expects steady capacity growth until 2030, the U.S. project pipeline currently shows a sharp decline after 2028.

The pipeline of carbon capture, utilization, and storage projects is around nine times that of current U.S. capacity. But the vast majority of those projects, the report said, have not reached final investment decisions — and are therefore at high risk of failure.

But the discrepancy between announced projects and projects realized following FID doesn’t just apply to hydrogen and carbon management. As the report said, “it is true across most critical energy transition technologies.

According to McKinsey, electric vehicle momentum is also slowing, particularly in the U.S., which needs to add around 21 million vehicles to the road by 2030 to meet national targets. Once again, only a fraction of announced deployments for 2030 have received full financial commitment.

And clean energy generation, despite significant growth in recent years, is also falling below targets.

The U.S. has added around 120 gigawatts of solar PV capacity since 2015. But capacity expansions are on track to slow down after 2028 at around 220 GW of capacity, due to a dearth of long-term commitments, the report said. Around 60% of planned 2030 capacity is awaiting the investment green light. In Europe, meanwhile, less than 390 GW is in the pipeline to come online by 2030 — far below the EU goal of 600 GW.

In offshore wind, the outlook is worse. The U.S. 2030 goal is set at 30 GW, but only around 1GW is currently installed. There are 17GW in the pipeline to come online by 2030, but that amount falls far short of the target, and 90% of that capacity is still pre-FID.

In total, only about 10% of the low-emissions tech deployment needed by 2050 has been achieved. Closing that gap, McKinsey said, is a tall order that will ultimately require unlocking “significant firm investment.”