Geopolitics, high interest rates stall 2030 decarbonisation progress
Defense mandates of up to 5% GDP divert funds from green initiatives.
Global efforts to deploy low-carbon technologies are at risk of falling short of 2030 decarbonisation targets amidst policy stagnation, rising capital costs, and heightened geopolitical instability, according to a McKinsey & Co. report.
With only five years remaining until the 2030 milestone, analysts warned that progress has slowed markedly, noting that achieving net zero by 2050 remains feasible if governments and companies implement significant policy and investment shifts.
The slowdown has been driven in part by changing policy priorities in OECD economies, with some countries adopting mandates to spend between 3.5% and 5.0% of GDP on defence, which has diverted attention from climate initiatives.
Energy price volatility and rising demand have also pushed policymakers to prioritise energy security and affordability, complicating efforts to balance near-term needs with long-term sustainability goals.
After years of declining costs, low-carbon technologies—including renewable energy systems and EV batteries—saw their first cost increases in 2023, although prices began easing again in 2024, the report said.
Higher interest rates have further raised financing costs by 10% to 20% since 2020, whilst higher raw material, labour, and grid connection costs have added additional pressure.
Meanwhile, growing geopolitical tensions, trade disputes, and tariffs are adding pressure to investment decisions for clean energy, making it harder to commit to capital-intensive, long-term projects.
Market redesigns—such as capacity markets, subsidy rollbacks, and offtaker uncertainty—have also increased business case risks.
