Global net-zero ambitions are slipping out of reach, with the world now heading for 2.6 degrees Celsius of warming, as soaring power demand, geopolitical instability and sluggish decarbonization efforts cause a drift away from the 1.5 degrees Celsius target, according to a recent report.

Reaching the two degrees Celsius threshold would now require in the region of US$4.3 trillion in annual investment from 2025 through 2060, which would mean growing energy sector investment from today’s 2.5% of global GDP to 3.35% over the next decade, finds Wood Mackenzie’s Energy Transition Outlook 2025–2026 report.

“The energy system is becoming more complex, interconnected and volatile,” says Prakash Sharma, Wood Mackenzie’s vice-president and head of scenarios and technologies. “As power demand surges due to technologies such as AI [artificial intelligence] and electrification, what was once a mostly aspirational shift towards decarbonization is now facing the hard trade-offs of scale, system integration, capital allocation and geopolitics.”

Investment lag

The report’s base-case scenario projects global emissions peaking in 2028, but with the rate of decline slowing to just 2% annually, putting the world on a 2.6 degrees Celsius path. Their net zero by 2050 pathway would require more than doubling current investment levels, particularly in the United States.

By 2040, China, Europe and the United States are expected to dominate global capital expenditure on the energy transition, collectively accounting for around 70% of all investment. But while all three regions are investing heavily, the scale of effort required to reach net zero varies considerably.

China, already the world’s largest energy investor, is projected to spend US$913 billion annually under the report’s base case scenario. To align with a net-zero pathway, that figure would need to rise by 29%, reaching an estimated US$1.177 trillion per year.

Europe faces a moderately steeper challenge. The region is currently on track to invest around US$455 billion each year, but will need to boost this to US$619 billion, an increase of 36%, to stay aligned with net-zero goals.

The United States, however, faces the most significant shortfall. Annual energy transition spending in the US stands at US$388 billion, the report notes, but meeting its share of global decarbonization targets would require a dramatic 76% increase, pushing total annual investment to approximately US$682 billion.

These disparities, the report points out, underscore how uneven the road to net zero has become, with some economies facing steeper financial hurdles than others. They also highlight the urgent need for policy coherence, capital mobilization and long-term planning, especially in economies where fossil fuels still receive substantial support.

AI, climate leadership shift

Global climate leadership, the report also shares, is shifting. “As the US doubles down on fossil fuels, China is seizing the low-carbon mantle through EV [electric vehicle] and solar dominance, plus aggressive renewables deployment,” Sharma states. “Europe maintains the strongest net-zero ambitions.”

Variable renewables, the report predicts, will leap from 20% to 60% of global power generation by 2050. Solar alone will double by 2030, overtaking gas by 2033 and coal by 2034. Yet, fossil fuels aren’t going to go quietly. Oil demand will now peak in 2032 ( two years later than previously projected ), and natural gas demand is forecast to rise by 180 billion cubic metres by 2050, largely due to AI-driven energy loads.

Cleantech growth, the report points out, hinges on critical minerals like lithium, nickel and rare earths, supplies of which are concentrated in China.

“Critical minerals have become the new strategic battleground,” Sharma adds. “Their availability and affordability will shape the balance of power in the new energy landscape.”

AI is a key disruptor and is fuelling electricity demand. Data centres could consume more power than EVs by 2025, but AI may also help to unlock efficiencies in materials science, grid integration and energy system design.

The report comes as countries prepare nationally determined contributions ahead of COP30, with nearly half of global emissions now covered by 2035 climate pledges.