Global Energy Transition Slows Amid Geopolitical Tensions, Inflation, And Rising AI Demand: Wood Mackenzie Outlook 2025–2026

The latest Energy Transition Outlook for 2025–2026 by Wood Mackenzie paints a sobering picture of global climate action. It reveals that a decade after the Paris Agreement, no major G7 nation is on track to meet its 2030 emissions reduction targets. The report suggests that the goals set for 2035 lack ambition and that governments are avoiding difficult decisions needed to accelerate the energy transition. Instead of moving forward steadily, the transition has become a complex process shaped by geopolitics, inflation, and the rapid rise of Artificial Intelligence.

Wood Mackenzie’s analysis shows that the global transition is no longer linear but uneven and heavily influenced by regional conditions. The impact of geopolitical tensions, especially related to Russia, has disrupted global energy markets and driven prices higher. In response, many countries, particularly in Europe, are focusing on energy independence. Inflation is another major challenge, pushing up costs for clean energy projects that require heavy capital investment. These cost pressures have slowed progress in renewable energy development.

At the same time, AI is emerging as both an opportunity and a challenge. While it promises to make energy systems more efficient and help manage complex grids, it also drives massive new demand for electricity. The growing number of data centers and AI applications could offset some of the progress made in energy efficiency. The report highlights that without strong policies and innovation, this new demand may create additional strain on already stressed power systems.

In the power sector, renewable energy continues to expand, but at a slower pace due to rising costs, permitting delays, and grid congestion. Solar and wind installations are still growing globally, but their growth rate is being affected by economic and supply chain hurdles. Energy storage, especially through advanced battery systems, is becoming a key component of the transition. Storage is critical for balancing the variable output of renewable sources and maintaining grid stability. The report expects battery deployment to accelerate, helping to integrate renewables more effectively.

Natural gas continues to hold a significant place in the global energy mix. It remains a transition fuel that supports renewable integration by providing reliable baseload power. Given the geopolitical risks surrounding fuel supply, gas is expected to remain essential for stability in many regions.

In transportation, the adoption of electric vehicles is progressing but at varying speeds across different regions. Government incentives and charging infrastructure are crucial to sustaining momentum, especially for commercial fleets. The industrial sector remains one of the hardest to decarbonize. Heavy industries such as steel, cement, and chemicals need major investments in technologies like green hydrogen and carbon capture, but progress is slow due to high costs and limited maturity of these solutions.

Wood Mackenzie concludes that the energy transition is entering a more volatile phase. It will require massive investments, coordinated policies, and rapid technological progress to stay aligned with net-zero goals. The report calls for governments to move from promises to action, as the combination of geopolitical uncertainty, economic pressures, and rising digital energy demand threatens to derail global climate ambitions.