How economics and energy security are driving the next phase of the energy transition

The narrative around decarbonisation has been predominantly negative in recent years. Yet as energy demand surges and energy security becomes a top priority for many countries, our research shows that the global energy transition is entering a new phase - one shaped less by climate policy alone and more by economics, energy security, and rapidly rising electricity demand.

Energy transition is no longer best understood as a linear, policy-driven journey toward decarbonisation. Instead, it is becoming a structural transformation of the global energy system - one increasingly shaped by affordability constraints, geopolitical realities, and the need to ensure reliable power supply in an electrifying economy.

Reframing the energy trilemma

At the centre of decarbonisation is the "energy trilemma": balancing three conflicting objectives of sustainability, security, and affordability. Historically, renewables primarily served the sustainability objective, often requiring policy support because they were more expensive and intermittent.

Today, that framework is changing. In most regions, renewables are now among the lowest-cost sources of new power generation, reflecting long-term declines in levelised costs as technologies have matured and scaled. This alters the trade-offs policymakers face. Clean energy increasingly supports not just sustainability, but also affordability and security over the long term, driving the energy transition forward even as political sentiment fluctuates.

Geopolitics and the rise of energy security

Geopolitical uncertainty has fundamentally reshaped the energy landscape. Energy security has moved from being a background consideration to a central driver of investment and policy decisions.

In Europe and China, energy security is closely linked to access to energy resources and exposure to geopolitical risk. Both regions are net importers of oil and gas, and recent events have underscored the vulnerabilities that accompany that dependence.

The US faces a different form of energy security challenge. As a net exporter of oil and gas, its focus is not fuel scarcity but electricity supply. Rapid growth in data centres, artificial intelligence, and electrification is increasing the need for reliable, scalable power. For the first time, US energy security is fundamentally about electricity rather than hydrocarbons.

These dynamics reinforce investment in grid expansion, grid reinforcement, and energy storage. They also support renewed interest in nuclear power as a long-term solution, even as near-term deployment remains constrained by cost, permitting, and long build timelines.

A transition that is uneven but directional

Despite the long-term shift toward renewables, the current phase of the energy transition is uneven. Rapid growth in energy demand can obscure progress in decarbonisation, particularly when measured against ambitious climate pathways.

The US offers a clear example: concerns over electricity affordability and system reliability mean some existing fossil fuel assets may remain online longer than initially planned as new capacity is built.

This more "chaotic" transition reflects a system adjustment in which low-carbon infrastructure is layered onto the existing energy base rather than replacing it all at once. While policy responses differ across markets, economic and energy security drivers continue to push energy systems, unevenly but persistently, toward lower-carbon outcomes.

The next phase of energy transition

Looking ahead, the next phase of the energy transition will be defined by practical system build-out rather than headline climate commitments. Solar power, electrification technologies such as electric vehicles and heat pumps, grid infrastructure, and battery storage are likely to play central roles, as they address affordability and security while supporting decarbonisation.

This progress is increasingly visible at the corporate level. Our research shows that Scope 1-2 corporate greenhouse emissions of the MSCI AC World Index are projected to fall by 51% by 2050 compared with 2020 levels. This trajectory may not align perfectly with the most ambitious climate scenarios, but it represents a significant structural shift in how the global economy produces and consumes energy.

Although the environmental, social, and governance backlash is likely to have some impact on progress, improving affordability and the rising importance of energy security have provided renewed tailwinds for the energy transition and strengthened the fundamentals around renewables. For long-term investors, understanding how these forces are reshaping the transition will be essential to navigating the next phase of change.