Many of the climate technologies needed to achieve deep decarbonization already exist. The challenge now is accelerating scale-up and cost breakthroughs. Ninety percent of the greenhouse gas (GHG) abatement that we need could come from technologies that are proven. However, to limit global warming to 1.5°C, these technologies need to scale exponentially by 2030. Annual deployment of wind, solar, batteries, green hydrogen, and carbon capture need to grow annually at 25 percent, 19 percent, 55 percent, and 41 percent respectively, continuing and accelerating high growth rates from recent years. This requires further rapid cost reductions to ensure commercial viability of clean technologies.
Surging demand for zero-carbon technologies, materials, and services create opportunities for companies to build new green businesses. Our research shows that, by 2030, demand for green technologies could generate up to $12 trillion in yearly revenues.
Critical factors for building successful green businesses include leading with game-changing ambition, securing a cost advantage by identifying and then ruthlessly delivering the minimum compressible cost for your technology, and proactively creating business ecosystems. Companies that can innovate and scale green businesses can generate significant value while contributing to the net-zero transition.
News and announcements
Several announcements and initiatives have provided a signal of intent on the critical role of climate technologies in achieving 1.5°C and on the need to rapidly scale:
- Renewable energy: 118 governments committed to tripling renewables and doubling the growth of energy efficiency by 2030, and to including relevant targets in their upcoming NDCs. McKinsey research published previously suggests that by 2030 the addressable market for electric power could be $1.5 trillion—a figure which could be even larger after this announcement.
- Zero-emission vehicles: A consortium of governments, industry and investors agreed to spearhead lighthouse projects, focusing particularly on global deployment of zero-emission buses. In addition to producing carbon emissions, buses are a major source of urban air pollution, which has a large impact on health and economic growth, particularly in emerging markets. The zero-emission bus market is anticipated to grow rapidly. The electric bus market, for example, could grow by over 20 percent per year till 2030.
- Cooling: The Global Cooling Pledge, signed by over 60 countries, is aimed at reducing emissions from cooling by 68 percent by 2050. This pledge could further accelerate the green cooling market, which was already anticipated to grow by 10 percent annually to 2030, and includes technologies such as natural refrigerants like ammonia, water or air as well as new, more energy-efficient coolers.
- Built environment: A coalition of countries signed the Green Public Procurement Pledge, committing to drive demand for low-emissions steel, cement, and concrete through public procurement. The green building materials market could triple globally to almost $1 trillion by 2030, but requires scaling of technologies such as hydrogen-based steelmaking and low-carbon cement production.
- Hydrogen: 39 countries endorsed the UAE Hydrogen Declaration of Intent, a global hydrogen certification standard which could help to unlock and accelerate trade in hydrogen. Currently announced clean hydrogen projects could increase hydrogen supply globally by almost 40 times in 2030, and globally consistent standards are critical to enabling the trade.
- Green shipping: A significant announcement was made on new green shipping corridors, which are routes exclusively using alternative fuels. McKinsey, in collaboration with Maersk, produced a blueprint for green corridors, the expansion of which could drive maritime alternative-fuel production, port construction, and green logistics growth. Green maritime fuels are already anticipated to grow by over 50 percent per year to 2036.
Knowledge sharing and collaboration across ecosystems combined with enhanced innovation is a major unlock for green business builders. At COP28, governments, companies, and philanthropists announced platforms, coalitions, and other initiatives to support and build the green business ecosystem.
- Innovation networks and platforms: The Innovate for Climate Tech platform, focused on the Global South, will provide financing for companies that provide products, services, or technologies that can help accelerate decarbonization. This could help accelerate VC investment in historically underserved emerging markets. For example, although venture capital in Africa continues to grow, it represents just 1 percent of the global flow volume.
- Capability building: COP28 and McKinsey & Company collaborated on the GBB100 program, which supported over 150 green-technology startups and scale-ups through hands-on coaching sessions and workshops. This collaboration supported more than 150 companies from 6 continents across 14 technology verticals. The companies received dedicated support from technology and green-business-building experts, access to valuable networking opportunities, and invitations to join exclusive events on McKinsey’s COP28 program.
- Sector innovation and collaboration: Several sector-focused innovation networks were launched at COP28, aiming to foster collaboration and cooperation across value chains and sectors. The Industrial Transition Accelerator (ITA) encourages collaboration to scale decarbonization projects in hard-to-abate sectors like steel, aluminum, energy, and aviation. The newly launched Supercharging Battery Storage initiative, co-led by Australia and the European Commissions, aims to improve international cooperation for accelerated development and deployment of battery technologies.
- Regional innovation and collaboration: The Africa Green Investment Initiative brings together investors and political leaders to address systemic barriers to investing in and scaling green industries in Africa.
McKinsey at COP28: Insights from our events
Do climate technologies have a scaling problem or an invention problem—and how do we get past that?
McKinsey’s Harry Bowcott led numerous sessions on hyperscaling climate technology, where participants focused on the opportunity for leaders to grow new green businesses.
- Climate technologies have a scaling problem, not an invention problem. Bowcott stated, “The technologies are there but the amounts of capital needed to deliver the acceleration are colossal.” Reaching net-zero emissions requires an estimated $9.2 trillion of annual investment in physical assets ($3.5 trillion more than was spent in 2022). Much of this investment will come with returns. By 2030, up to $12 trillion in value could be created for net-zero technologies, goods, and services.
- Companies cannot achieve scale alone. Rudra Dalmia (Green Frontier Capital) noted that for science to become technology in emerging markets, “You need massive R&D to scale. Companies alone cannot achieve this. An incredible amount of government intervention is needed to set the right regulations and get capital at the right cost.”
- It is crucial to differentiate yourself. One participant noted: “It’s important, especially as a scale-up, to be able to differentiate yourself from others. For that, you need deep knowledge in order to compare thoughtfully, [knowledge] which the general audience can’t decipher. Having technical knowledge will be a huge competitive advantage.”
- We need entrepreneurs and investors to make hyperscaling a reality. The market is seeing an uptick in funding, with 300 $10 billion companies, 1,000 unicorns, and 10 $50 billion funds. This trend needs to continue. As one participant noted: “we need to see investors and entrepreneurs. The climate imperative requires both the entrepreneurs and investors to make this a reality and we are unapologetic about the opportunity for profitable growth.”
How can you couple outrageous ambition with speed and execution?
McKinsey’s Tomas Nauclér led a panel with representatives from Hyzon Motors, Ashok Leyland, Intercontinental Energy, and Monarch Tractor on how to drive commercial scaling and demand creation. Companies face challenges when trying to outpace competitors in an environment that demands ambition, speed, and execution. Key unlocks discussed include:
- Zeroing in to out-execute. Tomas explained: “The important factor, as you scale a future unicorn or decacorn, is to outexecute by picking two to three factors such as securing a cost advantage, driving faster sales growth, or developing capabilities.” He outlined five steps to achieve commercial excellence:
- Offtakes and strategic sales—seizing captive demand by CEO-to-CEO sales and partnering with customers
- New market creation and pricing—quantifying decarbonization value and ensuring pricing of green premiums
- Value propositions—setting ambitious targets, not incremental ones
- Ecosystem—mobilizing key stakeholders including customers, regulators, and investors
- Commercial execution—focusing on solution sales, revenue model, GTM approach, capability building, etcetera.
- Investment will have to move to green projects. Hydrogen, for example, needs traditional project finance support. Alicia Eastman suggests, “ECAs have a critical role to play here. It's also very difficult to get insurance, especially in places that are climate sensitive [...] Fossil fuels are finding it difficult to get reinsurance, so they will have to move to green projects.”
Key questions for leaders
- What green businesses can I build? Does my business have existing knowledge and capabilities that would create an advantage in the development and scaling of climate technologies?
- How can I apply the five steps to commercial excellence?
- What new types of partners do I need?
Chart of the Day
Source: Rob Bland, Anna Granskog, and Tomas Nauclér, “Accelerating toward net zero: The green business building opportunity,” McKinsey, June 14, 2022.
More from McKinsey
- What would it take to scale critical climate technologies?
- Playing offense to create value in the net-zero transition
- Accelerating toward net zero: the green business building opportunity
McKinsey at COP28: Looking ahead
December 12: COP28: What was achieved and what comes next? (register here)