Could trade tensions scupper the clean energy pathway?
A new scenario-based analysis from McKinsey & Company, warns that escalating trade tensions and high tariffs could slow clean energy deployment and raise system costs across both the United States and European Union through to 2035.
The report explores three potential trade scenarios and their impact on five key clean technologies: solar, wind, battery storage, transformers and electric vehicles (EVs).
While moderate tariffs are expected to have minimal impact, McKinsey’s “Global Tensions Escalate” scenario—featuring the highest tariffs—projects measurable slowdowns and cost increases.
Under this high-tariff scenario, installed solar capacity could be 9% lower in the US and 7% lower in the EU by 2035. Battery storage deployment may see a 4% dip in the US and 10% in the EU.
In the EV sector, EU market penetration could fall from 50% to 41% by 2030, posing challenges to the EU’s planned 2035 ban on internal combustion engine vehicles.
“While clean technologies are still projected to grow through 2050 and beyond, our scenario analysis shows that higher tariffs could impact the pace and cost of that transition, especially if they persist,” said Christian Therkelsen, Partner at McKinsey.
Wind energy appears more insulated.
US offshore wind is expected to stay on track, but the EU could see a 6% reduction in installed offshore capacity under the highest-tariff conditions.
By 2050, McKinsey estimates system costs could be 2% higher in the US and 3% higher in Europe. “Tariffs introduce new layers of cost and complexity to an already precarious clean energy landscape,” said Humayun Tai, Senior Partner.
Despite the projected headwinds, McKinsey expects strong long-term growth for clean technologies.
However, the report emphasises that capital planning, policy decisions and resilient supply chains will be critical in determining the outcome.
“Our research is designed to help executives think through the potential effects of higher tariffs,” said Diego Hernandez Diaz, Partner. “These technologies remain on track for significant growth – but not without cost.”
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