What is commonly referred to as the energy transition actually consists of dozens of discrete transitions that span industries such as power generation, transportation, and agriculture. These various pathways to net zero are often tightly connected, with overlapping value chains, technology innovations, adoption rates, and feedback effects.

Given this complexity, using first-order analysis or toy models to shape corporate strategy, policy, or investments will lead to dangerous blind spots and poor decision making. Leaders won’t know how to stack or sequence critical initiatives, nor will they be able to identify hidden risks and opportunities.

Instead, leaders must adopt a holistic, integrated systems lens. A systems approach can inform action by creating deeper insights and realistic scenarios, including:

• A view that goes beyond the silos of any one industry, technology, value chain, or geography and considers the many stakeholders and factors at play.
• The ability to understand and assess the intricate interconnections of supply chains, materials, production capacities, labor, capital, and regulation, among other factors—which in turn allows us to identify potential synergies, avoid unintended consequences, and gain perspective on where technological innovations and substitutions are likely or essential.
• Guidance on predicting how energy and industrial systems may change over time due to their cascading impacts—and an understanding of the conditions under which certain transition pathways are economically feasible and can deliver a more sustainable, adaptable, and resilient future.

BCG’s proprietary Systems Workbench for Insight on Transition Change–Green Transformation (SWITCH-GT) enables such an approach by allowing us to examine the dynamics of various energy transition pathways across sectors. (See the sidebar “Modeling the Complexity and Dynamics of the Energy Transition.”) To illustrate the value of this high-fidelity computational workbench, we’ve used it to explore how companies in one sector—wind turbine OEMs—can apply a systems lens to their business.

Although our wind OEM example focuses on a small slice of the overall energy transition, it underscores the vital importance of the systems approach. As corporate leaders, policymakers, and investors reshape companies, industries, and economies to avoid the worst effects of climate change, this systems lens offers them the broadest possible view of energy transition dynamics—which in turn will help them make better decisions for businesses and for the planet.

Breaking Out of Silos

Many companies begin their decarbonization journey by looking within the immediate boundaries of their own business—their operations, product development, supply chain, and sometimes their industry’s ecosystem. This industry-specific view misses the potential interconnections and dynamics across sectors that may impact a company’s plans and returns over time.

To demonstrate the risk of this limited perspective, we compared a sector-based view of demand for 18 materials used in wind turbine manufacturing to a broader cross-industry view. (See Exhibit 1.) Our comparison uses a base scenario roughly aligned with a 2°C warming projection under the IEA’s 2022 Announced Pledges Scenario (APS) and assumes the requisite deployment of various technologies to meet that target.

Looking only at demand from the wind industry, it is unclear which, if any, of the materials face supply constraints in this decade. Taking a cross-industry view—integrating demand from industries such as solar, storage, auto, buildings, and aviation—completes the picture.

At least 13 key materials used in wind turbine manufacturing—including carbon fiber, copper, cobalt, neodymium, dysprosium, praseodymium, and terbium—face scarcity by 2030 under the cross-industry analysis. While potential shortages of some of these materials (particularly the rare earth elements) are well recognized and have been identified as a potential obstacle to the pace of the energy transition, possible supply dynamics for other materials are less well known.

The real-world implications of scarcities are significant, whether in driving up raw material prices, contributing to project delays, or even forcing operational or technical redesigns. In the wind industry, for example, scarcity drives higher project delivery costs; in the worst cases, it causes developers to park their projects at a time when the world desperately needs more capacity.

These constraints can be further shaped by several factors. Geopolitical developments, for example, can exacerbate shortages, with countries scrambling to secure supplies in a global economy where control of mining and processing is increasingly concentrated. Moreover, the demand for materials will change depending on how the numerous discrete transitions that are underway track above or below the APS trend in our base case. A different deployment trajectory for major transition technologies, such as EVs, wind power, solar power, and building efficiency improvements, would substantially shape the scarcity of various materials.

Understanding the Underlying Drivers

For the wind industry in our case study, the potential shortage in carbon fiber shown in Exhibit 1 is not widely recognized, and thus worthy of deeper investigation.

Carbon-fiber-reinforced polymer is replacing glass-fiber-reinforced polymer (fiberglass) as the dominant composite material used in the spar cap, which spans the length of a turbine blade and serves as a structural support. While carbon fiber is more expensive than glass fiber for wind applications, at more than ten times the cost, using a higher share of carbon-fiber-reinforced polymer in the spar cap creates lighter and stronger blades. As a result, wind OEMs can build longer blades capable of producing energy more efficiently—a particularly important factor in the offshore wind sector. The upshot: a potential shortage of carbon fiber could delay technology-based efficiency improvements in the wind industry.

Under our base case, demand for carbon fiber is expected to grow at a compound annual rate of about 20% through 2030. (See the sidebar “Assumptions in Our Base Case.”) This will create a sizeable gap between supply and demand, even considering production expansions underway or planned to date. In fact, meeting the projected carbon fiber demand in our base case would require building out new capacity at roughly three times the historical rate. (See Exhibit 2.)

If we look at even more bullish demand scenarios within the wind sector and for other technologies like EVs, the predicted supply-demand gap is wider still. For example, based on the IEA’s projections for wind and EV demand aligned with a 2050 net zero scenario, total carbon fiber demand increases at a 28% compound annual growth rate through 2030.

Already, soaring demand has contributed to a 15% jump in carbon fiber prices since 2019. And critically, expanding carbon fiber production is laden with challenges beyond the capital requirements and time lags common to industrial project planning. For example, obtaining permits takes longer and navigating workplace safety regulations is harder due to the toxicity of certain precursor materials for carbon fiber, ultimately causing delays that deter expansion. It can take two or more years to build a new carbon fiber production facility.

Moreover, 77% of carbon fiber production occurs in the Asia-Pacific Economic Cooperation region; this geographic concentration of production further complicates supply dynamics, as it exposes supply chains to potential geopolitical disruptions.

Looking at the forecast above, wind OEMs will likely ask the following questions:

• First, is a pathway that relies heavily on carbon fiber in wind turbine manufacturing really feasible?
• If so, under which scenarios would carbon fiber supply meet demand?
• Which factors do we need to consider to better inform our decision making? For example, how do we weigh the tradeoffs in design choices that will impact carbon fiber demand? And for which industries can carbon fiber easily be replaced with an alternative?

In the face of potential carbon fiber shortages, wind OEMs will likely search for ways to limit future supply chain disruptions. This may include changing blade composition or delaying the deployment of larger turbines. If these choices are adopted industry-wide, that will alter both the demand for carbon fiber across the wind industry and the timing of that demand. (See Exhibit 3).

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