How might tariffs affect the energy transition?

The clean-energy landscape today looks bumpy, marked by broad uncertainties across a fast-changing space. Global decarbonization and European energy independence rely on the deployment of clean-energy technology. Yet geopolitical and technological developments are creating potential disruptions, shifting focus from a rapid energy transition to other priorities, including the race to lead in gen AI, increased defense budgets in European countries, and new trade alliances.

Today’s evolving tariff environment piles on top of the uncertainties and has the potential to significantly affect the global economy, energy and transportation demand, commodity prices, and supply chains.

To help executives think through the possible effects of higher tariffs, the authors considered three potential tariff scenarios and their likely impact on the supply chain across five clean-energy technologies—solar, onshore wind, offshore wind, battery storage, and electric vehicles (EVs)—and projected the capital expenditure and energy capacity outlook to 2035.  The analysis considers the United States and the European Union.

The scenarios evaluated for this article are based on scenarios developed by McKinsey in collaboration with Oxford Economics in March 2025. These scenarios map out a few possible futures and illustrate the sensitivity of technologies to tariffs in different locations. We recognize the terrain of announced and enacted tariffs changes daily and may or may not match the scenarios presented here.

1. Productivity acceleration assumes a status quo similar to late 2024, including tariffs of 50 percent on solar panels, 25 percent on batteries, and 100 percent on EVs entering the United States—and up to an additional 35 percent on EVs entering the European Union—from China.
2. No real disruption assumes tariffs by the United States of 20 percent on all goods from China, 25 percent on goods from Mexico and Canada, and an average of 52 percent on solar modules from Southeast Asian countries.
3. Global tensions escalate assumes tariffs of 60 percent on all goods entering the United States from China and 20 percent on goods from other trading partners. It assumes an average tariff by the European Union of 47.7 percent on solar panels and batteries from China and 140 percent on wind turbine imports from China.

Following more than 60 percent cost reductions for Solar photovoltaics between July 2022 and July 2023,3 we project that solar capacity could increase more than twofold in both the United States and the European Union by 2035 in any tariff scenario. By 2035, the global tensions escalate scenario could result in 9 percent less installed solar capacity in the United States and 7 percent less in the European Union than in the productivity acceleration scenario.

Onshore wind capacity is expected to increase approximately 50 percent in the European Union and approximately 40 percent in the United States by 2035 from a materially lower base. Our modeling suggests that neither tariff scenario is likely to have an effect on wind capacity in the United States by 2035. The global tensions escalate scenario, in which the European Union introduces tariffs on Chinese turbines, could result in 6 percent less capacity in the European Union relative to the productivity acceleration scenario by the same year.

The uathors estimate that Battery energy storage systems capacity will increase approximately 70 percent by 2035 in the United States and nearly sixfold by 2035 in the European Union.4 The global tensions escalate scenario could result in 4 percent less capacity in the United States and up to 10 percent less capacity in the European Union by 2035 relative to the productivity acceleration scenario.

By 2030, adoption of EVs in the United States is projected to be 14 percent under the productivity acceleration scenario. Meanwhile, in the European Union—where penetration is already higher than in the United States—EVs could have approximately 50 percent sales penetration in the productivity acceleration scenario versus 41 percent in the global tensions escalate scenario by 2030.

In the United States, sustained high tariffs could delay penetration of renewable energy after 2035. In a productivity acceleration scenario, the United States is poised to achieve a 69 percent clean-energy mix by 2035 and 68 percent under both tariff scenarios, compared with 49 percent today. However, the sustained imposition of tariffs in the global tensions escalate scenario could stall the expansion of the share of clean energy beyond 2035.

The scenarios suggest that the speed of the energy transition would likely not be drastically altered, at least in the European Union, by introducing tariffs. The cost of the resulting energy systems could be approximately 2 percent more in the United States and approximately 3 percent more in the European Union by 2050. These amounts have large uncertainty, but we already see rising costs in these industries.

Tariffs add uncertainty to the clean-energy landscape. In the broadest sense, our scenario analysis indicates that adoption of clean-energy technologies will likely take longer and cost more the longer tariffs last and the higher they are. Even so, we see that adoption of clean technologies will continue. Stakeholders who evaluate their supply chains for vulnerabilities and strengths in the face of tariffs will be poised to better navigate the uncertain landscape.

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