IEA (2022), World Energy Outlook 2022, IEA, Paris https://www.iea.org/reports/world-energy-outlook-2022, License: CC BY 4.0 (report); CC BY NC SA 4.0 (Annex A)
Each energy crisis has echoes of the past, and the acute strains on markets today are drawing comparison with the most severe energy disruptions in modern energy history, most notably the oil shocks of the 1970s. Then, as now, there were strong geopolitical drivers for the rise in prices, which led to high inflation and economic damage. Then, as now, the crises brought to the surface some underlying fragilities and dependencies in the energy system. Then, as now, high prices created strong economic incentives to act, and those incentives were reinforced by considerations of economic and energy security.
But today’s global energy crisis is significantly broader and more complex than those that came before. The shocks in the 1970s were about oil, and the task facing policy makers was relatively clear (if not necessarily simple to implement): reduce dependence on oil, especially oil imports. By contrast, the energy crisis today has multiple dimensions: natural gas, but also oil, coal, electricity, food security and climate. Therefore, the solutions are similarly all encompassing. Ultimately what is required is not just to diversify away from a single energy commodity, but to change the nature of the energy system itself, and to do so while maintaining the affordable, secure provision of energy services.
- The global energy crisis sparked by Russia’s invasion of Ukraine is having far-reaching implications for households, businesses and entire economies, prompting short-term responses from governments as well as a deeper debate about the ways to reduce the risk of future disruptions and promote energy security. This is a global crisis, but Europe is the main theatre in which it is playing out, and natural gas is centre stage – especially during the coming northern hemisphere winter.
- High energy prices are causing a huge transfer of wealth from consumers to producers, back to the levels seen in 2014 for oil, but entirely unprecedented for natural gas. High fuel prices account for 90% of the rise in the average costs of electricity generation worldwide, natural gas alone for more than 50%. The costs of renewables and carbon dioxide have played only a marginal role, underscoring that this is a crisis where energy transitions are the solution, rather than the problem.
- Price and economic pressures mean that the number of people without access to modern energy is rising for the first time in a decade. Around 75 million people who recently gained access to electricity are likely to lose the ability to pay for it, and 100 million people may revert to the use of traditional biomass for cooking.
- There remain huge uncertainties over how this energy crisis will evolve and for how long fossil fuel prices will remain elevated, and the risks of further energy disruption and geopolitical fragmentation are high. In all our scenarios, price pressures and a dim near-term outlook for the global economy feed through into lower energy demand than in last year’s Outlook.
- The crisis provides a short-term boost to demand for oil and coal as consumers scramble for alternatives to high priced gas. But the lasting gains from the crisis accrue to low-emissions sources, mainly renewables, but also nuclear in some cases, alongside faster progress with efficiency and electrification, e.g. electric vehicles.
- In the Stated Policies Scenario (STEPS), global energy demand growth of around 1% per year to 2030 is met in aggregate almost entirely by renewables. Emerging market and developing economies, such as India, see increases across a broader range of fuels and technologies, while the only sources to show growth in advanced economies to 2030 are low-emissions.
- The cost advantages of mature clean energy technologies and the prospects for new ones, such as low-emissions hydrogen, are boosted by the Inflation Reduction Act in the United States, Europe’s increased push for clean energy, and other major new policies. The result is to turbo-charge the emerging global clean energy economy.
- The STEPS in this Outlook is the first World Energy Outlook (WEO) scenario based on prevailing policy settings that sees a definitive peak in global demand for fossil fuels. Coal demand peaks in the next few years, natural gas demand reaches a plateau by the end of the decade, and oil demand reaches a high point in the mid-2030s before falling slightly. From 80% today – a level that has been constant for decades – the share of fossil fuels in the global energy mix falls to less than 75% by 2030 and to just above 60% by mid‑century. In the Announced Pledges Scenario (APS), the drive to meet climate pledges in full sends demand for all the fossil fuels into decline by 2030.
- With the loss of its largest export market in Europe, Russia faces the prospect of a much-diminished role in international energy affairs. 2021 proves to be a high-water mark for Russian export flows. Its share of internationally traded gas, which stood at 30% in 2021, falls to 15% by 2030 in the STEPS and to 10% in the APS. Importers in China have been actively contracting for liquefied natural gas, and there is no room in China’s projected gas balance for another large-scale pipeline from Russia.
- Energy-related CO2 emissions rebounded to 36.6 Gt in 2021, the largest ever annual rise in emissions. In the STEPS, they reach a plateau around 37 Gt before falling slowly to 32 Gt in 2050, a trajectory that would lead to a 2.5 °C rise in global average temperatures by 2100. This is around 1 °C lower than implied by the baseline trajectory prior to the Paris Agreement, indicating the progress that has been made since then. But much more needs to be done. In the APS, emissions peak in the mid‑2020s and fall to 12 Gt in 2050, resulting in a projected global median temperature rise in 2100 of 1.7 °C. In the Net Zero Emissions by 2050 (NZE) Scenario, CO2 emissions fall to 23 Gt in 2030 and to zero in 2050, a trajectory consistent with limiting the temperature increase to less than 1.5 °C in 2100.
- Planned increases in global clean energy manufacturing capacity provide a leading indicator of the potential for rapid increases in deployment. In the case of heat pumps, current and planned manufacturing capacity is below the deployment levels projected in the APS. But announced global manufacturing capacity for electrolysers and solar PV modules in 2030 is sufficient not only to reach APS deployment levels but to go beyond them.
- One point common to each scenario is the rising share of electricity in global final energy consumption. From 20% today, this increases in each scenario, reaching more than 50% by mid-century in the NZE Scenario. This is associated with a huge overall increase in global electricity demand – with the bulk of this growth coming from emerging market and developing economies – and the need for constant vigilance from policy makers to a range of risks to electricity security, in particular the ever increasing need for flexible operation of power systems.
- The world has not been investing enough in energy in recent years, a fact that left the energy system much more vulnerable to the sort of shocks seen in 2022. A smooth and secure energy transition will require a major uptick in clean energy investment flows. Getting on track for the NZE Scenario will require a tripling in spending on clean energy and infrastructure to 2030, alongside a shift towards much higher investment in emerging market and developing economies.