World Energy Outlook 2018

The gold standard of energy analysis

World Energy Outlook 2018 examines future patterns of a changing global energy system at a time of increasing uncertainties and finds that major transformations are underway for the global energy sector. Across all regions and fuels, policy choices made by governments will determine the shape of the energy system of the future.

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Is the New Policies Scenario a long-term forecast?

The New Policies Scenario is not a forecast. Like other scenarios in the World Energy Outlook, it presents one version of the future, a pathway along which the world could travel if certain conditions are met.

A key uncertainty concerns policy. The New Policies Scenario reflects all government policies that are already in place as well as those that have been announced. This allows us to investigate the direction in which decision-makers are taking the energy system today, and therefore to provide them with essential feedback on their choices and ambitions.

There will undoubtedly be additional policy shifts between now and 2040, beyond those already announced. A forecaster might guess what these future responses will be; the IEA doesn’t do that. Our intention is to inform decision-makers as they consider their options, not to predict the outcomes of their deliberations.

This highlights a fundamental difference between our scenario approach and a forecast. When looking at the future, a forecaster aims to be correct. Our aim in looking at the future is to provide context for decisions being made today, and to trigger changes in direction.

What is the aim of the IEA scenario analysis?

A central purpose of the World Energy Outlook is to assess the adequacy and implications of today’s policy intentions. That is why the New Policies Scenario occupies a central place in the narrative, as it provides decision-makers with a sense of where the energy world is heading, and why.

Comparison with the Sustainable Development Scenario shows that it is possible, and necessary, to improve on these outcomes. The Sustainable Development Scenario incorporates the key energy-related components of the United Nations Sustainable Development agenda: universal access to modern energy by 2030; urgent action to tackle climate change (in line with the Paris Agreement); and measures to improve poor air quality.

While the gap between the New Policies Scenario and the Sustainable Development Scenario is closing slowly, it still remains huge. The gap between the two provides essential context for today’s policy debates and decisions.

Is the Sustainable Development Scenario in line with the Paris Agreement?

Yes, the Sustainable Development Scenario is fully aligned with the Paris Agreement’s goal of “holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 °C.” 

To achieve the temperature goal, the Paris Agreement calls for emissions to peak as soon as possible and reduce rapidly thereafter, leading to a balance between anthropogenic emissions by sources and removals by sinks (i.e. net-zero emissions) in the second half of this century. These conditions are met in the Sustainable Development Scenario, which describes a world where global CO2 emissions peak around 2020 and then decline steeply to 2040, and are on course towards net-zero emissions in the latter half of the century.

From now until 2040 (the period covered by the WEO model), the emissions trajectory of the Sustainable Development Scenario is at the lower end of other decarbonisation scenarios that project a median temperature rise in 2100 of around 1.7°C to 1.8°C. It is also within the envelope of scenarios projecting a temperature rise below 1.5°C. 

Does the IEA’s focus on primary energy overstate the role of fossil fuels and underplay renewables?

Energy analysis requires an accounting framework that recognises the different ways in which energy is produced, converted and used. “Primary energy” is one metric: this is energy that is either extracted, as in the case of oil, or produced from natural resources, as for example with solar energy. Describing the energy balance in terms of primary energy is useful for some purposes, for instance to give a single high-level overview of where the world gets its energy.

However, it does have some drawbacks. A lot of the energy in coal, for example, is lost as waste heat when coal is combusted to generate electricity. On the other hand, the contribution to electricity from non-combustible sources, such as wind and solar PV, is computed at the point of generation, without any conversion losses. There are good reasons for this approach, but it means that comparing the contribution of coal with that of solar in primary energy terms can be misleading.

That is why the World Energy Outlook uses a range of metrics. The electricity generation mix, for example, provides a like-for-like comparison of the role of different fuels and technologies in generating electricity. Final energy consumption provides a picture of the energy actually used by consumers. There is no single way to describe energy use, and we use multiple approaches in the WEO: the choice of approach depends on the question being examined.

How do past WEO projections for solar PV fare against what actually happened?

In previous editions of the New Policies Scenario, projections for solar PV capacity additions are in many cases lower than actual deployment. These past projections reflected the policy and technology environment at the time they were made. Since then, policy makers have stepped up their support for these technologies.

This is good news for the renewable sector and for emissions, helping to narrow the gap with what would be needed to achieve the objectives of the Sustainable Development Scenario.

The evolution of solar PV policies and investment in China is a good example. Policies and targets have strengthened dramatically over the last ten years: in 2007, China’s plans were to reach 1.8 GW of solar by 2020 (reflected in WEO 2008) but the level of ambition has soared since then. We did not try and anticipate these changes (as a forecaster might, see question above), but assessed their implications at each step. When policies changed, so did the projections.

Why do you continue to need investment in oil and gas in your Sustainable Development Scenario?

Continued investment is needed in oil and gas in the Sustainable Development Scenario because production from existing sources, in the absence of investment, falls away much more quickly than projected demand.

Oil is an example; dramatic improvements in fuel efficiency, and rapid switching away from oil, lead to a peak in oil demand soon after 2020 in the Sustainable Development Scenario. By the 2030s, global oil consumption declines at roughly 1.7% per year. Total production from already-producing fields declines by around 4% per year at this time, creating a continued need for new projects to fill this gap.

Investment in natural gas is required in this scenario not only to compensate for declines at existing fields, but also because gas consumption in 2040 is higher than today.

How do you generate your fossil fuel price outlooks?

The fossil fuel prices for the various scenarios are determined within the World Energy Model. Prices need to be at a level that brings the long-term projections for supply and demand into balance, and price trajectories are adjusted as necessary in repeated model runs until they meet this criterion.

The price trajectories are smooth trend lines, and do not attempt to anticipate the cycles and short-term fluctuations that characterise all commodity markets in practice. 

Is achieving universal energy access compatible with a clean-energy transition?

Coal-fired generation has been a key enabler of increased access to electricity since 2000, responsible for around 45% of new electricity connections. Coal has been the main fuel underpinning the achievement of full electrification in China and the rapid recent progress towards universal access in India. But this has come with major air pollution, health, and environmental consequences, especially in emerging Asia.

The fuels and technologies used to provide access have started to change in recent years, with coal becoming less important and renewables playing an increasingly prominent role. In our projections, renewables provide the main route to access in the coming decades.

In addition to grid-based access, there is also a marked shift in our projections towards mini-grid or off-grid solutions: decentralised renewable technologies provide a major option for electricity provision to rural communities in sub-Saharan Africa, where the population without access is increasingly concentrated.

Did you anticipate the rise of shale in the United States?

When presenting the special focus on natural gas in WEO 2009, the IEA said that “there is a silent revolution taking place in the United States, so silent that nobody's aware of it, especially in Europe … and this phenomenon, the boom of unconventional gas in the United States, has far-reaching impacts.” Since then, the WEO has consistently focused on the rise of US shale – both for natural gas and oil – and its implications.

Our projections have been revised upwards over this period as the size of the shale resources has become clearer and costs have come down. In WEO 2018 New Policies Scenario, the United States accounts for more than half of global oil and gas production growth to 2025 (nearly 75% for oil and 40% for gas).

Why do you have a Current Policies Scenario?

The Current Policies Scenario considers only those policies firmly enacted as of mid-2017; this default setting for the energy system provides a cautious assessment of where momentum from existing policies might lead the energy sector, in the absence of any additional impetus from governments. It therefore provides a benchmark against which the impact of “new” policies can be measured.