The most important message from the 2016 edition of the annual World Energy Outlook, the International Energy Agency’s (IEA) flagship publication released today, is that “policies will determine where we go from here”. “Paris” has given the international energy sector “a new sense of direction”, notes the IEA. But much stronger policies are needed to keep global warming limited to 2 degrees Celsius, it adds. Its message takes on extra importance in the Age of Trump.

“A new sense of direction pervades the international climate and energy community”, writes Fatih Birol, Executive Director of the IEA. “The particular commitments made in Paris are national, but the determination to realise change is shared.” Words that were no doubt written before the election of Donald Trump.

The World Energy Outlook (WEO), however, which has been around since 1977, always looks beyond the next elections – the 2016 edition looks ahead to 2040. And it does not depend on any one policy, Trumpian or otherwise: it spells out three distinct scenarios of our energy future, based on three distinct sets of policy choices, leading to very different outcomes.

In fact, its “Current Policies Scenario” comes in very handy this year: it projects business-as-usual trends unhindered by national climate commitments made under the Paris agreement. We may regard this as “the Trump scenario”. It gives an idea of where the energy world is headed if the whole world follows the policies Trump has promised to carry out during his election campaign.

“Some colleagues and friends in the renewables industry have at times criticised the projections of future renewables energy supply in our main scenario as too conservative. They may indeed turn out to be too conservative; I sincerely hope that they do”

By contrast, the WEO’s New Policies Scenario takes into account all the climate policies announced (but not necessarily implemented yet) by countries. That includes all the policies countries have promised in their “national determined contributions” for Paris. So this can be regarded as “the Paris scenario”: what will happen if we don’t go beyond Paris.

Since it’s generally assumed that the Paris scenario is not sufficient to limit global warming to 2 degrees Celsius, the WEO also contains a 2-degree scenario. This so-called 450 scenario shows what our energy future could look like, based on the policies that should be taken, if we want to limit the global CO2-concentration to 450 ppm (equivalent to 2 degrees warming in the major climate models).

The different outcomes of those three scenarios are summarised in this overview of world primary energy demand by fuel and scenario for 2025 and 2040:

This table says it all. The Trump scenario leads to a substantial rise in coal, oil and gas use, even though even in this scenario the share of fossil fuels declines slightly from 81% to 79%.

In the 450-scenario, coal and oil use are substantially lower, gas demand rises slightly and all renewables become much bigger, even though fossil fuels will still deliver 58% of global energy demand. Note, incidentally, the still very small share of variable renewables in 2014: 181 Mtoe (Million tonnes of oil equivalent), equal to 1.3% of global energy demand. In 2000, their share was 0.6%.

Policy push

Probably the most important message of the 2016 edition of the WEO, given the political context, is that our energy future is not inevitable. It depends mainly on policy choices. As one representative of the IEA said in a presentation of the WEO on Monday for journalists: “There is no single story about the future of global energy; policies will determine where we go from here.”

As the WEO itself puts it, “in the absence of a concerted policy push or a dramatic change in relative prices, the positions of the different fuels and technologies in worldwide energy use tends to be fairly stable. The Current Policies Scenario provides a useful example of the durability of the status quo: from a share of 81% today, the role of fossil fuels in global energy is essentially unchanged at 79% in 2040 in this scenario (Table 2.2). Oil and coal retain their primacy as the most-used fuels.”

“By contrast, the 450 Scenario represents a clean break with the past, as policies re-cast the energy system to comply with the imperative to limit greenhouse-gas (GHG) emissions. The main policies that underpin this transformation include a much stronger drive for renewables deployment in the power sector, broader adoption and stronger application of energy efficiency policies and low-carbon forms of transport, more widespread carbon pricing and use of carbon capture and storage (CCS) (in power and industry), and more rapid reform of fossil-fuel subsidies.”

There is little overlap between the countries that provide the largest subsidies to renewables and those that subsidise fossil fuels

The IEA has often been criticised for underplaying the potential of solar and wind power – and indeed failing to predict their current growth – but the organisation defends its position with the argument that it does not make predictions – it sets out policy-dependent projections.

As Fatih Birol writes in the foreword to the 2016 edition: “Some colleagues and friends in the renewables industry have at times criticised the projections of future renewables energy supply in our main scenario as too conservative. They may indeed turn out to be too conservative; I sincerely hope that they do. But they rest squarely on the foundation of officially declared policy intentions. More can and should be done, as we demonstrate clearly in our other scenarios that require a more rapid pace of decarbonisation; but the underlying policies will have to change to make it happen. A clear-headed, rigorous assessment of what today’s policy intentions can deliver, in my view, is the best way to encourage the necessary changes.”

Subsidies

The good news, as far as the IEA is concerned, is that already policies have led to significant shifts in the global energy sector. As the WEO notes: “Renewable energy is the major growth story in all the scenarios in WEO-2016. Even in the Current Policies Scenario, policies already in place are sufficient to make renewables the fastest-growing of all the sources of primary energy. But current policies barely scratch the surface of renewables’ potential, either as a source of power, heat or mobility.”

One way this policy-shift can be gauged is in the marked shift that has taken place in the subsidies that are being given to various forms of energy. Subsidies for fossil fuels went down from almost $500 billion in 2014 to $325 billion last year. By contrast, subsidies to renewable energy rose from some $140 billion (consisting of $114 billion for non-hydro renewables for power generation and $24 billion for other sectors, notably biofuels) to around $150 billion in 2015 ($120 billion for non-hydro renewables plus $30 billion supporting deployment of renewables in transport and other end-uses).

The report notes that cost reductions mean that this spending on renewables subsidies is progressively delivering more capacity per dollar spent. Subsidies increased by around 6% in 2015, but installed renewables capacity more quickly, by around 8%.

The table above shows that subsidies for renewables on the one hand and fossil fuels on the other are moving closer. It should be noted however that we are essentially talking about two wholly different categories. As the WEO notes, “there is little overlap between the countries that provide the largest subsidies to renewables and those that subsidise fossil fuels. Among the former are the European Union, which accounts for just over half the estimated global subsidies to renewables for power (more than $60 billion), followed by the United States ($18 billion), China (almost $17 billion) and Japan ($10.5 billion). Meanwhile, the largest sources of subsidies to fossil fuels are Iran, with 16% of the total ($52 billion), Saudi Arabia ($49 billion), Russia ($30 billion) and Venezuela ($20 billion).”

GDP-CO2-link broken?

Another key question discussed in the WEO is whether the link between GDP growth and energy demand on the one hand and energy-related CO2 emissions has been broken. In 2015, “growth in energy-related CO2 emissions stalled completely”, notes the WEO. “This was mainly due to a 1.8% improvement in the energy intensity of the global economy, a trend bolstered by gains in energy efficiency, as well as the expanded use of cleaner energy sources worldwide, mostly renewables.”

The WEO notes that “Recent data show a significant slowdown in the growth of energy-related carbon-dioxide (CO2) emissions in 2014 and 2015, and the projections in the New Policies Scenario suggest that implementation of Nationally Determined Contributions (NDCs) would lock in this trend. In the New Policies Scenario to 2040, on an average annual basis, CO2 emissions grow at 0.5% per year, while energy demand grows at 1% and the global economy expands at an average rate of 3.4%.”

According to a study published in the journal Earth System Science Data, which was released earlier this week, CO2-emissions have again been stable in 2016. According to the WEA, “Before 2015, there have been only four periods in the past 40 years in which emissions stood still or fell compared with the previous year: three of those – the early 1980s, 1992 and 2009 – were associated with global economic weakness. In contrast, the most recent stall in emissions growth comes during a period of economic expansion. This represents a clear hint that the previously close relationship between global economic growth, energy demand and related CO2 emissions is weakening.”

Nevertheless, as the IEA notes, more needs to be done: “The prospective changes to the global energy scene are not yet enough to deliver the necessary containment of CO2 emissions”.

Get yourself a copy

Below we present some other highlights from this year’s World Energy Outlook. But there is much, much more in the WEO than is covered here. No energy professional should hesitate to order a copy from the IEA’s website.

WEO 2016 on Electric Vehicles

“The global stock of electric cars passed the one million mark in 2015 and momentum looks to have been maintained in key markets in the first-half of 2016 – electric vehicle registrations in China rose by 130% year-on-year (helped by the fact that this avoids the lottery by which conventional vehicle registrations are assigned in major Chinese cities). Growth has been underpinned by policy support, the development of new models with clear consumer appeal and continuous improvement in the energy density of batteries; average battery costs in 2015 were less than $270 per kilowatt-hour (kWh) for plug-in electric hybrids and an estimated $210/kWh for battery electric cars (BEVs).

In the New Policies Scenario, ownership of electric cars picks up quickly to 10 million in 2020, exceeds 30 million by 2025 and 150 million in 2040. By 2040, one-in-nine passenger vehicles in China is electric and growth is also strong in parts of Europe and North America. But the overall share in the global passenger vehicle stock remains relatively small, at 8% in 2040, and oil demand is lowered by only 0.3 mb/d in 2025 and 1.3 mb/d in 2040. One reason is that, even though battery costs for BEVs decline to $125/kWh by 2025 and $100/kWh by 2040, this is not enough to achieve full cost-parity with conventional cars and policies in place or envisaged today are not sufficiently widespread or strong to bridge the gap.  

The outlook changes in the 450 Scenario. Policies that include more stringent regulations on fuel economy and tailpipe emissions, and greater support to the buildup of recharging infrastructure, provide a large boost to sales. The global stock of electric passenger cars rises to more than 700 million by 2040, displacing more than 6 mb/d of oil demand. With the parallel decarbonisation of the power sector in this scenario, the combination of smart grids and the storage provided by vehicle batteries also provides the co-benefit of supporting the integration of renewable power.”

 

WEO 2016 on what it would take to go beyond the 450/2 degrees scenario

“The transformation beyond the 450 Scenario and towards ‘well below 2 °C’ presents a formidable challenge: marginal emissions reductions require non-marginal changes to the energy system. For example, three-quarters of the global passenger light-duty vehicle fleet would need to be electric by 2040, up from one-third in the 450 Scenario. To satisfy the consequent increase in electricity demand, 180 GW of additional power capacity would be required above the level in the 450 Scenario, while the share of low-carbon capacity in the power mix would need to rise to almost 80% (from more than

70% in the 450 Scenario). Additional effort is also required in the buildings sector. Oil demand would fall to 63 mb/d [million barrels per day] in 2040, around 11 mb/d below the 450 Scenario, while gas and coal demand would be 370 bcm and 110 Mtoe lower respectively.”

 

WEO2016 on how the main risks to energy security may evolve over the coming decades

“The reliability of oil and gas supply is the traditional focus of assessment of energy security. Risks in this area remain, particularly for the Asian importers that provide the destination for a rising share of oil and gas trade. But the focus is shifting increasingly to electricity security, as electricity takes a higher share of final consumption. The rise of wind and solar power is central to this redefinition of energy security: it tempers import dependency yet creates new challenges for power system operation. Climate change is set to exacerbate vulnerabilities in the energy sector, not least via the impacts on water availability.

“The energy mix becomes more diverse between today and 2040, in all scenarios. The pace of change varies: China sees – by far – the largest shift in the direction of greater diversification, away from coal, underlining the scale and ambition of the transition that is underway.”

The WEO notes that “despite the rise in renewables, which tends to increase the share of energy produced domestically rather than bought or sold on the international market, global trade remains an important component of the energy system in all our scenarios. In the New Policies Scenario, 20% of the primary energy consumed in 2040 is traded between one of the WEO regions, compared with 22% in 2014: only in the 450 Scenario does this share fall more substantially, to 18%.”