Deep disparities define today’s energy world, according to the International Energy Agency’s (IEA) World Energy Outlook 2019. These include dissonance between well-supplied oil markets and growing geopolitical tensions and uncertainties; the gap between the ever-higher amounts of greenhouse gas emissions being produced and the insufficiency of stated policies to curb those emissions in line with international climate targets; and the gap between the promise of energy for all and the lack of electricity access for 850 million people around the world. The IEA’s flagship publication explores these widening fractures in detail and provides a set of scenarios for different possible energy system futures, depending on the policies, investments, technologies, and other choices that decision makers pursue today.
Meeting climate, energy access, and air quality goals while maintaining a strong focus on the reliability and affordability of energy for a growing global population is a formidable task, says the IEA. Initiatives from individuals, civil society, companies, and investors can make a major difference, but governments must take the lead. It is governments that set the conditions that determine energy innovation and investment, and governments to whom the world looks for clear signals and unambiguous direction about the road ahead.
Three Scenarios
The outlook’s Current Policies Scenario shows a baseline picture of how global energy systems will evolve if governments make no changes to their existing policies. In this scenario, energy demand rises by 1.3% a year to 2040, resulting in strains across all aspects of energy markets and a continued strong upward march in energy-related emissions.
The Stated Policies Scenario, formerly known as the New Policies Scenario, incorporates today’s policy intentions and targets in addition to existing measures. The aim is to hold up a mirror to today’s plans and illustrate their consequences. The future outlined in this scenario is still well off track from the aim of a secure and sustainable energy future. It describes a world in 2040 where hundreds of millions of people still go without access to electricity, where pollution-related premature deaths remain around today’s elevated levels, and where CO2 emissions lock in severe impacts from climate change. If the world is to turn today’s emissions trend around, it will need to focus not only on new infrastructure, but also on the emissions that are “locked in” to existing systems. That means addressing emissions from existing power plants, factories, cargo ships, and other capital-intensive infrastructure already in use. Despite rapid changes in the power sector, there is no decline in annual power-related CO2 emissions in the Stated Policies Scenario. A key reason is the longevity of the existing stock of coal-fired power plants that account for 30% of all energy-related emissions today.
In the Stated Policies Scenario, energy demand increases by 1% per year to 2040. Low-carbon sources, led by solar photovoltaics (PV) that use semiconducting materials to convert light into electricity, supply more than half of this growth, and natural gas accounts for another third. Oil demand flattens out in the 2030s, and coal use edges lower. Some parts of the energy sector, led by electricity, undergo rapid transformations. Some countries, notably those with “net zero” aspirations, go far in reshaping all aspects of their supply and consumption.
The Sustainable Development Scenario indicates what needs to be done differently to fully achieve climate and other energy goals that policy makers around the world have set. Achieving this scenario—a path fully aligned with the Paris Agreement aim of holding the rise in global temperatures to well below 2°C and pursuing efforts to limit it to 1.5°C—requires rapid and widespread changes across all parts of the energy system. Sharp emission cuts are achieved thanks to multiple fuels and technologies providing efficient and cost-effective energy services for all.
Shale Outlook
Shale output from the United States is set to stay higher for longer than previously projected, reshaping global markets, trade flows, and security. In the Stated Policies Scenario, annual US production growth slows from the pace seen in recent years but will still account for 85% of the increase in global oil production to 2030, and for 30% of the increase in gas. By 2025, total US shale output (oil and gas) overtakes total oil and gas production from Russia, according to IEA.
“The shale revolution highlights that rapid change in the energy system is possible when an initial push to develop new technologies is complemented by strong market incentives and large-scale investment,” said IEA Executive Director Fatih Birol. “The effects have been striking, with US shale now acting as a strong counterweight to efforts to manage oil markets.”
The higher US output pushes down the share of OPEC members and Russia in total oil production, which drops to 47% in 2030 from 55% in the mid-2000s. But whichever pathway the energy system follows, the world is set to rely heavily on oil supply from the Middle East for years to come, according to the outlook.
Renewables and Clean Energy
Cost reductions in renewables and advances in digital technologies are opening huge opportunities for energy transitions while creating some new energy security dilemmas, says IEA. Wind and solar PV provide more than half the additional electricity generation to 2040 in the Stated Policies Scenario and almost all the growth in the Sustainable Development Scenario. Increasingly cost-competitive offshore wind projects are on course to attract a trillion dollars of investment to 2040. Europe’s success with the technology has sparked interest in China, the United States and elsewhere.
Key Areas to Watch
The IEA focused on three geographic areas that will affect—and be impacted by—energy systems going forward.
In Asia, a three-way race is underway among coal, natural gas and renewables to provide power and heat to fast-growing economies. Coal is the incumbent in most developing Asian countries. New investment decisions in coal-using infrastructure have slowed sharply, but the large stock of existing coal-fired power plants and factories (and the 170 GW of capacity under construction worldwide) provides coal with considerable staying power in the Stated Policies Scenario.
Over the past 20 years, Asia has accounted for 90% of all coal-fired capacity built worldwide, and these plants have potentially long operational lifetimes ahead of them. In developing economies in Asia, existing coal-fired plants are just 12 years old on average. Putting electricity systems on a sustainable path will require more than just adding more renewables. The world also needs to focus on the emissions that are “locked in” to existing systems. This year’s World Energy Outlook considers three options to bring down emissions from the existing global coal fleet.
Retrofit them with carbon capture, utilization and storage (CCUS) or biomass cofiring equipment.
Repurpose them to focus on providing system adequacy and flexibility while reducing operations.
Retire them early.
In the Sustainable Development Scenario, most of the 2,080 GW of existing coal-fired capacity would be affected by one of these three options.
Renewables are the main challenger to coal in Asia’s power sector, led by China and India. Developing countries in Asia account for over half the global growth in generation from renewables. Demand for natural gas has been growing fast as a fuel for industry and—in China—for residential consumers, spurring a worldwide wave of investment in new LNG supply and pipeline connections. IEA projects that 70% of the increase in Asia’s gas use will come from imports, largely from LNG, but the competitiveness of this gas in price-sensitive markets remains a key uncertainty.
The speed at which battery costs decline is a critical variable for power markets as well as for electric cars. India is the largest overall source of energy demand growth in this year’s outlook. IEA examines how a cost-effective combination of cheaper battery storage and solar PV could reshape the evolution of India’s power mix in the coming decades. In the Stated Policies Scenario, a major reduction in battery costs means that some 120 GW of storage will be installed by 2040. Battery costs could decline even faster—an extra 40% by 2040—because of greater industrial economies of scale or a breakthrough in battery chemistry, for example. In this case, combined solar and battery storage plants would be a very compelling economic and environmental proposition, sharply reducing India’s projected investment in new coal-fired power plants
A special focus of the 2019 World Energy Outlook is Africa, which is increasingly influential for global energy trends. In the Stated Policies Scenario, the rise in Africa’s oil consumption to 2040 is larger than that of China. The continent also sees a major expansion in natural gas use, prompted in part by a series of large discoveries made in recent years. More than half a billion people are added to Africa’s urban population by 2040. This is much higher than the growth seen in China’s urban population between 1990 and 2010, a period in which China’s production of materials such as steel and cement skyrocketed. Africa’s infrastructure development is not set to follow the same path, but the energy implications of African urbanization trends are still profound. For example, up to half a billion additional people may need air conditioners or other cooling services by 2040. IEA’s Africa analysis underlines that the planning, design, and governance of the world’s growing cities, the industrial materials that are used in their construction, and the transport options that are available to their inhabitants are critical issues for the global outlook.
Efficiency and Emissions
The faltering momentum behind global energy efficiency improvements is cause for deep concern. It comes against a backdrop of rising needs for heating, cooling, lighting, mobility, and other energy services. The momentum behind clean energy is insufficient to offset the effects of an expanding global economy and growing population. The rise in emissions slows but does not peak before 2040, according to the outlook.
Electricity’s share of final consumption overtakes that of oil, today’s leader, by 2040. Consumer preferences for SUVs could offset the benefits from electric cars. The growing appetite among consumers for bigger and heavier cars (SUVs) is already adding extra barrels to global oil consumption. SUVs are more difficult to electrify fully, and conventional SUVs consume 25% more fuel per mile than medium-sized cars. If the popularity of SUVs continues to rise in line with recent trends, this could add another 2 million B/D to the IEA projection for 2040 oil demand.
“The world urgently needs to put a laser-like focus on bringing down global emissions. This calls for a grand coalition encompassing governments, investors, companies and everyone else who is committed to tackling climate change,” said Birol.
Yet, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing: the 1.2% improvement in 2018 was around half the average rate seen since 2010 and remains far below the 3% rate that is be needed. This reflects a relative lack of new energy efficiency policies and of efforts to tighten existing measures. The pursuit of all economically viable opportunities for efficiency improvement can reduce global energy intensity by more than 3% each year. This includes efforts to promote the efficient design, use and recycling of materials such as steel, aluminum, cement, and plastics. This increased “material efficiency” could be enough in itself to halt the growth in emissions from these sectors. Innovative approaches also include the use of digital tools to shift electricity demand to cheaper and less emissions-intensive hours of the day, reducing electricity bills for consumers and helping with system balancing, while also helping to reduce emissions.
Rethinking the Unthinkable
Ten years ago, the idea that the United States could become a net exporter of both oil and gas was almost unthinkable. Yet the shale revolution—and more than $1 trillion in upstream and midstream investment—is making this a reality. The foundations date back to a publicly funded research and development effort that began in the 1970s. This was followed by tax credits, market reforms, and partnerships that provided a platform for private initiative, innovation, investment, and rapid reductions in cost. Today, solar PV and some other renewable technologies, mostly in the power sector, are similarly turning initial policy and financial support into large-scale deployment. Transforming the entire energy system will require progress across a much wider range of energy technologies, including efficiency, CCUS, hydrogen, nuclear, and others. It will also require action across all sectors, not just electricity.
“What comes through with crystal clarity in this year’s World Energy Outlook is that there is no single or simple solution to transforming global energy systems,” said Birol. “Many technologies and fuels have a part to play across all sectors of the economy. For this to happen, we need strong leadership from policy makers, as governments hold the clearest responsibility to act and have the greatest scope to shape the future.”
