It would be easy to blame the pro-fossil fuel Trump administration for the shift, but that would be a mistake: It precedes its arrival.
The idea that a peak in fossil-fuel demand was approaching got significant traction in large part thanks to the IEA, whose annual World Energy Outlook tries to imagine the future via a series of scenarios. While the exercise is quite useful, it doesn’t come remotely close to making forecasts. They are based on assumptions about economic development, population growth, political will, technological developments and prices. While not a crystal ball, the scenarios do offer important insights.
The IEA long published a main scenario based around the policies of the day — called, unsurprisingly, “Current Policy Scenario (CPS).” The model had significant shortcomings: Historically, it undercounted solar and wind power. Thus, in 2020, the IEA discontinued it, in part due to pressure from European nations and green campaigners. That was replaced by a “Stated Policies Scenario (STEPS),” which not only considered current policies but also “policy proposals, even if the specific measures needed to put these proposals into effect have yet to be fully developed.” In short, it mixed policy with political promises. It later introduced another scenario, called “Announced Pledges Scenario (APS)”, which assumed that all the energy and climate policies, plus political aspirations were met in full and on time.
The two new scenarios shifted massively the path for fossil-fuel demand — and carbon dioxide emissions — predicting peak consumption by 2029, and then a decline, slower under the STEPS scenario and faster under the APS model. The decline was so meaningful under the latter that it gave credence to the idea that trillions of dollars worth of fossil-fuel reserves would be left stranded. Western policymakers became convinced that the new scenarios represented something akin to a forecast – and thus that demand would indeed drop. But many others – including your writer – anticipated stronger consumption. In my case, I particularly flagged that coal demand would prove stickier.
This year, the IEA is again publishing its “Current Policy Scenario” — in part due to pressure from the Trump administration— showing that neither oil nor gas demand would peak this decade, contrary to the previous assumption, according to a half a dozen people who have reviewed a draft of the report. They all described it under condition of anonymity. The final report can still change.
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The IEA declined to comment.
Under current policies, “oil and natural gas use rise out to 2050,” according to the IEA draft. Coal consumption does peak in the 2030s, but demand in 2050 would be more than 50% higher than previously expected, according to my calculations based on the draft.
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Peak consumption has become the Holy Grail of the energy debate. But the precise year when demand hits its zenith is far less important than the shape of the consumption curve before and after that peak. Focusing on the path, rather than on the highest point, is crucial to understanding where the world is heading.
For oil, the consumption curves under the rescued CPS show continued growth, including even in the 2040s. Its annual growth over the next 25 years is well below the rate seen historically, but “oil remains the largest single fuel” in mid-century, the draft says. Renewables come second, with gas and coal in third and fourth place.
By 2050, the IEA pencils in oil consumption at 114 million barrels a day under its CPS — that compares to the about 93 million barrels a day by 2050 seen last year under the STEPS scenario and more than double the 54 million under its APS scenario.
It's important to remember that the IEA will publish other scenarios, showing alternative paths, and that the Current Policy Scenario isn’t a forecast. It’s a snapshot of what the world may look like in 25 years if nothing changes and governments sit on their hands. In the past, the scenario tended to undercount renewables and favor incumbent sources of energy, such as oil, gas and coal; so if history is a guide, it could be off – perhaps significantly.
Let’s hope so. The world is far, far, far off in its efforts to keep the rise in global temperatures to 1.5C above pre-industrial averages, as negotiated in the 2015 Paris climate agreement. If I’m right, the world is probably heading toward a disastrous 3C. When the IEA publishes its old-but-new scenario, there will be a battle to control the message. The fossil-fuel industry, with Saudi Arabia at the top, will herald the potential for stronger-than-expected oil, gas and coal demand as vindication. Maybe. But the prospect of more pollution is also a call for action.
For now, the world isn’t performing an “energy transition” but an “energy addition,” where renewables top up oil, gas and coal. Regardless of well-intended green aspirations, that will remain the case for years, if not decades, unless governments impose significant changes. Hope isn’t a policy. - Bloomberg Opinon
