IEA Energy Outlook: Major Changes in the World’s Energy Landscape over the Next 25 Years

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After 25 years of rapid growth in fossil fuel consumption driven by coal, the global energy landscape is entering a period of profound transformation. The Paris Agreement on climate change, which came into effect in November 2016, sets the goal of keeping the global average temperature rise below 2 degrees Celsius above pre-industrial levels by the end of this century, while striving to limit the increase to 1.5 degrees Celsius. The IEA’s “World Energy Outlook 2016 (Chinese version)” released in Beijing on December 2 states that the Paris Agreement is essentially an energy agreement. http://www.china5e.com/uploadfile/2016/1202/20161202052314878.png As the IEA’s flagship publication, the World Energy Outlook offers fresh perspectives on the global energy sector every year. In this year’s edition, the analysis of the emission reduction commitments under the Paris Agreement is the main focus. According to the IEA, the energy sector accounts for at least two-thirds of greenhouse gas emissions, and the transformation of this sector is crucial for achieving the goals of the Paris Agreement. **Song Wen, head of the Statistics and Forecasting Department at the Development Planning Division of the Energy Administration, believes that the World Energy Outlook for 2016, set against the backdrop of the Paris Climate Agreement, outlines a clearer, more efficient, and lower-carbon energy future. As early as last month, when the English-language report was released, International Energy Agency Director Birol said, “Over the next 25 years, we will see natural gas, wind energy, and solar energy – with the latter two in particular – replace coal as the main sources of energy.” However, the global energy supply in the future should not be based on a single source; all the efforts we make now will determine the changes that will take place in the future. ”It is foreseeable that the development prospects of clean energy sources such as wind and solar power are promising. Based on current technological changes and policy measures, the IEA’s outlook provides the latest projections on the major changes in energy over the next 25 years, as well as the challenges faced globally in addressing climate change. The rise and fall of different energy sources: http://www.china5e.com/uploadfile/2016/1202/20161202052341136.png According to the report, the situation for the coal industry will only get worse in the future; there are no signs of an improvement in global demand for coal. Restoring market balance will rely on supply cuts, primarily those made by China and the United States. Tim Gould, head of the Energy Supply Outlook division at the International Energy Agency, said in the report that coal experienced a significant rebound in the first decade of this century, mainly due to rising demand from China, but this period of rapid growth has come to an end; China’s coal consumption may have reached its peak by 2013. The IEA predicts that by 2040, China’s coal demand will be only 250 million tons of standard coal, while coal demand in the EU and the US – which together account for about one-sixth of global coal consumption today – will decline by 60% and 40% respectively. However, Tim Gould also said that for China, it’s not just a matter of energy policy, as China’s policies have many social implications, such as unemployment issues, and these all affect the global coal market. The Outlook indicates that the oil market will enter a period of greater volatility; if cuts in upstream spending in 2015–2016 are extended for another year, short-term risks in the oil market could stem from a shortage of new projects. Tim Gould believes that although oil demand growth is slowing down, the peak has not yet been reached. The report states that although the global number of cars has doubled, demand for oil in passenger vehicles is declining due to improved energy efficiency, as well as the development of biofuels and electric vehicles. Meanwhile, demand for oil in industries such as petrochemicals, aviation, freight transportation, and shipping is set to increase further. Over the next 25 years, a true global natural gas market is emerging, and by 2040, demand for natural gas is set to grow at a rate of 1.5% per year. Tim Gould said that, compared to other fossil fuels, the development of natural gas is relatively healthy, and there will be an important transformation in the global transportation of natural gas. He explained that currently, the transformation of the natural gas market is accelerating, and LNG’s share in global long-distance natural gas trade is increasing as well; by 2040, this share is expected to reach 53%. Given the current ample supply in the LNG market, the entry of Australia, the United States, and other new LNG exporters will pose challenges to relevant contract terms and pricing mechanisms. Over the next 25 years, the development of renewable energy will break through barriers. Tim Gould said that for now, the development of photovoltaic and wind power still relies on **policy. “Compared to last year, we are more optimistic about the prospects for photovoltaics, and the same is true for wind power. ”The IEA predicts that by 2040, renewable energy will account for 37% of total electricity generation, with this proportion reaching nearly 60% under a 2°C scenario; the greatest additional potential lies in heating and transportation sectors. Driven by policies and influenced by changes in electricity market design, renewable energy is set to enter a new chapter of development. http://www.china5e.com/uploadfile/2016/1202/20161202052407716.png Comparing the differences between the past 25 years and the next 25 years, Tim Gould says that from 1990 to 2015, energy demand increased by 60%, with coal being by far the biggest beneficiary ； And over the next 25 years, natural gas could become the biggest winner. He believes that by comparing the past 25 years with the next 25, it can be seen that from 1990 to 2014, China’s growth in energy demand was driven mainly by energy-intensive industries such as cement and steel ； In the next 25 years, although some energy-intensive industries such as the chemical industry will continue to experience some growth, sectors like steel production will see a significant decline. Energy-intensive industries will no longer be the main drivers of China’s economic growth in the future. The resulting reduction in coal consumption will create room for growth in electricity and natural gas usage. The challenges of energy security and climate goals. The Outlook points out that the shift in the power structure driven by renewable energy has shifted the focus of global energy policymakers to electricity market design and power security, although concerns regarding traditional energy security have not disappeared. Over the next 25 years, global energy demand will continue to rise, but hundreds of millions of people will still lack access to modern energy. Under the main scenario outlined in \"Prospects,\" global energy demand is expected to increase by 30% by 2040. This means that consumption of all modern fuels will continue to rise, but amid this overall increase, there are numerous different trends and shifts in energy use. http://www.china5e.com/uploadfile/2016/1202/20161202052430575.png Regarding emission reduction, the IEA believes that the Paris Agreement is merely a framework; its impact on the energy sector depends on how the goals are translated into concrete actions. Overall, the commitments made **are expected to achieve, or even exceed, the targets set out in the Paris Agreement, which is sufficient to slow down the expected increase in global energy-related carbon dioxide emissions; however, there is still a significant gap before the 2°C target can be reached. Despite the numerous challenges, the report still believes that the Paris Agreement will transform the development pattern of the global energy system in the coming decades, offering opportunities for low-carbon development and energy transition. Fresh perspective: The interdependence between energy and water. Director Song Wen believes that the most inspiring aspect of the ‘Outlook’ is the need to manage the relationship between energy and water more effectively as non-fossil energy technologies improve. According to the Outlook, the interdependence between energy and water will increase in the future, as both the energy sector’s demand for water and water’s demand for energy will rise. Tim Gould believes that the energy industry is becoming increasingly “thirsty,” and water resources must be an important consideration in energy projects. Water is crucial for all stages of energy production: the energy sector accounts for 10% of global water consumption, which is primarily used for power plant operations as well as the production of fossil fuels and biofuels. The rising demand for biofuels has driven the use of water resources, while greater deployment of nuclear power has increased extraction and consumption levels. http://www.china5e.com/uploadfile/2016/1202/20161202052453310.png At the same time, the water industry also requires more and more energy. In 2014, 4% of the world’s electricity consumption was used for the extraction, distribution, and treatment of wastewater, and 50 million tons of diesel were used in desalination plants. By 2040, the amount of energy used by water utilities is expected to more than double. In the Middle East and North Africa, desalination capacity is increasing rapidly, and the demand for wastewater treatment (and higher levels of treatment) is also growing, especially in emerging economies. By 2040, 16% of electricity consumption in the Middle East will be related to water supply. Managing the relationship between energy and water is crucial for successfully achieving development and climate goals. Who drove the change in the IEA’s projections? According to the IEA’s predictions from 2013, renewable energy is set to see significant development, but even then, fossil fuels will still account for 75%. In this year’s Outlook, the IEA has become more optimistic about renewable energy. What has driven this change in the IEA’s forecasts for the future? Have any policy and technological developments changed the IEA’s projections? Tim Gould believes it mainly comes down to two key changes: firstly, improvements in renewable energy technologies along with increased policy support have led to a significant rise in the deployment of renewable energy ； Secondly, the signing of the Paris Agreement is another factor; although each country’s \"emission reduction ambitions\" vary, it all contributes significantly to the promotion of renewable energy. At the same time, we also need to further improve energy efficiency, as an improvement in energy efficiency represents a valuable complement. Qi Ye, director of the Tsinghua-Brookings Center for Public Policy and professor at the School of Public Policy at Tsinghua University, held a different view on this. He believes that just one year after the Paris Agreement was signed, it cannot be said to have brought about much change. He believes that the slowdown in the growth rate of the global economy as a whole is also a very important factor. Tim Gould said that although the Paris Agreement was just implemented, the path leading to it involved a lot of public discussion and efforts by policymakers; in this regard, the Paris Agreement has made significant contributions.