China overtakes the United States as the world’s biggest emitter of CO₂ before 2010. These trends would accentuate consuming countries’ vulnerability to a severe supply disruption and resulting price shock. They would also amplify the magnitude of global climate change, the Agency notes.

WEO-2006 reveals that the energy future we are facing today, based on projections of current trends, is dirty, insecure and expensive. But it also shows how new government policies can create an alternative energy future which is clean, clever and competitive—the challenge posed to the IEA by the G8 leaders and IEA minister.

—Claude Mandil, Executive Director of the IEA

An Alternative Policy Scenario projects that the energy future can be substantially improved if governments around the world implement the policies and measures they are currently considering.

In this scenario, global energy demand is reduced by 10% in 2030—equivalent to China’s entire energy consumption today. Global carbon-dioxide emissions are reduced by 16%—equivalent to current emissions in the United States and Canada combined—in the same time-frame.

In the OECD countries, oil imports and CO₂ emissions peak by 2015 and then begin to fall. Improved efficiency of energy use contributes most to the energy savings. Increased use of nuclear power and renewables in the IEA projections also help reduce fossil-fuel demand and emissions.

Just a dozen specific policies in key countries account for 40% of the reduction in global CO₂ emissions. The shifts in energy trends described in this scenario would serve all three of the principal goals of energy policy: greater security, more environmental protection and improved economic efficiency.

The good news is that these policies are very cost-effective. There are additional upfront costs involved, but they are quickly outweighed by savings in fuel expenditures. And the extra investment by consumers is less than the reduction in investment in energy-supply infrastructure. Demand-side investments in more efficient electrical goods are particularly economic; on average, an additional $1 invested in more efficient electrical equipment and appliances avoids more than $2 in investment in power generation, transmission and distribution infrastructure.

—Claude Mandil

The energy picture has changed appreciably since the 2004 Outlook, according to the IEA. The realities of the energy market have become harsher and the relative competitive position of fuels has changed. Oil and gas prices this year have been between three and four times higher than in 2002 and this is reflected in a new oil price assumption for the projections.

WEO 2006 identifies under-investment in new energy supply as a real risk.

—Claude Mandil

The Reference Scenario projections call for a cumulative investment in energy-supply infrastructure of more than $20 trillion in real terms over 2005-2030—substantially more than was previously estimated. Roughly half of all the energy investment needed worldwide is in developing countries.

It is far from certain that all this investment will actually occur, according to the IEA. There has been an apparent surge in oil and gas investment in recent years, but it is, to a large extent, illusory. Drilling, material and personnel costs in the industry have soared, so that in real terms investment in 2005 was barely higher than that in 2000.

The Outlook suggests that nuclear power could make a major contribution to reducing dependence on imported gas and curbing CO₂ emissions in a cost-effective way. But this will happen only if the governments of countries where nuclear power is accepted play a stronger role in facilitating private investment, especially in liberalized markets, according to the report.

Biofuels can make a significant contribution to meeting future road-transport energy needs, helping to promote energy diversity and reducing emissions. Biofuels reach 4% of road-fuel use in the Reference Scenario in 2030 and 7% in the Alternative Policy Scenario, up from 1% today.

The United States, the European Union and Brazil account for the bulk of the global increase and remain the leading producers and consumers of biofuels in both Scenarios. But rising food demand, which competes with biofuels for existing arable and pasture land, and the need for subsidy in many parts of the world, will constrain the long-term potential for biofuels production using current technology.

New biofuels technologies being developed today, notably lignocellulosic ethanol, could allow biofuels to play a much bigger role, the report argues, if major technological and commercial challenges can be overcome.

Resources:

• World Energy Outlook 2006