Key insights
The scenarios in this year’s Energy Outlook can be used to help inform some key insights about how the energy system may evolve over the next 25 years
Some of these insights stem from factors affecting the global environment and energy markets that are common across both scenarios and so may suggest an increased likelihood that they may also be apparent in pathways lying ‘between’ these scenarios. Other insights are more dependent on the pace of transition.
Global environment
The carbon budget is running out. The longer the delay in taking decisive action to reduce emissions on a rapid and sustained basis, the greater the risk of a costly and disruptive adjustment pathway later. Government ambitions and provisions in support of the energy transition have grown in recent years, but further global policy action is needed to achieve a Paris-consistent pathway.
The disruptions to global energy supplies associated with the war in Ukraine have increased the importance attached to ensuring secure and affordable energy while also achieving the Paris climate goals. This greater focus on safeguarding energy security includes many countries placing more weight on ensuring the security of their key low carbon energy value chains.
Trends common across both scenarios
Energy demand grows more strongly in emerging economies, driven by rising prosperity and living standards. But the magnitude and persistence of the growth in energy consumption depends critically on actions taken globally to accelerate improvements in energy efficiency.
The structure of energy demand changes, with the importance of fossil fuels declining, replaced by a growing share of low carbon energy, led by wind and solar power. The world moves from the ‘energy addition’ phase of the transition, in which more of both low carbon energy and fossil fuels are consumed, to an ‘energy substitution’ phase, with declining consumption of fossil fuels.
Wind and solar grow rapidly, supported by falling costs and a steadily increasing electrification of the energy system. The rising share of variable renewable energy in power generation requires global power systems to bolster their resilience to fluctuations in generation, by upgrading grids, and increasing system flexibility, storage, and reliable spare (dispatchable) capacity.
Oil demand declines over the outlook but continues to play a significant role in the global energy system for the next 10-15 years. This requires continuing investment in upstream oil (and natural gas).
The decline in oil demand stems at first largely from the improving efficiency of the internal combustion engine (ICE) vehicle fleet, but then over time increasingly from the electrification of road transport. The number of electric vehicles grows rapidly, underpinned by regulatory standards and increasing cost competitiveness.
Transition-dependent trends
Whether the demand for natural gas increases or falls over the next 25 years depends on the speed of the energy transition. Natural gas consumption rises in emerging economies as they grow and industrialize. But in accelerated transition pathways this is offset by shifts away from natural gas to lower carbon energy.
The use of biofuels and biomethane grows over the next 25 years. But the pace of that expansion in key sectors such as aviation is highly dependent on the extent of government policies and mandates supporting their use.
Low carbon hydrogen helps to decarbonize the energy system through its use in industry and transport for activities that are hard to electrify, and, to a lesser extent, in providing resilience in power systems. The high cost of low carbon hydrogen relative to incumbent unabated fossil fuels, however, means that its significance depends on the scale of policy support. Even in a faster transition pathway, much of the growth of low carbon hydrogen occurs after 2035.
CCUS plays a critical role in enabling the transition to a low carbon energy system, but it requires government support and incentives to compensate for the additional costs its use involves. The deployment of CCUS complements a transition away from fossil fuels – it does not act as an alternative.
