The World Energy Outlook and the Future of the Clean Energy Transition

World leaders gathered in Belem, Brazil, this week for the annual United Nations climate summit to confront a painful reality: global emissions from fossil fuels are expected to reach a new high in 2025, the goal of limiting temperature rise to 1.5 degrees Celsius above pre-industrial levels is out of reach, and the United States has not even bothered to attend. Against this backdrop, the International Energy Agency released its flagship Global Energy Outlook, making headlines for including a scenario in which oil demand continues to rise until 2050.

The report contains multiple and disparate scenarios, with ambiguity about the assumptions behind each. As a result, advocates on all sides are expected to declare the report either a welcome reality check on overconfidence in the clean energy transition or evidence that the transition cannot be stopped. The truth, as usual, lies somewhere in between. We should not view growing demand for oil and gas as the status quo, but nor should we view a faster transition as inevitable. Much will depend on how countries view the national security consequences of clean energy.

World leaders gathered in Belem, Brazil, this week for the annual United Nations climate summit to confront a painful reality: global emissions from fossil fuels are expected to reach a new high in 2025, the goal of limiting temperature rise to 1.5 degrees Celsius above pre-industrial levels is out of reach, and the United States has not even bothered to attend. Against this backdrop, the International Energy Agency released its flagship Global Energy Outlook, making headlines for including a scenario in which oil demand continues to rise until 2050.

The report contains multiple and disparate scenarios, with ambiguity about the assumptions behind each. As a result, advocates on all sides are expected to declare the report either a welcome reality check on overconfidence in the clean energy transition or evidence that the transition cannot be stopped. The truth, as usual, lies somewhere in between. We should not view growing demand for oil and gas as the status quo, but nor should we view a faster transition as inevitable. Much will depend on how countries view the national security consequences of clean energy.

Reports on the new Global Energy Outlook have been understandably mixed because it is difficult to parse the assumptions in the IEA’s two main scenarios – one based on countries’ existing policies, and the other also including their stated policies, or in other words, proposed policies. As a result, headlines have tended to say that oil demand “could” rise until 2050 – a view that is not particularly helpful to anyone evaluating the possibilities.

Under current policies, oil demand will rise from 100 million barrels per day to 113 million barrels per day by 2050. Under announced policies, it will peak near 102 million by 2030 before gradually declining. Another scenario sets out what would be needed to reach net-zero emissions by 2050, a goal the world remains off track to achieve.

So, where is the world likely to go? The Current Policy Scenario (CPS) provides a static view of policy and technology, assuming no changes to existing laws and slow adoption of new technologies – not only relative to the STEPS but also to recent experience. In contrast, the STEPS initiative assumes a more dynamic view: governments implement stated intentions but do not achieve all ambitions or goals.

The differences can be subtle. In the IEA’s 2025 Partnership Strategy scenario, for example, Japan’s fuel economy improvements stop once the 2030 regulation target is met, while STEPS assumes that Japan will gradually strengthen this policy after 2030.

Judgment calls are inevitable. The International Energy Agency, for example, assumes that the European Union will implement its €100 million ($117 million) plan to decarbonize industry, but will not achieve its unreasonable target of producing 10 million metric tons of green hydrogen by 2030. It places much greater confidence in China’s ability to implement its national energy plan – a judgment supported by recent history.

The IEA warns that describing the current policy as “business as usual” is “misleading”. Previous CPS projections have repeatedly downplayed the dynamism of both politics and technology. For example, the IEA’s recent Strategic Partnership Strategy, produced in 2019, significantly underestimated how fast renewable energy will grow – and coal will grow as well.

The most plausible scenario depends on which assumptions one finds most credible. Believing the IEA’s forecasts of rising oil demand through 2050 requires assuming that electric vehicle deployment is hardly expanding beyond China and the EU, or that alternative technologies are stagnant despite falling costs and rising investment, or that the world remains complacent about worsening climate impacts.

The American economist Herb Stein’s dictum – “If something can’t go on forever, it will stop” – is worth remembering when we consider how the sense of urgency around climate change might evolve. Given growing concerns about energy affordability, it is also noteworthy that the IEA finds that household energy spending and oil prices are lower in the STEPS system than in the CPS system because in the first scenario, fossil fuel use declines, and the system shifts toward more efficient electricity.

Meanwhile, the IEA reminds readers that nearly two billion people worldwide lack access to clean cooking, and 730 million people remain without electricity. Billions more consume a fraction of the energy consumption that many in advanced economies take for granted. Realizing ambitions not only for electricity, but also for mechanized agriculture, manufacturing, and amenities such as air conditioning, refrigeration, and cars will require vast amounts of energy beyond the International Energy Agency’s forecasts.

The new partnership strategy fits into a growing crisis: as US Secretary of the Interior Doug Burgum recently put it: “There is no energy transition; there is only energy addition.” And so far, this has been true. The global energy system is so vast that the growth of clean energy has largely been achieved new Demand from population and economic expansion, but it has not yet risen fast enough replace Hydrocarbons.

However, as BP’s Energy Outlook 2025 states, the distinction is not between addition and transition, but between addition and substitution as two distinct stages of transition. Adding energy is necessarily first; Replacement follows. Nearly 40% of global energy demand already comes from regions entering the replacement phase, a share that BP expects to rise to 60% by 2050.

The demand for energy will continue to grow, but this does not necessarily mean that all forms of energy will grow indefinitely. The pace at which addition gives way to substitution will depend on how quickly clean energy costs fall — driven not only by policy, but also by technological advances that are now being battered by the AI ​​boom, as I recently wrote in my article. Foreign policy.

However, China has been the biggest driver of the decline in clean energy costs, a reality that clearly calls out the IEA’s warnings about geopolitical risks. China’s impressive build-up of industrial capacity in renewable energy, batteries, electric vehicles, and related technologies has reshaped global markets. China can now produce more than twice as many solar modules as the world installs each year, pushing module prices to less than 10 cents per watt — up from about 80 cents in 2014.

The speed with which cheaper clean technologies can reshape a country’s energy policy is evident in Pakistan, where falling costs of Chinese solar panels have prompted households and businesses to install massive amounts of rooftop photovoltaic panels. This has reduced demand for debt-financed coal power from the government-planned and budgeted grid.

Whether governments elsewhere follow Pakistan’s lead and embrace cheap Chinese clean energy will depend on how they recognize and respond to the central message of the Global Energy Outlook: that geopolitical tensions, national security risks, and economic concerns are once again dominating energy policy priorities.

As Megan O’Sullivan and I recently argued, growing concerns about energy security are increasing incentives to reduce imports and diversify supply through the electrification of energy use and electricity generation from domestic sources such as solar, wind, nuclear, and geothermal – and, for some countries, from coal as well.

Thus, the necessity of enhancing energy security could give greater impetus to efforts to reduce the use of oil and gas: for example, Ethiopia’s attempt to replace costly fuel imports with domestic electricity from the controversial new dam project by banning the import of new gasoline and diesel cars.

However, whether national security concerns will accelerate or hinder clean energy deployment depends on whether countries view reliance on Chinese supply chains for clean energy technology as posing the same risks to energy security as reliance on imported oil and gas. If they do this, and insist on producing everything locally, costs will rise and adoption of these products will slow.

The differences between the IEA’s two main scenarios are smaller than the headlines suggest about whether oil demand will stabilize after this decade or rise another 10 percent by mid-century. They both expect energy use to rise, the pace of electrification to accelerate, a faster expansion of renewable energy than any other sources, and investment of more than $600 billion annually in oil and gas – even as the world moves further away from its climate goals.

None of these tracks will unfold exactly as written. But given the pace of technological innovation, the potential for social and political turning points, and the changing geopolitics of energy, the biggest mistake is to assume that tomorrow will look a lot like today.