A detailed analysis of the pledges made for the Paris Agreement on climate change finds that the era of fossil fuels appears far from over and underscores the challenge of reaching more ambitious climate goals. Still, government policies, as well as cost reductions across the energy sector, enable a doubling of both renewables – subject of a special focus in this year’s Outlook – and of improvements in energy efficiency over the next 25 years. Natural gas continues to expand its role while the shares of coal and oil fall back.

- Download: World Energy Outlook 2016

“We see clear winners for the next 25 years – natural gas but especially wind and solar – replacing the champion of the previous 25 years, coal,” said Dr Fatih Birol, the IEA's executive director. “But there is no single story about the future of global energy: in practice, government policies will determine where we go from here.”

This transformation of the global energy mix described in WEO-2016 means that risks to energy security also evolve. Traditional concerns related to oil and gas supply remain – and are reinforced by record falls in investment levels. The report shows that another year of lower upstream oil investment in 2017 would create a significant risk of a shortfall in new conventional supply within a few years.

In the longer-term, investment in oil and gas remain essential to meet demand and replace declining production, but the growth in renewables and energy efficiency lessens the call on oil and gas imports in many countries. Increased LNG shipments also change how gas security is perceived. At the same time, the variable nature of renewables in power generation, especially wind and solar, entails a new focus on electricity security.

Global oil demand continues to grow until 2040, mostly because of the lack of easy alternatives to oil in road freight, aviation and petrochemicals, according to WEO-2016. However, oil demand from passenger cars declines even as the number of vehicles doubles in the next quarter century, thanks mainly to improvements in efficiency, but also biofuels and rising ownership of electric cars.

Coal consumption barely grows in the next 25 years, as demand in China starts to fall back thanks to efforts to fight air pollution and diversify the fuel mix. The gas market is also changing, with the share of LNG overtaking pipelines and growing to more than half of the global long-distance gas trade, up from a quarter in 2000.  In an already well-supplied market, new LNG from Australia, the United States and elsewhere triggers a shift to more competitive markets and changes in contractual terms and pricing.

The Paris Agreement
The Paris Agreement, which entered into force on 4 November, is a major step forward in the fight against global warming. But meeting more ambitious climate goals will be extremely challenging and require a step change in the pace of decarbonization and efficiency. Implementing current international pledges will only slow down the projected rise in energy-related carbon emissions from an average of 650 million tonnes per year since 2000 to around 150 million tonnes per year in 2040.

While this is a significant achievement, it is far from enough to avoid the worst impact of climate change as it would only limit the rise in average global temperatures to 2.7°C by 2100. The path to 2°C is tough, but it can be achieved if policies to accelerate further low carbon technologies and energy efficiency are put in place across all sectors.

It would require that carbon emissions peak in the next few years and that the global economy becomes carbon neutral by the end of the century. For example, in the WEO-2016 2°C scenario, the number of electric cars would need to exceed 700 million by 2040, and displace more than 6 million barrels a day of oil demand. Ambitions to further limit temperature gains, beyond 2°C, would require even bigger efforts.

“Renewables make very large strides in coming decades but their gains remain largely confined to electricity generation,” said Dr Birol. “The next frontier for the renewable story is to expand their use in the industrial, building and transportation sectors where enormous potential for growth exists.”

Perspectives from the Danish Ministry of Energy, Utilities and Climate to the World Energy Outlook 2016 report
The World Energy Outlook report has climate and transitioning of the global energy system as its focal points. The analysis highlights, among others, the need for a flexible energy system and the potentials of a close integration of the electricity and heating sector. In this connection, the Danish model receives recognition.

A flexible energy system has been on the Danish agenda for a long time, and we have many years of experience with renewable energy in many sectors through integration of the electricity and heating sector. And with the broad PSO agreement we also have a solution where the total electricity bill becomes lower, which will result in a greater incentive to use green energy (…), says the Danish Minister for Energy, Utilities and Climate Lars Chr. Lilleholt.

Price drop in renewable energy technologies
Another area that is highlighted in the World Energy Outlook is the trend of continued price drops on renewable energy technologies. This trend has been confirmed by the historically low bid on the Kriegers Flask wind farm, which has surpassed expectations in terms of technological price drops from both the International Energy Agency and the Danish Energy Agency.

“Wind power is becoming more and more competitive, and we are heading towards more market-based solutions. In Denmark, the new Kriegers Flak-sentation with a price of just DKK 37.2 øre/kWH for 600 MW offshore wind is a good example of this”, says the minister.

Important cooperation with the big emerging economies
World Energy Outlook underlines the benefits of energy cooperation across borders and highlights the Nordic electricity system with its strong connections to neighbouring countries. The analysis also highlights the increased transformation of global energy systems. The International Energy Agency emphasises that it is pivotal to ensure the transition in the big emerging economies in order to meet the goals in the Paris Agreement. Among others, it is important with specific cost-effective solutions, which Denmark has strong experience in delivering from competitive companies in energy efficiency and renewable energy.

”Denmark advises big emerging economies such as China, Indonesia and Mexico with solutions in renewable energy and energy efficiency. It can create cost-effective CO2 reductions and promote Danish exports. (…) In order to strengthen our position in exports of energy technologies, the Danish Government has launched an ambitious export scheme focusing on our three biggest export markets for energy technologies: USA, Great Britain and Germany. In addition, I have initiated work on an export strategy for the energy industry, which I expect to be finalized during spring 2017,” says the minister.

Source: The International Energy Agency / The Danish Ministry of Energy Utilities and Climate (in Danish)