Deploying new technology allows society to do more with less. Most successful technologies often have the supporting policy and commercial frameworks to achieve scale. A policy, like tax incentives, can spur development of new technology, but these technologies ultimately need to compete without subsidies to reach a large enough scale to impact global markets. Consumer preferences can also create a "pull effect" that increases demand in the marketplace for new technologies.
Shifts in policy can stimulate new technology and influence consumer choices. For example, policies can encourage adoption of new technology (free parking for electric vehicles) or discourage the use of an existing technology (restrictions on coalbased power). The corollary is also true: policy not enabled by competitive technology or not aligned with consumer preferences can be difficult to implement because it is hard to mandate something that isn’t better than current options in the eyes of the consumer.
Demand for energy begins with the numerous choices consumers make in their daily lives. These preferences can shift as new technology enables options that better meet a consumer's needs, such as lower energy costs and lower emissions. Consumer preferences can also be altered over time by policies that incentivize choices, like a carbon tax that encourages more lower carbon electricity supply.
Global energy demand varies by sector
Commerce and trade drive transportation energy consumption up more than 25 percent.
Over the past few decades the movement of people and goods has grown dramatically, driven by vast growth in the purchasing power of individuals. Likewise, technology advancements have provided new and more efficient mobility options.
Global transportation demand is driven by differing trends for commercial transportation and light-duty passenger vehicles. As economic activity expands, especially in developing regions, commercial transportation is expected to grow. The majority of the growth comes from heavy-duty trucking as a result of goods movement, but increased aviation travel also plays a role as individual purchasing power expands.
Passenger vehicle ownership is expected to expand as a result of the dramatic growth in the middle class and increased urbanization, leading to increased passenger vehicle travel. The fuel mix continues to evolve with more alternatives, like electric vehicles (BEV and PHEV).
In the 2018 Outlook, hypothetical sensitivities for light-duty demand showed that for every additional 100 million EVs on the road, liquids demand could fall by ~1.2 million barrels per day in 2040. In a 100 percent light-duty EV sensitivity by 2040, light-duty liquids demand could see 100 percent displacement while growth in chemicals and commercial transportation offset much of the decline resulting in similar liquids demand as seen in 2013. This 100 percent EV sensitivity by 2040 would require all passenger vehicle sales to be electric starting in 2025.
As populations grow and prosperity rises, more energy will be needed to power homes, offices, schools, shopping centers and hospitals.
Combined residential and commercial energy demand is projected to rise by around 20 percent through 2040. Led by the growing economies of non-OECD nations, average worldwide household electricity use will rise about 25 percent between 2017 and 2040.
Energy efficiency plays a big role in constraining energy demand growth within the residential and commercial sectors as modern appliances, advanced materials and policies shape the future.
Residential electricity intensity
Almost half of the world’s energy use is dedicated to industrial activity
As the global middle class continues to grow, demand for durable products, appliances and consumable goods will increase. Without exception, industrial activities are required to manufacture these products and their components. Industrial activities, such as textile manufacture, car assembly or creation of construction materials, take place in almost all regions, and for all this activity energy is required.
Industry grows in emerging markets, like India, Southeast Asia, the Middle East and Africa. Industry also evolves in OECD nations as businesses and consumers strive to reduce their environmental impact by using energy more efficiently.
Industrial growth takes energy. It also takes innovation. This Outlook anticipates technology advances, as well as the increasing shift toward cleaner sources of energy such as electricity and natural gas. The industry of the future will be more energy efficient and less carbon intensive than it is today.
Since it first started lighting homes in the late 1800s, electricity has provided the means to boost economic productivity and improve the human condition with modern conveniences like electric motors, air conditioning and refrigeration. Power generation has witnessed transitions in fuel sources from coal to nuclear and gas, and now we are harnessing wind and solar energy. The growth of new energy sources is impacted by factors such as technology cost improvements, the availability and quality of domestic resources, and government policies.
Electricity demand is expected to grow around the globe, supplied primarily by growth in wind, solar, natural gas-fired generation, and nuclear. Besides meeting residential, commercial, and industrial demand, the increase in electricity demand is also fueled by the growth of electric vehicles in light-duty transportation. Cost reductions in transportation batteries are being leveraged for other applications including larger-scale electricity storage.
Today, batteries represent a small share of installed capacity on the grid, and are used for short-duration storage. The increased variable production from weather-dependent wind and solar triggers additional transmission build-out, storage and flexible gas peaking generation but results in reduced asset efficiency. Further breakthroughs that provide new solutions deployable at commercial scale to maintain reliable and affordable electricity for consumers are needed.
Similar to the transportation sector, we use sensitivity analyses to provide greater perspective on how changes to our base Outlook assumptions in the power generation sector could affect the energy landscape.
Power generation modeling is complex with a number of questions to explore for both demand growth and supply mix, including:
There are a number of different potential outcomes for each of these questions that could yield different projections. The top chart shows outcomes for different third-party models,including some deep decarbonization scenarios like the IEA’s Sustainable Development Scenario (IEA SDS). These results describe a range of potential outcomes with some common trends:
The bottom chart is a sensitivity to test the impact of alternate assumptions on natural gas:
Monitoring technology advancements, market behavior and the evolving policy landscapes can identify signposts related to cost reduction, technology deployment and policy targets indicating how a different outcome may materialize.