Chapter 1 - World Energy Demand and Economic Outlook
| In the IEO2009 projections, total world consumption of marketed energy
is projected to increase by 44 percent from 2006 to 2030. The largest projected
increase in energy demand is for the non-OECD economies. |
In the IEO2009 reference case, world energy consumption increases from
472 quadrillion Btu in 2006 to 552 quadrillion Btu in 2015 and 678 quadrillion
Btu in 2030—a total increase of 44 percent over the projection period (Figure
10 and Table 1). Total world energy use in 2030 is about 2 percent lower
than projected in the International Energy Outlook 2008 (IEO2008), largely
as the result of a slower overall rate of economic growth in this year’s
reference case.
The current economic downturn dampens world demand for energy in the near
term, as manufacturing and consumer demand for goods and services slow. IEO2009 assumes, however, that most nations will begin to return to trend
growth within the next 12 to 24 months.
OECD member countries,4 for the most part, have the world’s most established
energy infrastructures. In combination, they account for the largest share
of current world energy consumption. The situation is expected to change
over the projection period, however, with more rapid growth in energy demand
in emerging non-OECD economies. In 2006, 51 percent of world energy consumption
was in the OECD economies; but in 2030 their share falls to 41 percent
in the reference case. OECD energy use grows slowly over the projection
period, averaging 0.6 percent per year, as compared with 2.3 percent per
year for the emerging non-OECD economies (Figure 11).
China and India are the fastest-growing non-OECD economies, and they will
be key world energy consumers in the future. Since 1990, energy consumption
as a share of total world energy use has increased significantly in both
countries. China and India together accounted for about 10 percent of the
world’s total energy consumption in 1990, but in 2006 their combined share
was 19 percent. Strong economic growth in both countries continues over
the projection period, with their combined energy use increasing nearly
twofold and making up 28 percent of world energy consumption in 2030 in
the reference case. In contrast, the U.S. share of total world energy consumption
falls from 21 percent in 2006 to about 17 percent in 2030 (Figure 12).
Non-OECD Asia shows the most robust growth of all the non-OECD regions,
with energy use rising by 104 percent from 2006 to 2030 (Figure 13). Energy
consumption in other non-OECD regions also grows strongly over the projection
period, with projected increases of around 60 percent for the Middle East
and for Central and South America and 50 percent for Africa. A smaller
increase, about 25 percent, is expected for non-OECD Europe and Eurasia
(including Russia and the other former Soviet Republics), as declining
population and substantial gains in energy efficiency result from the replacement
of inefficient Soviet-era capital equipment.
This chapter presents an overview of the IEO2009 outlook for global marketed
energy consumption by energy source. It includes discussions of the major
assumptions that form the basis for the IEO2009 projections, including
macroeconomic assumptions for the key OECD and non-OECD regions.
As with any set of projections, there is significant uncertainty associated
with the IEO2009 energy projections. Two sets of sensitivity cases, which
vary some of the assumptions behind the projections, are also examined
in this chapter: the high and low economic growth cases and the high and
low world oil price cases. The sensitivity cases are intended to illustrate
alternative scenarios rather than to identify any bounds on uncertainty,
which can also be affected by policy and technology developments as well
as by price and growth paths.
Outlook for World Energy Consumption by Source
The use of all energy sources increases over the time frame of the IEO2009 reference case (Figure 14). Given expectations that world oil prices will
remain relatively high through most of the projection period, liquid fuels
and other petroleum5 are the world’s slowest growing source of energy:
liquids consumption increases at an average annual rate of 0.9 percent
from 2006 to 2030. Renewables are the fastest-growing source of world energy,
with consumption increasing by 3.0 percent per year. Projected oil prices,
as well as rising concern about the environmental impacts of fossil fuel
use and strong government incentives for increasing renewable penetration
in most countries around the world, improve the prospects for renewable
energy sources worldwide.
Although liquid fuels are expected to remain the largest source of energy,
the liquids share of world marketed energy consumption declines from 36
percent in 2006 to 32 percent in 2030. The reference case assumes that
world oil prices lead many energy users, especially in the industrial and
electric power sectors, to switch from liquid fuels and other petroleum
when feasible. From 2006 to 2030, liquids consumption in the residential,
commercial, and electric power sectors declines on a worldwide basis. For
example, the projections show a steady decline of 0.3 percent per year
in total world use of liquids for electricity generation. Nonetheless,
the countries of the Middle East continue to rely on liquids for a sizable portion of their electricity supply, remaining near 25 percent in 2030.
In the transportation sector, liquids consumption is relatively unaffected
by projected world oil prices in the reference case. Although world oil
prices in the IEO2009 reference case are 80 percent higher in 2030 than
the projected prices in the IEO2008 reference case, the world’s consumption
of liquids for transportation in 2030 is only 9 percent lower in IEO2009.
In the absence of significant technological advances, liquids continue
to dominate the world’s transportation markets.
In the industrial sector, growth in liquids consumption is slower than
projected in last year’s outlook. Efficiency gains and fuel substitution
slow the growth of liquids consumption in the industrial sector, especially
in the non-OECD regions, where there are more opportunities for fuel switching.
World liquids consumption for energy in the industrial sector, which was
projected to increase by 1.1 percent per year from 2005 to 2030 in the IEO2008 reference case, increases by 0.7 per year over the same period
in IEO2009.
Natural gas remains an important fuel for electricity generation worldwide,
because it is more efficient and less carbon-intensive than other fossil
fuels. In the IEO2009 reference case, total natural gas consumption increases
by 1.6 percent per year on average, from 104 trillion cubic feet in 2006
to 153 trillion cubic feet in 2030, and its use in the electric power sector
increases by 2.1 percent per year. With world oil prices assumed to rebound
following the current economic downturn and then rise through 2030, consumers
are expected to choose less expensive natural gas to meet their energy
needs whenever possible, particularly in the industrial sector, where,
for example, newly constructed petrochemical plants are expected to rely
increasingly on natural gas as a feedstock.
World coal consumption increases by 1.7 percent per year on average from
2006 to 2030 (growing by 23 quadrillion Btu from 2006 to 2015 and another
40 quadrillion Btu from 2015 to 2030) and accounts for 28 percent of total
world energy consumption in 2030. In the absence of policies or legislation
that would limit the growth of coal use, the United States, China, and
India are expected to turn to coal in place of more expensive fuels. Together,
the three nations account for 88 percent of the projected net increase
in coal consumption from 2006 to 2030 (Figure 15). The only decreases in
coal consumption are projected for OECD Europe and for Japan, where populations
are either growing slowly or declining, electricity demand growth is slow,
and renewable energy sources, natural gas, and nuclear power are likely
to be chosen over coal for electricity generation.
Net electricity generation worldwide totals 31.8 trillion kilowatthours
in 2030 in the reference case, 77 percent higher than the 2006 total of
18.0 trillion kilowatthours. The strongest growth in electricity generation
is projected for the non-OECD countries. Non-OECD electricity generation
increases by 3.5 percent per year in the reference case, as rising standards
of living increase demand for home appliances and the expansion of commercial
services, including hospitals, office buildings, and shopping malls. In
the OECD nations, where infrastructures are well established and population
growth is relatively slow, much slower growth in generation is expected,
averaging 1.2 percent per year from 2006 to 2030.
Currently, natural gas and coal together account for the largest share
of total world electricity generation, at more than 60 percent of global
electricity supply. They remain the world’s most important sources of supply
in 2030, with a 64-percent share of total generation (Figure 16). In non-OECD
Asia, where coal resources are ample, higher prices for oil and natural
gas make coal a more economical source of energy for electricity generation.
Renewable energy sources are the fastest-growing energy source for world
electricity generation in the IEO2009 reference case, increasing by an
average of 2.9 percent per year from 2006 to 2030. Much of the growth is
in hydroelectric power and wind power. Of the 3.3 trillion kilowatthours
of new renewable generation added over the projection period, 1.8 trillion
kilowatthours (54 percent) is attributed to hydroelectric power and 1.1
trillion kilowatthours (33 percent) to wind power (Figure 17). Other than
hydroelectric power, most renewable technologies are not able to compete
economically with fossil fuels over the projection period, except in a
limited number of niche markets. Government policies and incentives typically
are the primary drivers for the construction of renewable generation facilities.
As renewable energy use increases worldwide, the mix of fuels in the OECD
and non-OECD regions differs in the reference case. In the OECD nations,
the majority of economically exploitable hydroelectric resources already
have been developed. With the exception of Canada and Turkey, there are
few large-scale hydroelectric power projects planned for the future. Instead,
most renewable energy growth in the OECD countries is expected to come
from nonhydroelectric sources, especially wind and biomass. Many OECD countries,
particularly those in Europe, have government policies, including feed-in
tariffs,6 tax incentives, and market-share quotas, that encourage the construction
of renewable electricity facilities.
In contrast to the OECD countries, hydroelectric power is expected to be
the predominant source of renewable energy growth in the non-OECD nations.
Strong growth of hydroelectric generation, primarily from mid- to large-scale
power plants, is expected in China, India, Brazil, Vietnam, and Laos. Growth
rates for wind-powered electricity generation also are expected to be high
in the non-OECD countries, with the largest increment in China, which accounts
for 88 percent of the total increase in non-OECD wind generation. From
2 billion kilowatthours in 2006, generation from wind plants in China increases
to 315 billion kilowatthours in 2030. Still, the total increase in China’s
wind-powered generation is only about one-half the expected increase in
the country’s hydroelectric generation (Figure 18).
Electricity generation from nuclear power worldwide increases from 2.7
trillion kilowatthours in 2006 to 3.0 trillion kilowatthours in 2015 and
3.8 trillion kilowatthours in 2030 in the IEO2009 reference case, as concerns
about rising fossil fuel prices, energy security, and greenhouse gas emissions
support the development of new nuclear generating capacity. Higher capacity
utilization rates have been reported for many existing nuclear facilities,
and it is expected that most of the older plants now operating in OECD
countries and in non-OECD Eurasia will be granted extensions to their operating
lives.
There is still considerable uncertainty about the future of nuclear power,
however, and a number of issues could slow the development of new nuclear
power plants. Plant safety, radioactive waste disposal, and the proliferation
of nuclear weapons, which continue to raise public concerns in many countries,
may hinder plans for new installations, and high capital and maintenance
costs may keep some countries from expanding their nuclear power programs.
Nevertheless, the IEO2009 projection for world nuclear electricity generation
in 2025 is 25 percent higher than the projection in IEO2004 just 5 years
ago.
Most of the expansion of installed nuclear power capacity is expected in
non-OECD countries (Figure 19). China, India, and Russia account for almost
two-thirds of the projected net increment in world nuclear power capacity
between 2006 and 2030. In the reference case, China adds 47 gigawatts of
nuclear capacity between 2006 and 2030, India 17 gigawatts, and Russia
21 gigawatts. Several OECD nations with existing nuclear programs also
add new net capacity in the reference case, including South Korea with
13 gigawatts, Japan with 8 gigawatts, and the United States with 12 gigawatts.7
In the United States, Title XVII of the Energy Policy Act of 2005 (EPACT2005,
Public Law 109-58) authorizes the U.S. Department of Energy to issue loan
guarantees for innovative technologies that “avoid, reduce, or sequester
greenhouse gases.” In addition, subsequent legislative provisions in the
Consolidated Appropriation Act of 2008 (Public Law 110-161) allocated $18.5
billion in guarantees for nuclear power plants [1]. That legislation, along
with high fossil fuel prices, results in expected increases of 12.7 gigawatts
of capacity at newly built nuclear power plants between 2006 and 2030 and
3.7 gigawatts from uprates at existing plants, offset in part by the retirement
of 4.4 gigawatts of capacity at older nuclear power plants.
Delivered Energy Consumption by End-Use Sector
Understanding patterns in the consumption of energy delivered to end users
is important to the development of projections for global energy use. Outside
the transportation sector, which at present is dominated by liquid fuels,
the mix of energy use in the residential, commercial, and industrial sectors
varies widely by region, depending on a combination of regional factors,
such as the availability of energy resources, levels of economic development,
and political, social, and demographic factors.
Residential Sector
Energy use in the residential sector, which accounted for about 15 percent
of world delivered energy consumption in 2006, is defined as the energy
consumed by households, excluding transportation uses. For residential
buildings, the physical size of the structures is one key indicator of
the amount of energy used by their occupants. Larger homes require more
energy to provide heating, air conditioning, and lighting, and they tend
to include more energy-using appliances, such as televisions and laundry
equipment. Smaller structures usually require less energy, because they
contain less space to be heated or cooled, produce less heat transfer with
the outdoor environment, and typically have fewer occupants. For instance,
residential energy consumption is lower in China, where the average residence
currently has an estimated 300 square feet of living space or less per
person, than in the United States, where the average residence has an estimated
680 square feet of living space per person [2].
The type and amount of energy used by households vary from country to country,
depending on income levels, natural resources, climate, and available energy
infrastructure. In general, typical households in OECD nations use more
energy than those in non-OECD nations, in part because higher income levels
allow OECD households to have larger homes and purchase more energy-using
equipment. In the United States, for example, GDP per capita in 2006 was
about $43,000 (in real 2005 dollars per person), and residential energy
use per capita was estimated at 36.0 million Btu. In contrast, China’s
per-capita income in 2006, at $4,550, was only about one-tenth the U.S. level, and residential energyuse per capita was 4.0 million Btu.
Although the IEO2009 projections account for marketed energy use only,
households in many non-OECD countries still rely heavily on traditional,
nonmarketed energy sources, including wood and waste, for heating and cooking.
Much of Africa remains unconnected to power grids, and the International
Energy Agency estimates that the majority of households in sub-Saharan
Africa still rely on fuelwood and charcoal for cooking. More than 95 percent
of rural households in Angola, Benin, Cameroon, Chad, Congo (Kinshasa),
Ethiopia, Ghana, Sudan, and Zambia among others still use fuelwood and
charcoal for cooking. [3]. Some areas of China and India also rely heavily
on fuelwood, wood waste, and charcoal for cooking. In China, about 55 percent
of the rural population uses biomass for cooking, as does 87 percent of
the rural population in India. Regional economic development should displace
some of that use as incomes rise and marketed fuels, such as propane and
electricity, become more widely accessible.
Commercial Sector
The commercial sector—often referred to as the services sector or the services
and institutional sector—consists of businesses, institutions, and organizations
that provide services. The sector encompasses many different types of buildings
and a wide range of activities and energy-related services. Examples of
commercial sector facilities include schools, stores, correctional institutions,
restaurants, hotels, hospitals, museums, office buildings, banks, and sports
arenas. Most commercial energy use occurs in buildings or structures, supplying
services such as space heating, water heating, lighting, cooking, and cooling.
Energy consumed for services not associated with buildings, such as for
traffic lights and city water and sewer services, is also categorized as
commercial energy use.
Economic trends and population growth drive commercial sector activity
and the resulting energy use. The need for services (health, education,
financial, and government) increases as populations increase. The degree
to which additional needs are met depends in large measure on economic
resources—whether from domestic or foreign sources—and economic growth.
Economic growth also determines the degree to which additional activities
are offered and utilized in the commercial sector. Higher levels of economic
activity and disposable income lead to increased demand for hotels and
restaurants to meet business and leisure requirements; for office and retail
space to house and service new and expanding businesses; and for cultural
and leisure space such as theaters, galleries, and arenas. In the commercial
sector, as in the residential sector, energy use per capita in the non-OECD
countries is much lower than in the OECD countries. Non-OECD commercial
energy consumption per capita averaged only 1.3 million Btu in 2006, compared
with the OECD average of 16.3 million Btu.
Slow population growth in most of the OECD nations contributes to slower
anticipated rates of increase in commercial energy demand. In addition,
continued efficiency improvements moderate the growth of energy demand
over time, as energy-using equipment is replaced with newer, more efficient
stock. Conversely, continued economic growth is expected to include growth
in business activity, with its associated energy use, in areas such as
retail and wholesale trade and business, financial services, and leisure
services. The United States is the largest consumer of commercial delivered
energy in the OECD and remains in that position throughout the projection,
accounting for about 44 percent of the OECD total in 2030.
In the non-OECD nations, economic activity and commerce are expected to
increase rapidly, fueling additional demand for energy in the service sectors.
Population growth also is expected to be more rapid than in the OECD countries,
portending increases in the need for education, health care, and social
services and the energy required to provide them. The energy needed to
fuel growth in commercial buildings will be substantial, with total delivered
commercial energy use among the non-OECD nations projected to grow by 2.7
percent per year from 2006 to 2030.
Industrial Sector
Energy is consumed in the industrial sector by a diverse group of industries—including
manufacturing, agriculture, mining, and construction—and for a wide range
of activities, such as processing and assembly, space conditioning, and
lighting. Industrial energy demand varies across regions and countries
of the world, based on the level and mix of economic activity and technological
development, among other factors. Industrial energy use also includes natural
gas and petroleum products used as feedstocks to produce non-energy products,
such as plastics. In aggregate, the industrial sector uses more energy
than any other end-use sector, consuming about one-half of the world’s
total delivered energy.
The OECD economies generally have more energy-efficient industrial operations
and a mix of industrial output that is more heavily weighted toward non-energy-intensive
sectors than in the non-OECD countries. As a result, the ratio of industrial
sector energy consumption to total GDP tends to be higher in the non-OECD
economies than in the OECD economies. On average, industrial sector energy
intensity in the non-OECD countries is double that in the OECD countries.
Transportation Sector
Energy use in the transportation sector includes the energy consumed in
moving people and goods by road, rail, air, water, and pipeline. The road
transport component includes light-duty vehicles, such as automobiles,
sport utility vehicles, minivans, small trucks, and motorbikes, as well
as heavy-duty vehicles, such as large trucks used for moving freight and
buses for passenger travel. Growth rates for economic activity and population
are the key factors for transportation sector energy demand. Economic growth
spurs increases in industrial output, which requires the movement of raw
materials to manufacturing sites, as well as the movement of manufactured
goods to end users.
For both the non-OECD and OECD economies, steadily increasing demand for
personal travel is a primary factor underlying projected increases in energy
demand for transportation. Increases in urbanization and in personal incomes
have contributed to increases in air travel and motorization (more vehicles
per capita) in the growing economies. Modal shifts in the transport of
goods are expected to result from continued economic growth in both OECD
and non-OECD economies. For freight transportation, trucking is expected
to lead the growth in demand for transportation fuels. In addition, as
trade among countries increases, the volume of freight transported by air
and marine vessels is expected to increase rapidly.
World Economic Outlook
Economic growth is among the most important factors to be considered in
projecting changes in world energy consumption. In the IEO2009 projections,
assumptions about regional economic growth—measured in terms of real GDP
in 2005 U.S. dollars at purchasing power parity rates—underlie the projections
of regional energy demand. Although it is difficult to assess the full
extent of the current global economic downturn, many analysts have stated
that the world is in the midst of the worst recession since World War II
[4]. Nevertheless, the IEO2009 projections assume that the global downturn
will not be protracted and that in the mid- to long term potential trend
growth will return.
Over the 2006 to 2030 period, the world’s real GDP growth on a purchasing
power parity basis is projected to average 3.5 percent annually in the
reference case (Table 2). In the long term, it is the ability to produce
goods and services (the supply side) that determines the growth potential
of any country’s economy. Growth potential is influenced by population
growth, labor force participation rates, capital accumulation, and productivity
improvements. In addition, for the developing economies, progress in building
human and physical capital infrastructures, establishing credible regulatory
mechanisms to govern markets, and ensuring political stability play relatively
more important roles in determining their medium- to long-term growth potential.
Annual growth in world GDP over the 24-year projection period is about
the same as the rate recorded over the past 25 years. Growth in the more
mature industrialized economies of the OECD is expected to be slower in
the future; but growth in the emerging non-OECD economies is projected
to be higher in the future than in the past. For the OECD, combined GDP
increased by an annual average of 2.9 percent from 1982 to 2006 but is
projected to average 2.2 percent per year from 2006 to 2030. In contrast,
non-OECD GDP increased by an annual average of 4.1 percent over the past
25 years but is projected to average 4.9 percent per year from 2006 to
2030, based in large on the projected strong growth in China and India.
With the non-OECD economies accounting for an increasing share of world
GDP, their more rapid economic growth rates offset the slower growth rates
for the OECD economies in the reference case.
Although many non-OECD economies—particularly those strongly dependent
on exports for revenues— have been slowed by the economic downturn that
began in the OECD economies, a number of significant reforms that have
been implemented over the past years in key non-OECD nations have improved
and are likely to continue improving their prospects for recovery and strong
long-term growth. Improved macroeconomic policies, trade liberalization,
more flexible exchange rate regimes, and lower fiscal deficits have lowered
their national inflation rates, reduced uncertainty, and improved their
overall investment climates. More microeconomic structural reforms, such
as privatization and regulatory reform, have also played key roles. In
general, such reforms have resulted in growth rates over much of the past
decade that are above historical rates in many of the developing economies.
Those trends are expected to resume when the OECD countries recover from
the current recession and to continue into the next decades.
OECD Economies
In the IEO2009 reference case, U.S. economic growth slows considerably
in the near term as a result of the recent downturn in financial markets,
with negative real GDP growth in 2009 in spite of the expectation that
the economy will begin to recover in the fourth quarter of 2009. The recession
is expected to be more severe than the two most recent U.S. recessions,
which began in 1991 and 2001. The rate of growth in real GDP depends mainly
on assumptions about labor force growth and productivity. In the reference
case, growth in real GDP averages 2.4 percent per year from 2006 to 2030.8
Like much of the rest of the world, Canada saw its economic growth slow
precipitously in 2008, to an estimated 0.5 percent for the year, after
several years in which its economy expanded by nearly 3.0 percent per year.
The country’s economy was strongly affected both by the global economic
downturn and by the rapid retreat of world energy prices, which sharply
curtailed output and revenues from its energy sector [5]. Canada’s relatively
conservative banking system has limited its exposure to the “toxic assets”
revealed by the financial crisis in 2007-2008, but in the short run it
is unlikely to avoid the negative economic impact of global recession [6].
The strong economic ties between Canada and the United States, in addition
to depressed world energy prices starting in the second half of 2008, lead
to slower growth in the near term for Canada’s economy. After 2010, when
the world economies are expected to be in recovery and oil prices are expected
to begin rising (favoring an expansion of production from the country’s
oil sands), Canada’s GDP growth averages about 2.2 percent per year through
2030 in the reference case.
Similarly, Mexico’s close relationship to the U.S. economy means that it
too is likely to see a negative impact from the current downturn. About
80 percent of Mexico’s exports are sent to the United States, and in combination
with depressed world oil prices and the global credit crunch, its dependence
on the U.S. economy has slowed the growth of the Mexican economy. A return
to high world oil prices and recovery of the U.S. economy after 2010 are
expected to support a return to Mexico’s trend growth, with GDP increasing
by an average of 3.4 percent per year from 2006 to 2030.
For the economies of OECD Europe, prospects in the short term are dimmed
by the current turbulence in international financial markets and global
economic recession. Their combined GDP growth is estimated to have slowed
sharply, from 3.4 percent in 2006 and 3.1 percent in 2007 to 1.4 percent
in 2008 and an anticipated contraction of 0.2 percent in 2009. Over the
long term, OECD Europe’s GDP growth is projected to average 2.0 percent
per year from 2006 to 2030, in line with what the OECD considers to be
potential output growth [7]. According to the International Monetary Fund,
OECD Europe’s long-term growth prospects depend on its ability to accelerate
improvements in labor productivity that have been lagging potential (in
part because of the region’s aging population), as well as improvements
in the structural flexibility of the various national economies [8].
After maintaining relatively robust economic growth of about 2.0 percent
per year between 2003 and 2007, Japan’s GDP growth rate slowed to 0.4 percent
in 2008. In the fourth quarter of 2008, exports declined by 14 percent
and industrial output fell by an annual rate of 20 percent [9]. Although
GDP growth should return as the rest of the world’s economic situation
improves after 2010, the continuing decline in Japan’s aging labor force
is expected to slow its economic growth to average annual rates of 1.3
percent from 2008 to 2015 and 0.5 percent from 2015 to 2030.
More robust economic growth is projected for the rest of OECD Asia. In
South Korea, GDP growth is projected to average 3.3 percent per year from
2006 to 2030. The global downturn has led to sharp declines in exports
and domestic demand [10], and although the Bank of Korea has tried to ease
the pressure on its financial markets—both by lowering interest rates six
times between October 2008 and February 2009, to 2.0 percent, and by raising
the cap on its low-rate commercial loans to $6.73 billion (10 trillion
Korean won) from $6.00 billion (9 trillion won) [11]—the country is widely
believed to be in its first recession since the banking crisis of 1998
[12]. As world demand begins to improve after 2010, South Korea’s GDP growth
is expected to return to trend. In the long term, however, its growth is
expected to taper off as the growth of its labor force slows.
GDP growth in Australia/New Zealand averages 3.0 percent per year from
2006 to 2030 in the reference case. Although economic growth in both Australia
and New Zealand has slowed markedly with the collapse of commodity prices,
the Reserve Bank of Australia and the Reserve Bank of New Zealand have
eased monetary policies, helping to cushion the impact of the global downturn
[13]. Prospects in both countries are relatively healthy, given their consistent
track records of fiscal prudence and structural reforms aimed at maintaining
competitive product markets and flexible labor markets.
Non-OECD Economies
From 2006 to 2030, economic growth in non-OECD Europe and Eurasia as a
whole average 3.6 percent per year. For the past several years, the non-OECD
nations of Europe and Eurasia have largely been sheltered from global economic
uncertainties, recording strong economic growth in every year since 2000,
primarily as a result of robust domestic demand, the growth bonus associated
with ascension of some countries (including Estonia, Latvia, Lithuania,
and Slovenia) to the European Union, and the impacts of rising oil prices
on oil-exporting nations (including Russia, Kazakhstan, Azerbaijan, and
Turkmenistan).
In the wake of the recent problems in the global financial system, it became
more difficult for banks and other entities in non-OECD Europe and Eurasia
to gain access to foreign loans, particularly in Russia, Kazakhstan, and
Ukraine. The impact was softened somewhat by higher world market prices
for commodity exports [14], but with the subsequent collapse of commodity
prices and worsening global economic situation, the region’s economic growth
is projected to decline in the near term. In the mid- to long term, a return
to high world oil prices stimulates investment outlays, especially in the
energy sector of the Caspian region. Given the volatility of energy market
prices, however, it is unlikely that the economies of non-OECD Europe and
Eurasia will be able to sustain the growth rates recently achieved until
they achieve more broad-based diversification from energy production and
exports. The long-term growth prospects for the former Soviet Republic
economies of Eurasia hinge on their success in economic diversification,
as well as further improvements in domestic financial and product markets.
Much of the growth in world economic activity between 2006 and 2030 is
expected to occur among the nations of non-OECD Asia, where regional GDP
growth is projected to average 5.7 percent per year. China, non-OECD Asia’s
largest economy, is expected to continue playing a major role in both the
supply and demand sides of the global economy. IEO2009 projects an average
annual growth rate of approximately 6.4 percent for China’s economy from
2006 to 2030—the highest among all the world’s economies.
Although some analysts expected that China’s economy might be decoupled
from those of the United States and OECD Europe and thus might avoid any
significant impact from the economic downturn in those countries, it seems
clear that this has not been the case [15]. Exports account for 35 percent
of China’s GDP, with the United States, Europe, and Asia taking 70 percent
of its total exports. As a result, while there is some evidence that domestic
consumer demand has remained relatively strong even as the world recession
continues, manufacturing and export growth have declined sharply, leading
to a reduction in near-term economic growth.
Structural issues that have implications for economic growth in China in
the medium- to long term include the pace of reform affecting inefficient
state-owned companies and a banking system that is carrying a significant
amount of nonperforming loans. In the IEO2009 reference case, development
of domestic capital markets is expected to continue, providing macroeconomic
stability and ensuring that China’s large domestic savings are used more
efficiently.
Although India’s economy is not as dependent on export revenues as China’s
is, its growth still has slowed as the result of downturns in output from
its industrial and agricultural sectors. Nearly two-thirds of Indian households
depend on agriculture for their income [16]. India’s GDP growth is expected
to slow in the near term, but prospects for its economy are positive in
the mid-term, as it continues to privatize state enterprises and increasingly
adopts free market policies. In the IEO2009 reference case, GDP growth
in India averages 5.6 percent per year from 2006 to 2030.
Accelerating structural reforms—including ending regulatory impediments
to the consolidation of labor-intensive industries, labor market and bankruptcy
reforms, and agricultural and trade liberalization— remain essential for
stimulating potential growth and reducing poverty in India over the medium
to long term. With its vast and relatively inexpensive English-speaking
labor force, India is well positioned to reap the benefits of globalization.
Outside China and India, the impacts of the global recession on the countries
of non-OECD Asia are likely to vary. The economies of export-dependent
countries (including Hong Kong, Singapore, and Taiwan) are expected to
weaken in the near term, as demand in the United States, Europe, and Asia
declines [17]. For nations where domestic demand remains healthy (including
Vietnam and the Philippines), the impact of the global recession may be
less severe [18]. Overall, long-term economic activity in the nations of
non-OECD Asia is expected to remain robust. From 2006 to 2030, national
economic growth rates for the region—excluding China and India—average
4.8 percent per year, as labor force growth rates decline and economies
mature.
Rising oil production and prices have helped boost economic growth in the
oil-exporting countries of the Middle East, many of which have also benefited
from spillover effects on trade, tourism, and financial flows from the
region’s oil exporters. In recent years, real GDP growth rates in the Middle
East have averaged around 6 percent. Although the sharp decline in world
oil prices will slow economic growth in the near term, as prices recover
in the mid-term, prospects for the region remain favorable. The region’s
reliance on oil revenues is expected to continue for much of the projection
period.
Substantially lower commodity prices and weak import demand in the United
States, OECD Europe, and Asia are expected to dampen near-term growth potential
in much of Africa. Africa’s national economies were able to maintain a
healthy pace of aggregate economic growth, in excess of 5 percent per year,
from 2000 to 2007 largely because of increased earnings from fossil fuel
exports, strong global demand and favorable international prices for some
other export commodities, vigorous domestic demand, and significant foreign
direct investment and foreign aid [19]. If the global recession results
in a slowdown of foreign direct investment in the region, long-term economic
growth may be affected.
In the IEO2009 reference case, Africa’s combined economy grows at an average
annual rate of 4.0 percent from 2006 to 2030—somewhat lower than IEO2008 projection of 4.5 percent. The IEO2009 projection still is optimistic by
historical standards. It is supported by the region’s strong economic activity
over the past 5 years, resulting from expansion of primary exports and
robust domestic demand in many of Africa’s national economies. Nevertheless,
both economic and political factors—such as low savings and investment
rates, lack of strong economic and political institutions, limited quantity
and quality of infrastructure and human capital, negative perceptions on
the part of international investors, protracted civil unrest and political
disturbances, and especially the impact of disease (notably HIV/AIDS)—
present formidable obstacles to growth in a number of African countries.
The nations of Central and South America registered a combined 6-percent
increase in GDP in 2004, which was their best performance in 20 years;
however, their growth prospects have been hampered by a weak international
credit environment and by domestic economic and/or political problems in
a number of countries. The proximity of the region to the United States
and the trade relationships of its national economies with the slowing
U.S. economy will lead to slower economic growth in the short term, but
the long-term prospects for Central and South America remain positive.
Most countries in the region have flexible exchange-rates regimes, positive
trade balances, and relatively low fiscal deficits and public debts. Regional
inflation is lower than it was in the mid-1990s, and its relatively young
labor force supports the region’s economic growth prospects over the next
30 years. Economic growth in Central and South American averages 3.7 percent
per year from 2006 to 2030 in the reference case, as the region benefits
from the expected recovery in world economic growth after 2010 and foreign
capital flows are revived.
Major Sources of Uncertainty in the Projections
Alternative Economic Growth Cases
Expectations for the future rates of economic growth are a major source
of uncertainty in the IEO2009 projections. To illustrate the uncertainties
associated with economic growth trends, IEO2009 includes a high economic
growth case and a low economic growth case in addition to the reference
case. The two alternative growth cases use different assumptions about
future economic growth paths, while maintaining the same relationships
between changes in GDP and changes in energy consumption that are used
in the reference case.
In the high economic growth case, 0.5 percentage point is added to the
growth rate assumed for each country or country grouping in the reference
case. In the low economic growth case, 0.5 percentage point is subtracted
from the reference case growth rate. The IEO2009 reference case shows total
world energy consumption reaching 678 quadrillion Btu in 2030—278 quadrillion
Btu in the OECD countries and 400 quadrillion Btu in the non-OECD countries.
In the high growth case, world energy use in 2030 totals 733 quadrillion
Btu—55 quadrillion Btu (about 27 million barrels oil equivalent per day)
higher than in the reference case. In the low growth case, total world
energy use in 2030 is 51 quadrillion Btu (25 million barrels oil equivalent
per day) lower than in the reference case. Thus, the projections for 2030
in the high and low economic growth cases define a range of uncertainty
equal to 106 quadrillion Btu (Figure 20).
Alternative World Oil Price Cases
Assumptions about world oil prices are another important factor that underscores
the considerable uncertainty in long-term energy market projections. The
effects of different assumptions about future oil prices are illustrated
in IEO2009 by two alternative oil price cases. In the high price case,
world oil prices (in real 2007 dollars) climb from $68 per barrel in 2006
to $200 per barrel in 2030; in the low price case, they decline to $50
per barrel in 2015 and remain at about that level through 2030. In comparison,
world oil prices rise to $130 per barrel in 2030 in the reference case (Figure 21).
Although the difference in world oil prices between the high and low oil
price cases is considerable, at $150 per barrel in 2030, the projections
for total world energy consumption in 2030 do not vary substantially among
the cases. There is, however, a larger impact on the mix of energy fuels
consumed. The projections for total world energy use in 2030 in the high
and low oil price cases are separated by 48 quadrillion Btu (Figure 22),
as compared with the difference of 106 quadrillion Btu between the low
and high economic growth cases.
The potential effects of higher and lower oil prices on world GDP can also
be seen in the low and high price cases. In the long run, on a worldwide
basis, the projections for economic growth are not affected substantially
by the price assumptions. There are, however, some relatively large regional
impacts. The most significant variations are GDP decreases of around 2.0
percent in the high price case relative to the reference case in 2015 for
some regions outside the Middle East and, in the oil-exporting Middle East
region, a 5.5-percent increase in GDP in 2015. The regional differences
persist into the long term, with GDP in the Middle East about 6.2 percent
higher in 2030 in the high oil price case than in the reference case and
GDP in some oil-importing regions (such as OECD Europe and Japan) between
2.0 percent and 3.0 percent lower in the high price case than in the reference
case.
The most substantial impacts of the high and low oil price assumptions
are on the mix of energy fuels consumed in each region—particularly, fossil
fuels (Figure 23). In the high price case, total world liquids consumption
in 2030 is about 34 quadrillion Btu lower than projected in the reference
case, natural gas consumption in 2030 is 9 quadrillion Btu higher, and
coal consumption is 2 quadrillion Btu higher than in the reference case.
The differences for nuclear power and renewable energy consumption between
the two cases is very small, especially in the near to mid-term, primarily
because both energy sources are strongly influenced by government policies
and incentives, and prices do not have a large impact on their development.
In the low oil price case, consumers increase their use of liquids for
transportation, and there is less incentive for movement away from liquids
to other energy sources in sectors where fuel substitution is fairly easy
to achieve (as opposed to the transportation sector, where there are few
alternatives to liquid fuels). Total liquids consumption in 2030 is 28
quadrillion Btu higher in the low price case than projected in the reference
case, reflecting increased demand in all the end-use sectors. The transportation
sector shows the largest increase in liquids consumption (12 quadrillion
Btu) in 2030 in the low price case relative to the reference case (Figure
24), followed by the industrial sector (8 quadrillion Btu) and the electric
power sector (5 quadrillion Btu).
In the IEO2009 reference case, world oil prices begin to rise after 2010
and reach $130 per barrel in 2030. As a result, liquids consumption is
curtailed in countries that have other fuel options available—especially
in the electric power sector, where coal and other fuels can be substituted.
Worldwide use of liquids for electricity generation falls by 0.8 quadrillion
Btu from 2006 to 2030 in the reference case. In the low price case, consumption
of liquids for electricity generation increases by 3.9 quadrillion Btu,
as the non-OECD countries retain their oil-fired generating capacity in
the lower price environment.
Notes and Sources
References
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