Conflicting assumptions in latest energy report complicate global climate policy

World leaders gathered in Belém, Brazil, this week for the annual United Nations climate summit to confront a sobering reality: Global emissions from fossil fuels are set to reach a new high in 2025, and the goal of limiting temperature rise to 1.5 degrees Celsius above preindustrial levels is now out of reach. Against this backdrop, the International Energy Agency (IEA) released its flagship World Energy Outlook, making headlines for including a scenario in which oil demand continues to rise through 2050.

The report presents multiple, diverging scenarios, with significant ambiguity around the assumptions underpinning each one. Advocates across the spectrum are interpreting the report as either a welcome reality check on overconfidence in the clean energy transition or as validation that the transition is inevitable, according to an article by Foreign Policy, which has studied the contents of the latest report.

The article notes that the truth likely lies somewhere in the middle. It emphasises that endlessly rising oil and gas demand should not be treated as the baseline expectation — but neither should a rapid transition be considered guaranteed.

According to the article, coverage of the new World Energy Outlook has been understandably muddled because the IEA’s two main scenarios — one based on countries’ current policies and another incorporating their “stated,” or proposed, policies — can be difficult to disentangle.

Under current policies, oil demand increases from 100 million barrels per day to 113 million by 2050; under stated policies, demand peaks near 102 million by 2030 before gradually declining. A third scenario outlines what would be required to reach net-zero emissions by 2050 — a target for which the world remains far off track.

The current policies scenario (CPS) offers a static view of policy and technology, assuming no change to existing laws and slower adoption of new technologies — not only relative to the stated policies scenario (STEPS) but even compared with recent experience. STEPS assumes a more dynamic environment in which governments implement announced intentions, though not necessarily every ambition or target.

The differences can be subtle. In the IEA’s 2025 current policies scenario, for instance, improvements in fuel economy in Japan stop once a 2030 regulatory target is met, whereas STEPS assumes Japan will gradually strengthen the policy beyond 2030.

Judgment calls are unavoidable. The IEA assumes, for example, that the European Union will implement its 100 million euro ($117 million) industrial decarbonization program but will fall short of its unrealistic goal of producing 10 million metric tons of green hydrogen by 2030. It places considerably more confidence in China’s ability to execute its national energy plan — a judgment supported by recent history.

The IEA cautions that labelling current policy as “business as usual” is “misleading.” Past CPS projections have repeatedly underestimated the dynamism of both policy and technology. For example, the IEA’s 2019 CPS significantly underestimated the pace of renewable energy growth — and coal growth as well.

Which scenario appears more plausible hinges on which assumptions one finds convincing. Believing the IEA’s projection of rising oil demand through 2050 would require assuming that electric vehicle deployment barely expands outside China and the EU, that alternative technologies stagnate despite falling costs and rising investment, or that the world remains complacent in the face of worsening climate impacts.

The new CPS aligns with a familiar refrain, echoing a recent comment from US Interior Secretary Doug Burgum: “There is no energy transition; there is only energy addition.”

As the article evaluates, this observation has been largely true to date. The global energy system is so massive that clean energy growth has mostly met new demand from population and economic expansion, rather than replacing hydrocarbons.

Yet, as the Foreign Policy piece recalls from BP’s Energy Outlook 2025, the real distinction is not between addition and transition — but between addition and substitution as two distinct phases of transition. Energy addition comes first; substitution follows. About 40 percent of global energy demand already comes from regions that have entered the substitution phase, a share BP expects to reach 60 percent by 2050.

Energy demand will continue to rise, but that does not mean all energy sources will grow indefinitely. The pace at which addition gives way to substitution will depend on how rapidly clean energy costs fall — a process shaped not only by policy but also by technological advances, increasingly influenced by the artificial intelligence boom, as Foreign Policy recently noted.

The biggest driver of falling clean energy costs, however, has been China — a fact that underscores the IEA’s warnings about geopolitical risk. China’s massive build-out of industrial capacity in renewables, batteries, electric vehicles, and related technologies has reshaped global markets. The country can now produce more than twice as many solar modules as the world installs each year, pushing module prices below 10 cents per watt — down from nearly 80 cents in 2014.

The rapid pace at which cheaper clean technologies can reshape energy policy is evident in Pakistan, where sharply falling prices for Chinese solar panels have led households and businesses to install large amounts of rooftop photovoltaic systems. This shift has reduced demand for debt-financed coal power from the national grid — power the government had previously planned and budgeted for.

By Nazrin Sadigova