THE IEA IS GETTING ON TRACK
For years, the International Energy Agency’s World Energy Outlook (WEO) guided the world towards climate chaos.
But WEO 2021 marked a step change the IEA – and set a challenge to governments and investors:
Will they stop approving and funding new oil and gas expansion?
Governments, businesses, industry groups and investors rely on analysis by the International Energy Agency (IEA) to guide their energy decisions. Yet the IEA’s energy scenarios (aka descriptions of the future energy demand based on a set of assumptions) currently guide decision-makers towards failure in meeting the Paris climate agreement goals.
Until this year, there were two major problems with the World Energy Outlook (WEO):
First, most of the IEA’s flagship report was devoted to a business as usual scenario, the Stated Policies Scenario (STEPS), which would lead to between 2.7 and 3.3°C of warming.
Second, the WEO contains a climate scenario called the “Sustainable Development Scenario” (SDS), but it is not aligned with the Paris goal of striving to limit warming to 1.5°C.
The IEA’s SDS would exhaust the global 1.5°C carbon budget by the early 2030s. It assumes trillions of future fossil fuel investments will take place and pushes the world past 1.5°C, which would bring unacceptable harm to lives and livelihoods across the world. The IEA claimed that the SDS would deliver the Paris goals – but that’s only true if you assume major reliance on negative emissions from unproven technologies in the second half of this century.
Now, it 2021, the IEA has finally included a prominent, possibly 1.5ºC-aligned scenario, the Net Zero Emissions (NZE) scenario. This is a step change from the IEA, though it still contains risky modelling choices around fossil gas, carbon capture and storage, bioenergy, and nuclear energy. Importantly, the IEA has finally said what civil society has known for years: new oil, gas, and coal expansion and finance (beyond fields already under development) would blow our carbon budget for 1.5ºC.
A Self-Fulfilling Prophecy?
Published every November, the IEA’s flagship World Energy Outlook serves as a map of the future energy landscape. It guides decisions on energy investments and policies all over the world. But its highlighted route leads to climate disaster.
Until 2021, the Stated Policy Scenario (STEPS) – a business as usual route – was given primary focus in the WEO. So, it is routinely used by the media, investors, corporations, and governments as a prediction of future demand for fossil fuels.
As such, the STEPS shapes decisions about investments and policies, including on some of the world’s most polluting energy developments. The WEO has been used to:
- Justify a massive expansion of thermal coal mining in Australia;
- Make the case for opening U.S. Arctic waters to oil drilling;
- Support greater investment in Canada’s tar sands, including approval of the Trans Mountain pipeline.
More indirectly, the IEA’s central focus on the STEPS fed a general expectation that fossil fuel demand will keep rising – something that can’t happen if we’re going to avoid the worst impacts of climate change.
The IEA states publicly that the STEPS is only a model’s projection, rather than a prediction. But the IEA must take responsibility for how its products are used in practice – in this case, being used to justify significant expansion of fossil fuel supply and endanger the climate.
Now the IEA has published a 1.5ºC-aligned scenario, NZE, and given it real focus and attention in WEO 2021. This is a step change. Governments and investors must now stop relying on STEPS and SDS, and instead align with their finance and policies with what’s need for 1.5ºC. That means they need to at a minimum immediately stop approving and financing new fields and mines beyond those already under development now.
Energy Information for Whom?
The IEA is an advisory body to its 30 member countries, all of whom signed the Paris Agreement, committing to pursue efforts to limit warming to 1.5 degrees Celsius and to keep it well below 2°C. As such, the IEA ought to be advising its member countries on how to achieve these goals. Why has it taken so long to do so?
Part of the answer is in the IEA’s history. OECD member nations established it after the 1972 oil shock, with an explicit stated purpose of securing their supply of oil.
The influence of fossil fuel companies also plays a role. While formally an intergovernmental organization, in practice the IEA has often appeared to be a servant to two masters at the same time: its member countries, and multinational fossil fuel companies.
The IEA’s formal governance structure answers to its member countries, but most formal meetings also include an entity called the Energy Business Council (EBC) made up of companies with fossil fuel interests. The EBC’s stated purpose is to provide the IEA with a “reality check of its analysis” and to ensure its relevance to the industry. Energy companies are also regularly consulted by the IEA and participate in its working groups and in advisory bodies.
The IEA also encourages energy companies to provide staff on secondment, and at any time several IEA staff thus receive their salaries from energy companies, especially oil companies. Given the self-serving interests of these fossil fuel companies, their close role in influencing the WEO undermined the IEA flagship publication’s reputation as a dispassionate source of energy analysis.
What governments need to do to align their decisions with the IEA's 1.5ºC scenario.
1. Stop approving new oil, gas, and coal fields and mines beyond those already under development now.
2. Stop all finance and funding for new oil, gas, and coal fields and mines where a final investment decision (FID) has not already been made.
For years, the defenders of the business-as-usual approach fell back on a similar set of arguments – all of which are debunked below.
Yes, now it does – but it still depends on risky modelling choices. Until 2021, it didn’t have a fully Paris-aligned scenario.
In light of the recent IPCC special report on 1.5°C and the Paris Agreement, IEA scenarios must include a reasonable chance at meeting this goal. As climate science has improved, the significant risks associated with exceeding 1.5°C are becoming increasingly clear. Influential institutions like the IEA must keep up to the changing science.
The IEA has said that the SDS sets a course for net zero by 2070. However, the IPCC 1.5°C report gives us a clear deadline of 2050 for achieving net-zero. Falling 20 years short on ambition is unacceptable. In contrast, the NZE scenario reaches net zero across the energy sector by 2050.
The IEA claims the SDS would lead to 1.7 to 1.8°C of warming, by comparing it with scenarios requiring new technologies to suck 10-20 Gt/yr of carbon dioxide out of the air. Models’ reliance on untested negative emissions technologies is increasingly controversial in the scientific community (see our Resources section); this level of deployment could require equivalent to 25-86% of the world’s arable and crop-growing land. The IEA itself considers this level unfeasible – yet still relies on high levels of negative emissions technologies in the NZE scenario as well.
Trillions of dollars of energy investment and countless political decisions are made based on the WEO scenarios. Shifting them will have a huge impact on global energy decision making and financial flows.
Investors use the IEA’s WEO to guide their scenario analysis under recommendations from the Financial Stability Board.
Energy investors look at long-term demand and supply projections to inform capital expenditures such as exploration, infrastructure, and manufacturing – which are critical to meeting the Paris goals.
Policymakers use WEO scenarios to inform domestic energy policy, public financing and infrastructure decisions.
Given the prominence of the WEO in decision making, unambitious scenarios risked becoming a self-fulfilling prophecy. Now, investors and policy makers should align their decisions with NZE not STEPS.
In an ideal world this might be true, but the IEA needs to recognize how its scenarios are used in practice: as a roadmap for decision-making. Governments and investors see the central WEO scenario as the most likely, and base decisions on it. This is partly because of how the IEA communicates it. By implying that fossil fuel use is going to keep increasing it becomes a self-fulfilling prophecy. Decision makers use the WEO to justify further oil & gas expansion despite the scientific reality.
If the WEO has a central scenario, it should be guiding governments towards achieving their climate & energy goals.
Importantly, WEO 2021 no longer prioritizes STEPS as the central scenario. Instead, it describes it as exploring the impacts of current policies, but focuses on NZE as a normative scenario for what’s needed for 1.5ºC.
Overshooting 1.5°C could trigger a multi-meter sea level rise over hundreds of years due to instability in the Arctic and Antarctic; as well, the coral reefs and other marine and coastal ecosystems might face extinction. Getting back to lower levels of warming after an overshoot may also be politically, economically, and technically prohibitive. As a result we may never get back to safer levels.
Many climate scenarios, including those used by the IPCC, rely on significant use of bioenergy with carbon capture and storage (BECCS), among other negative emissions technologies. The IPCC acknowledges there could be significant negative side-effects and major governance challenges associated with deploying these technologies at a sufficient global scale. However, to date, the information from the IEA on NETs has not been transparent. The IEA appears to base its claims of “full Paris alignment” on the assumption that new technologies will grow rapidly over the coming decade, and ultimately pull hundreds of billions of tonnes of carbon dioxide out of the atmosphere in the second half of the century.
By taking a transparent and precautionary approach to the use of NETs, the IEA can help WEO users to better manage the risks associated with climate change and the transition away from fossil fuels.