Chapter 1 - World Energy Demand and Economic Outlook
In the IEO2008 projections, total world consumption of marketed energy
is projected
to increase by 50 percent from 2005 to 2030. The largest projected
increase
in energy demand is for the non-OECD economies. |
World energy consumption is projected to expand by 50 percent from 2005
to 2030 in the IEO2008 reference case projection (Figure 9 and Table 1).
Although high prices for oil and natural gas, which are expected to continue
throughout the period, are likely to slow the growth of energy demand in
the long term, world energy consumption is projected to continue increasing
strongly as a result of robust economic growth and expanding populations
in the worlds developing countries. OECD member countries are, for the
most part, more advanced energy consumers.2 Energy demand in the OECD economies
is expected to grow slowly over the projection period, at an average annual
rate of 0.7 percent, whereas energy consumption in the emerging economies
of non-OECD countries is expected to expand by an average of 2.5 percent
per year (Figure 10).
China and Indiathe fastest growing non-OECD economieswill be key contributors
to world energy consumption in the future. Over the past decades, their
energy consumption as a share of total world energy use has increased significantly.
In 1980, China and India together accounted for less than 8 percent of
the worlds total energy consumption; in 2005 their share had grown to
18 percent. Even stronger growth is projected over the next 25 years, with
their combined energy use more than doubling and their share increasing
to one-quarter of world energy consumption in 2030 in the IEO2008 reference
case. In contrast, the U.S. share of total world energy consumption is
projected to contract from 22 percent in 2005 to about 17 percent in 2030.
Energy consumption in other non-OECD regions also is expected to grow strongly
from 2005 to 2030, with increases of around 60 percent projected for the
Middle East, Africa, and Central and South America (Figure 11). A smaller
increase, about 36 percent, is expected for non-OECD Europe and Eurasia
(including Russia and the other former Soviet Republics), as substantial
gains in energy efficiency result from the replacement of inefficient Soviet-era
capital stock and population growth rates decline.
This chapter presents an overview of the IEO2008 outlook for global marketed
energy consumption by energy source and by end-use sector. It includes
discussions of the major assumptions that form the basis for the IEO2008 projections, including macroeconomic assumptions for the key OECD and non-OECD
economies.
As with any set of projections, there is significant uncertainty associated
with the IEO2008 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 macroeconomic growth cases and high and
low energy price cases. The sensitivity cases are intended to illustrate
alternative scenarios rather than to identify any bounds on uncertainty,
which can be affected by policy and technology developments as well as
by price and growth paths. Also included is a discussion of the possible
effects of future trends in energy intensity (the relationship between
energy use and economic growth) on the reference case projections.
Outlook for World Energy Consumption by Source
The use of all energy sources increases over the time frame of the IEO2008 reference case (Figure 12). Given expectations that world oil prices will
remain relatively high throughout the projection, liquid fuels3 are the worlds slowest growing
source of energy; liquids consumption increases at an average annual rate
of 1.2 percent from 2005 to 2030. Renewable energy and coal are the fastest
growing energy sources, with consumption increasing by 2.1 percent and
2.0 percent, respectively. Projected high prices for oil and natural gas,
as well as rising concern about the environmental impacts of fossil fuel
use, improve prospects for renewable energy sources. Coals costs are comparatively
low relative to the costs of liquids and natural gas, and abundant resources
in large energy-consuming countries (including China, India, and the United
States) make coal an economical fuel choice.
Although liquid fuels and other petroleum are expected to remain important
sources of energy throughout the projections, the liquids share of marketed
world energy consumption declines from 37 percent in 2005 to 33 percent
in 2030 in the reference case as high world oil prices lead many consumers
to switch from liquid fuels and other petroleum when feasible. For example,
the projections show a steady decline in the use of liquids for electricity
generation in all regions of the world except the Middle East. Whereas
the IEO2007 reference case projected a 0.4-percent average annual increase
in liquids use for electricity generation worldwide from 2005 to 2030, IEO2008 projects an average decrease of 1.0 percent per year.
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 increases by 1.1 percent per year in the IEO2008 reference case.
The IEO2008 high price case reflects a price path that is closer, in real
terms, to prices prevailing during the first 8 months of 2008. In this
case, world liquids consumption increases by an average of only 0.7 percent
per year from 2005 to 2030, as compared with 1.2-percent average annual
growth in the reference case. In the high price case, the liquids share
of total energy consumption falls to 30 percent in 2030.
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 IEO2008 reference case, total natural gas consumption increases
by 1.7 percent per year on average, from 104 trillion cubic feet to 158
trillion cubic feet, while its share of world electricity generation increases
from 20 percent in 2005 to 25 percent in 2030. Growth in world demand for
natural gas is slower in IEO2008 than was projected in IEO2007, however,
primarily because of the smaller increases in natural-gas-fired generating
capacity expected for some countries. For example, natural-gas-fired generation
in the United States in 2030 is 14 percent lower in IEO2008 than was projected
in last years outlook. Higher natural gas prices, along with U.S. tax
incentives for clean coal technologies, are expected to discourage the
construction of new natural-gas-fired plants in favor of coal-fired plants.
Coals share of world energy use has increased sharply over the past few
years, and without significant changes in existing laws and polices, particularly
those related to greenhouse gas emissions, robust growth is likely to continue.
Coal accounted for 24 percent of total world energy use in 2002 and 27
percent in 2005, largely as a result of rapid increases in coal use in
China. After growing at an average rate of 3 percent per year from 1990
to 2001, Chinas coal consumption increased by 17 percent per year on average
from 2002 to 2005. As a result, coal use in China has nearly doubled since
2000, and given the countrys rapidly expanding economy and large domestic
coal deposits, its demand for coal is projected to continue growing strongly.
Worldwide, coal consumption is projected to increase by 2.0 percent per
year from 2005 to 2030 (by 35 quadrillion Btu from 2005 to 2015 and by
another 44 quadrillion Btu from 2015 to 2030) and to account for 29 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 90 percent of the projected
increase from 2005 to 2030 (Figure 13). The only countries for which decreases
in coal consumption are projected are OECD Europe and Japan, where populations
are either growing slowly or declining, electricity demand growth is slow,
and natural gas, nuclear power, and renewables are likely to be used for
electricity generation rather than coal.
Net electricity generation worldwide is projected to total 33.3 trillion
kilowatthours in 2030, nearly double the 2005 total of 17.3 trillion kilowatthours.
The strongest growth in electricity generation is projected for the non-OECD
countries. Non-OECD electricity generation increases by 4.0 percent per
year in the IEO2008 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 1.3 percent
per year from 2005 to 2030.
Natural gas and coal, which currently are the fastest growing fuel sources
for electricity generation worldwide, continue to lead the increase in
fuel use in the electric power sector in the IEO2008 reference case (Figure
14). The natural gas share increases from 20 percent in 2005 to 25 percent
in 2030, and the coal share increases from 41 percent to 46 percent. Because
natural gas is an efficient fuel for electric power generation and produces
less carbon dioxide than coal or petroleum products, it is an attractive
choice in many nations; however, in the United States and 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.
Electricity generation from nuclear power increases from 2.6 trillion kilowatthours
in 2005 to 3.0 trillion kilowatthours in 2015 and 3.8 trillion kilowatthours
in 2030 in the IEO2008 reference case. 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 anticipated
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 IEO2008 projection for world nuclear electricity generation
in 2025 is 31 percent higher than the projection in IEO2003 just 5 years
ago.
Most of the expansion of installed nuclear power capacity is expected in
non-OECD countries (Figure 15). Russia, China, and India account for almost
two-thirds of the projected net increment in world nuclear power capacity
between 2005 and 2030. In the reference case, Russia adds 18 gigawatts
of nuclear capacity between 2005 and 2030, India 17 gigawatts, and China
45 gigawatts. Several OECD nations with existing nuclear programs also
add new capacity in the reference case, including South Korea with 14 gigawatts,
Japan with 11 gigawatts, and Canada with 6 gigawatts. In the United States,
rules issued by the Internal Revenue Service in 2006 governing the production
tax credit for new nuclear plants that was included in the Energy Policy
Act of 2005 (EPACT2005), along with high fossil fuel prices, support the
addition of 16.6 gigawatts of capacity at newly built nuclear power plants
and 2.7 gigawatts expected from uprates of existing plants, while 4.5 gigawatts
of existing capacity is expected to be retired.
The use of hydroelectricity and other grid-connected renewable energy sources
continues to expand in the reference case projection. With consumption
projected to increase by an average of 2.1 percent per year from 2005 to
2030, renewable fuels are the fasting growing source of energy in the IEO2008 reference case. Higher fossil fuel prices, particularly for natural gas
in the electric power sector, along with government policies and programs
supporting renewable energy, allow renewable fuels to compete economically.
Much of the growth in renewable energy consumption is projected to come
from mid- to large-scale hydroelectric facilities in non-OECD Asia and
Central and South America, where several countries have hydropower facilities
either planned or under construction. In non-OECD Asia, Chinas 18,200-megawatt
Three Gorges Dam project is nearing completion at the end of 2008, and
the China Yangtze River Three Gorges Project Development Corporation has
already announced plans to increase its total installed capacity to 22,400
megawatts. In addition, work continues on the 12,600-megawatt Xiluodu project
on the Jisha River (scheduled for completion in 2020 as part of a 14-facility
hydropower development plan) and on the countrys third-largest hydroelectric
facility, the 6,300-megawatt Longtan project on the Hongshui River [1].
In India, more than 14,500 megawatts of hydropower capacity currently is
under construction [2]. Work has begun on what will be Indias largest
hydroelectric facility to date, the 2,000-megawatt Lower Subansiri in Arunachal
Pradesh [3]. In Central and South America, Brazil has plans for a number
of new hydropower projects that the country hopes to complete in order
to keep up with electricity demand after 2010, including the 3,150-megawatt
Santo Antonio and 3,300-megawatt Jirau projects on the Rio Madeira River,
along with the first phase of the 5,500-megawatt Belo Monte dam project
on the Xingo River [4].
Outside of Canada and Turkey, hydropower capacity is not expected to grow
substantially in the OECD nations, where most hydroelectric resources already
have been developed or lie far from population centers. Instead, most of
the increase in OECD renewable energy consumption is expected to come from
nonhydroelectric resources, such as wind, solar, geothermal, municipal
solid waste, and biomass. In 2007, installed wind power capacity in the
United States increased by 4,287 megawatts (or 38 percent), supported by
the Federal production tax credit and a number of renewable portfolio standards
in individual States that encourage growth of renewable energy [5]. Wind
energy markets have also grown strongly in non-OECD Asia, where China added
more than 3,400 megawatts and India about 8,000 megawatts of new wind capacity
in 2007 [6].
OECD Europe, where many countries are obligated to reduce greenhouse gas
emissions under the Kyoto Protocol treaty, remains a key market for wind
power, adding 8,554 megawatts of new capacity in 2007 alone. The European
Union (EU) has set a target of increasing the renewable energy share to
20 percent of gross domestic energy consumption by 2020, including a mandatory
minimum of 10 percent for biofuels [7]. Most EU member countries offer
incentives for renewable energy production, including subsides and grants
for capital investments and premium prices for generation from renewable
sources. Installation of wind-powered generating capacity has been particularly
successful in Germany and Spain, which had 22,247 megawatts and 15,145
megawatts of installed capacity, respectively, at the end of 2007 [8].
Delivered Energy Consumption by End-Use Sector
Understanding patterns in the consumption of energy delivered to end users
is an important part of developing projections of global energy use. Outside
the transportation sector, which at present is dominated by liquid fuels
and other petroleum products, 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,
the level of economic development, and political, social, and demographic
factors.
Residential Sector
Energy use in the residential sector, which accounted for about 15 percent
of worldwide delivered energy consumption in 2005, 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 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 [9].
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 the OECD use more energy
than those in non-OECD nations, in part because higher income levels allow
OECD households to purchase more energy-using equipment. In the United
States, for example, GDP per capita in 2005 was about $37,000 (in real
2000 dollars per person) and residential energy use per capita was estimated
at 38.7 million Btu. In contrast, Chinas per-capita income in 2005, at
$5,900, was only about one-sixth the U.S. level, and residential energy
use per capita was 3.2 million Btu.
Although the IEO2008 projections account for marketed energy use only,
households in many non-OECD countries still rely heavily on traditional,
non-marketed energy sources, including wood and waste, for heating and
cooking. Much of Africa remains unconnected to a power grid; and in 2004,
an estimated 93 percent of the rural inhabitants of sub-Saharan Africa
used biomass as their primary fuel source for cooking [10]. Some areas
of China and India also rely heavily on woodfuel, woodwaste, 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 sectoroften referred to as the services sector or the services
and institutional sectorconsists 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 stadiums
that hold sporting events. 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 sector energy use.
Economic trends and population growth drive commercial sector activity
and the resulting energy use. The need for services (health, education,
financial, government) increases as populations increase. The degree to which
additional needs are met depends in large measure on economic resourceswhether
from domestic or foreign sourcesand 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. Non-OECD commercial energy consumption per capita averaged
only 1.2 million Btu in 2005, compared with the OECD average of 16.4 million
Btu.
Slow population growth in most of the OECD nations contributes to slower
anticipated rates of increase in the commercial energy demand. In addition,
continued efficiency improvements are projected to moderate the growth
of energy demand over time, as energy-using equipment is replaced with
newer, more efficient stock. Conversely, strong economic growth is expected
to include continued growth in business activity, with its associated energy
use, in areas such as retail and wholesale trade and business, financial,
and leisure services. The United States is the largest consumer of commercial
delivered energy in the OECD and is expected to remain in that position
throughout the projection period. U.S. commercial energy use accounts for
about 45 percent of the OECD total through 2030.
In the non-OECD nations, economic growth and commerce are expected to increase
rapidly, fueling additional demand for energy in the service sectors. Faster
population growth is also expected, relative to that 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 expected to rise by 3.3
percent per year, faster than any other end-use sector.
Meeting the fast-paced growth in demand for energy in the commercial sectors
of non-OECD nations is likely to present a challenge. In China, for instance,
a large number of existing commercial buildings are classified as high
energy-consuming, with energy use per square foot at levels that are two
or three times as high as those in the western world [11]. The countrys
eleventh 5-year plan, for 2006-2010, included a goal to transform all existing
buildings into energy-saving buildings by 2020 and required that all
buildings constructed after 2005 incorporate natural ventilation, natural
lighting, and other provisions aimed at reducing energy intensity.
Industrial Sector
Energy is consumed in the industrial sector by a diverse group of industriesincluding
manufacturing, agriculture, mining, and constructionand for a wide range
of activities, such as process and assembly uses, space conditioning, and
lighting. Inputs that typically are considered energy products are included
in industrial sector energy use. For example, natural gas and petroleum
products used as feedstocks to produce non-energy products, such as plastics,
are counted as energy used in the industrial sector. Industrial sector
energy demand varies across regions and countries of the world, based on
level and mix of economic activity, technological development, and population,
among other factors.
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 do the non-OECD countries. In the United States, for example,
the manufacturing share of total economic output has declined steadily
over the past two decades, while the output share for service industries
(included in the commercial sector) has increased. Similar developments
are expected for the other OECD economies, as increasing international
trade fosters a shift toward a less energy-intensive mix of industrial
activity.
The non-OECD economies generally have higher industrial sector energy consumption
relative to GDP than do the OECD countries. On average, the ratio is almost
40 percent higher in the non-OECD countries. In particular, Russia and
the Eastern European countries still have energy-inefficient capital stock
remaining from the days of central planning. For example, 85 percent of
Russias cement production uses the wet process, which requires 70 percent
more fuel than the dry method. In the United States, by comparison, less
than 19 percent of the cement produced in 2003 was made using the wet process
[12].
As inefficient facilities and production techniques in non-OECD Europe
and Eurasia are replaced with modern ones, industrial energy intensity
(industrial energy use per dollar of GDP) in the region is expected to
decline rapidly. Some former Soviet Republics, such as Ukraine and Georgia,
have reduced their energy intensity by at least 5.5 percent a year from
2000 to 2005, compared with an average annual decline of 1.2 percent in
the OECD countries [13]. In the IEO2008 reference case, industrial energy intensity in non-OECD Europe and Eurasia is projected
to decline by 3.0 percent per year between 2005 and 2030, compared with
a worldwide average decline of 2.1 percent per year.
China, India, and the other non-OECD Asian nations are expected to have
the most rapid increases worldwide in industrial sector energy consumption
over the projection period. Whereas the OECD economies have largely been
moving away from heavy, energy-intensive industries (such as steel and
cement) toward light manufacturing and service activities, energy-intensive
heavy manufacturing is growing in many of the non-OECD countries. Currently,
about 77 percent of the delivered energy use in China is attributed to
the industrial sector. Although that share is expected to begin declining,
even by 2030 the industrial sector accounts for 72 percent of Chinas total
delivered energy use. In India and the other non-OECD Asian economies,
industrial sector energy use also remains high throughout the projection
period, accounting for about 60 percent of total delivered energy use for
non-OECD Asia through 2030.
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 in economic activity and population
growth are the key factors that determine transportation sector energy
demand. Economic growth spurs increased industrial output, which requires
the movement of raw materials to manufacturing sites, as well as movement
of manufactured goods to end users.
A primary factor contributing to the expected increase in energy demand
for transportation is steadily increasing demand for personal travel in
both the non-OECD and OECD economies. Increases in urbanization and in
personal incomes have contributed to increases in air travel and to increased
motorization (more vehicles) 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 over the projection
period. Chapter 6 includes a more extensive examination of the worlds
transportation energy use.
World Economic Outlook
Economic growth is among the most important factors to be considered in
projecting changes in world energy consumption. In the IEO2008 projections,
assumptions about regional economic growthmeasured in terms of real GDP
in 2000 U.S. dollars at purchasing power parity ratesunderlie the projections
of regional energy demand.
The macroeconomic framework employed for the economic growth projections
reflects the interaction of many important economic variables and underlying
relationships, both in the short term and in the medium to long term. In
the short term, the spending decisions made by households and businesses
(the demand side) determine economic activity and thus the short-term economic
outlook. Spending decisions, in turn, are influenced by current economic
and financial conditions for example, income, interest rates, and the
price of goods to be purchased.
Over the 2005 to 2030 period, the worlds real GDP growth on a purchasing
power parity basis is projected to average 4.0 percent annually in the
reference case (Table 2 and Figure 16). In the long term, it is the ability to
produce goods and services (the supply side) that determines the growth
potential of any countrys 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 more
important roles in determining their medium- to long-term growth potential.
Annual growth in world GDP over the 25-year projection period is higher
than the rate recorded over the past 25 years, mainly because the countries
that are expected to see more rapid growth, such as China and India, make
up an increasing share of world GDP. A number of the developing non-OECD
nations have undertaken significant reforms over the past several years.
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 that are above historical trends in many of the developing
economies over the past 5 to 10 years.
OECD Economies
The U.S. economy, after weakening substantially in 2001 and 2002, recovered
rapidly in 2003 and from then until 2006 recorded robust growth despite
sustained increases in energy prices. Since 2006, however, a downturn in
the housing sector has been a major hindrance to economic growth. In the IEO2008 reference case, the U.S. economy is expected to recover by 2009
as fiscal and monetary stimuli boost domestic demand, and to stabilize
at its long-term growth path by 2010. GDP in the United States is projected
to grow by an average of 2.5 percent per year from 2005 to 2030slower
than the 3.1-percent annual average growth from 1980 to 2005, because of
the retirement of the baby boom generation and the resultant slowing of
labor force growth.
Like the United States, Canada is expected to maintain healthy growth in
productivity and standard of living. In 2006 and 2007, strong commodity
and energy prices countered the weakening effect of appreciation in the
Canadian dollar. Canadas labor force growth is projected to slow in the
medium to long term, however, as the countrys own baby boom generation
retires. Canadas overall economic growth is projected to fall from 3.1
percent per year in 2005 to averages of 2.6 percent per year from 2008
to 2015 and 2.2 percent per year from 2015 to 2030.
Mexicos real GDP is projected to grow by an average of 3.9 percent per
year from 2005 to 2030. The countrys strong performance over the past
5 years has been the result of favorable developments in several areas.
First, lower inflation has allowed the central bank to lower key policy
rates, which has encouraged domestic demand through greater investment.
Second, high oil prices continue to spur government spending, including
investment in infrastructure projects. Third, remittances from Mexicans
working abroad continue to grow rapidly, boosting domestic consumption.
Finally, Mexicos industrial production follows, and is heavily influenced
by, U.S. GDP growth and outsourcing of employment. Global financial markets
remain friendly to Mexico in terms of the availability and cost of credit
and the volume of foreign direct investment. In general, strong trade ties
with the United States are expected to help cushion Mexico from deeper
economic troubles. By the same token, Mexicos future growth is also more
dependent on U.S. growth.
The economy of OECD Europe grew by more than 3 percent in both 2006 and
2007; however, recent data provide mixed signals about its likely short-term
performance. Recent turbulence in international financial markets and weaker
growth in the United States are pointing to a likely slowdown to 2.7-percent
growth in 2008. Over the long term, OECD Europes GDP growth is projected
to average 2.3 percent per year from 2005 to 2030, in line with what OECD
considers to be potential output growth in the regions economies [14].
According to the International Monetary Fund, OECD Europes long-term growth
prospects depend on its ability to accelerate improvements in labor productivity
and employment growth and to improve structural flexibility in the various
national economies [15].
After a decade of stagnation and several false starts, Japans economic
growth has been relatively robust since 2003. Although it is low by the
standards of pre-1990 Japan, the recent annual growth in GDP exceeds the
potential (no more than 2 percent real growth) for a country with a declining
labor force and population and an industrial technology that has already
caught up with, and in some cases surpassed, the best elsewhere in the
world [16]. With the continued decline in its labor force over the projection
period, Japans annual GDP growth is projected to slow, averaging 1.4 percent
from 2008 to 2015 and 0.7 percent from 2015 to 2030. In the short term,
Japans highly skilled labor force and strong work ethic are expected to
support the projected average growth rate, as more flexible labor policies
allowing greater mobility for workers are adopted.
Economic growth in the rest of OECD Asia is expected to be stronger than
in Japan. In contrast to the GDP growth of 1.1 percent per year anticipated
for Japan from 2005 to 2030 in the IEO2008 reference case, South Korea
is projected to see average increases of 3.5 percent per year and Australia/New
Zealand 3.0 percent per year. In the medium to long term, South Koreas
growth is projected to taper off and be sustained by productivity growth
as the growth of its labor force slows. Prospects in both Australia and
New Zealand are 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
Over the period from 2005 to 2030, economic growth in non-OECD Europe and
Eurasia as a whole is projected to average 4.4 percent annually. 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 each 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). High world oil prices have stimulated
investment outlays, especially in the energy sector of the Caspian region;
however, given the volatility of energy market prices, it is unlikely that
the regions economies will be able to sustain the growth rates recently
achieved until diversification from energy becomes more broadly based.
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 2005 and 2030 is
expected to occur among the nations of non-OECD Asia, where regional GDP
growth is projected to average 5.8 percent per year. China, non-OECD Asias
largest economy, is expected to continue playing a major role on both the
supply and demand sides of the global economy. IEO2008 projects an average
annual growth rate of approximately 6.4 percent for Chinas economy from
2005 to 2030the highest among all the worlds economies.
Structural issues that have implications for medium- to long-term growth
in China 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 IEO2008 reference case, development of domestic capital markets
is expected to continue, providing macroeconomic stability and ensuring
that Chinas large savings are used more efficiently.
India is another Asian country with a rapidly emerging economy. The medium-term
prospects for Indias economy are positive, as it continues to privatize
state enterprises and increasingly adopts free market policies. Average
annual GDP growth in India over the 2005 to 2030 projection period is 5.8
percent. Accelerating structural reformsincluding ending regulatory impediments
to the consolidation of labor-intensive industries, labor market and bankruptcy
reforms, and agricultural and trade liberalizationremain essential for
stimulating potential growth and reducing poverty in the medium to long
term. With its vast and relatively cheap English-speaking labor force,
India is well positioned to reap the benefits of globalization.
Except for China, direct exposure of non-OECD Asias financial institutions
to mortgage-backed securities (or subprime risks) is limited. [17]. As
a result, economic activity is expected to remain robust in the nations
of non-OECD Asia. Effects of the recent turmoil in world financial centers
are expected to be minimal for most of the non-OECD Asia economies. Over
the medium term, from 2005 to 2015, national economic growth rates are
expected to be roughly constant, before tapering off gradually to an average
of 4.7 percent per year from 2015 to 2030 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
regions oil exporters. In recent years, real GDP growth rates in the Middle
East have averaged around 5 percent. Medium-term prospects for the region
remain favorable, given that a significant portion of the recent increase in oil revenues is expected to continue throughout the projection
period.
Economic growth in Africa has maintained a healthy pace of more than 4
percent per year since 2000, based on 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 [18]. Africas combined economy is projected
to grow at an average annual rate of 4.5 percent from 2005 to 2030a projection
that is optimistic by historical standards but is supported by the regions
strong economic activity over the past 5 years, resulting from expansion
of primary exports and robust domestic demand in many of Africas national
economies. Nevertheless, both economic and political factorssuch 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 HIV/AIDS on population
growthpresent formidable obstacles to growth in a number of African countries.
Although the nations of Central and South America registered a combined
6-percent increase in GDP in 2004 (their best performance in 20 years),
the regions growth prospects have been hampered by a weak international
credit environment, as well as domestic economic and/or political problems
in a number of countries. With economic growth in Central and South America
remaining heavily dependent on foreign capital flows, 3.9-percent average
annual growth in GDP is projected from 2005 through 2030.
Major Sources of Uncertainty in the Projections
Alternative Macroeconomic Growth Cases
Expectations for the future rates of economic growth are a major source
of uncertainty in the IEO2008 projections. To illustrate the uncertainties
associated with economic growth trends, IEO2008 includes a high macroeconomic
growth case and a low macroeconomic 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 relationship between
changes in GDP and changes in energy consumption that is 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 IEO2008 reference case shows total
world energy consumption reaching 695 quadrillion Btu in 2030286 quadrillion
Btu in the OECD countries and 409 quadrillion Btu in the non-OECD countries.
In the high growth case, world energy use in 2030 is projected to total
765 quadrillion Btu, or 70 quadrillion Btu (about 35 million barrels oil
equivalent per day) higher than in the reference case. In the low growth
case, world energy consumption in 2030 is projected to be 63 quadrillion
Btu (32 million barrels oil equivalent per day) lower than in the reference
case. Thus, the projections for 2030 in the high and low macroeconomic
growth cases define a range of uncertainty equal to 113 quadrillion Btu
(Figure 17).
Alternative Price Cases
The impacts of energy prices on the level and composition of energy demand
are another large source of uncertainty in the IEO2008 projections. To
illustrate the impacts, IEO2008 includes two alternative price cases. In
the IEO2008 high price case, world oil prices (in nominal terms) climb
from $66 per barrel in 2006 to $186 per barrel in 2030; in the low price
case, they decline to $46 per barrel in 2016 and increase slowly thereafter
to $69 per barrel in 2030; and by comparison, in the reference case, they
rise to $113 per barrel in 2030 (Figure 18).
Despite the considerable difference between oil prices in the low and high
price cases in 2030 (about $117 per barrel), the projections for total
world energy consumption in the reference and alternative price cases do
not vary substantially. There is, however, a larger impact on the energy
mix. The projections for total world energy use in 2030 in the high and
low price cases are separated by only 47 quadrillion Btu (Figure 19). In
comparison, the difference between the low and high macroeconomic growth
case projections is 113 quadrillion Btu.
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, the projections
for economic growth are not affected substantially by the price assumptions.
The most significant variations are GDP increases of around 1 percent in
the low price case relative to the reference case in 2015 for some regions
outside the Middle East and, in the oil-exporting Middle East region only,
a 1-percent drop in GDP in 2015. In 2030, however, there are virtually
no differences among GDP projections for any region in the different cases,
because the worlds economies have had more time to adjust to the lower
or higher prices.
The most substantial impacts of the high and low price assumptions are
on the mix of energy fuels consumed in each region, particularly liquids
and coal (Figure 20). In the high price case, total world energy use in
2030 is about 27 quadrillion Btu lower, as is world liquids consumption,
than projected in the reference case. Natural gas consumption is also lower
in 2030, by a more modest 8 quadrillion Btu, whereas the projections for
coal, nuclear power, and renewable energy consumption are higher than those
in the reference case.
In the low price case, lower prices both allow consumers to increase their
use of liquids for transportation purposes and discourage the migration
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 relatively few alternatives to liquid fuels). Total liquids consumption
in 2030 is 20 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
(7 quadrillion Btu) in 2030 in the low world oil price relative to the
reference case (Figure 21).
In the IEO2008 reference case, world oil prices rise steadily after 2015,
to $113 per barrel in 2030. As a result, liquids consumption is curtailed
in countries that have other fuel options availableespecially in the electric
power sector, where coal and other fuels can be substituted. In the reference
case, worldwide use of liquids for electricity generation falls by 2.3
quadrillion Btu from 2005 to 2030. In the low price case, consumption of
liquids for electricity generation increases by 2.0 quadrillion Btu, as
the non-OECD countries retain their oil-fired generating capacity in the
lower price environment.
Trends in Energy Intensity
Another major source of uncertainty in the projections is the changing
relationship of energy use to GDPor energy intensityover time. Economic
growth and energy demand are linked, but the strength of that link varies
among regions. In the OECD nations, history shows the link to be a relatively
weak one, with energy demand lagging behind economic growth (Figure 22).
In the non-OECD nations, except for non-OECD Europe and Eurasia, economic
growth has been closely correlated with energy demand growth for much of
the past three decades (Figure 23).
Historically, non-OECD Europe and Eurasia have had higher levels of energy
intensity than either the OECD or other non-OECD economies. In non-OECD
Europe and Eurasia, energy consumption generally grew more rapidly than
GDP until 1990 (Figure 24), when the collapse of the Soviet Union created
a situation in which both income and energy use declined but GDP fell more
quickly. As a result, energy intensity increased. Only since the late 1990s,
after the 1997 devaluation of the Russian ruble, did the Russian and Ukrainian
industrial sectors begin to strengthen. Since then, economic growth in
non-OECD Europe and Eurasia has begun to outpace growth in energy use significantly,
and energy intensity has begun a precipitous decline. The regions energy
intensity is projected to continue declining in the IEO2008 reference case,
while still remaining higher than in any other part of the world (Figure
25).
The stage of economic development and the standard of living of individuals
in a given region strongly influence the link between economic growth and
energy demand. Advanced economies with high living standards have relatively
high levels of energy use per capita, but they also tend to be economies
where per-capita energy use is stable or changes very slowly. In the OECD
economies, there is a high penetration rate of modern appliances and motorized
personal transportation equipment. To the extent that spending is directed
to energy-consuming goods, it involves more often than not purchases of
new equipment to replace old capital stock. The new stock generally is more
efficient than the equipment it replaces, resulting in a weaker link between
income and energy demand in the future.
The pace of improvement in energy intensity may change, given different
assumptions of macroeconomic growth over time. Faster growth in income
generally leads to a faster rate of improvement (decline) in energy intensity.
In the IEO2008 high macroeconomic growth case, worldwide energy intensity
is projected to decline by 2.3 percent per year on average from 2005 to
2030, as compared with 2.2 percent in the reference case. On the other
hand, slower economic growth generally leads to a slower rate of improvement
in energy intensity. In the low macroeconomic growth case, world energy
intensity is projected to decline by an average of only 2.0 percent per
year over the projection period.
Notes and Sources
References
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