The World Energy Outlook makes the case for stepping up co-operation with China and India to address global energy challenges

“The huge energy challenges facing China and India are global energy challenges and call for a global response. The World Energy Outlook 2007 charts a course to a more secure, competitive, lower-carbon energy system – a course that must involve the world’s two emerging giants,” Nobuo Tanaka, Executive Director of the International Energy Agency (IEA), said today in London at the launch of the latest edition of the Outlook. The annual flagship publication of the IEA this year focuses on energy developments in China and India and their implications for the world.

“WEO-2007 demonstrates more clearly than ever that if governments don’t change their policies, oil and gas imports, coal use and greenhouse-gas emissions are set to grow inexorably through to 2030 – even faster, in fact, than in last year’s Outlook. These trends would threaten energy security and accelerate climate change. But the Outlook also shows how new policies can pave the way to an alternative energy future,” Mr. Tanaka stressed.

Energy developments in China and India are transforming the global energy system as a result of their sheer size and their growing importance in international energy markets. “Rapid economic development will undoubtedly continue to drive up energy demand in China and India, and will contribute to a real improvement in the quality of life for more than 2 billion people. This is a legitimate aspiration that needs to be accommodated and supported by the rest of the world,” said Mr. Tanaka. “Indeed, most countries stand to benefit economically from China’s and India’s economic development through international trade.”

But the consequences of unfettered growth in global energy demand are alarming for all countries. If governments around the world stick with existing policies – the underlying premise of the WEO's Reference Scenario – the world’s energy needs would be well over 50% higher in 2030 than today. China and India together account for 45% of the increase in global primary energy demand in this scenario. Both countries’ energy use is set to more than double between 2005 and 2030. Worldwide, fossil fuels – oil, gas and coal – continue to dominate the fuel mix. Among them, coal is set to grow most rapidly, driven largely by power-sector demand in China and India. These trends lead to continued growth in global energy-related emissions of carbon-dioxide (CO₂), from 27 Gt in 2005 to 42 Gt in 2030 – a rise of 57%. China is expected to overtake the United States to become the world’s biggest emitter in 2007, while India becomes the third-biggest emitter by around 2015. China’s per-capita emissions almost reach those of OECD Europe by 2030.

Consuming countries will increasingly rely on imports of oil and gas – much of them from the Middle East and Russia. In the Reference Scenario, net oil imports by China and India combined jump from 5.4 mb/d in 2006 to 19.1 mb/d in 2030 – this is more than the combined imports of the United States and Japan today. World oil output is expected to become more concentrated in a few Middle Eastern countries – if necessary investment is forthcoming. Although production capacity at new fields is expected to increase over the next five years, it is very uncertain whether it will be sufficient to compensate for the decline in output at existing fields and to meet the projected increase in demand. A supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices, cannot be ruled out.

Government action can alter appreciably these trends. If governments around the world implement policies they are considering today, as assumed in an Alternative Policy Scenario, global energy-related CO₂ emissions would level off in the 2020s and reach 34 Gt in 2030 – almost a fifth less than in the Reference Scenario. Global oil demand would be 14 mb/d lower – a savings equal to the current output of the United States, Canada and Mexico combined. Measures to improve energy efficiency are the cheapest and fastest way to curb demand and emissions growth in the near term. The savings are particularly large in China and India. For example, tougher efficiency standards for air conditioners and refrigerators alone would, by 2020, save the amount of power produced by the Three Gorges dam. Emissions of local pollutants in both countries, including sulphur-dioxide and nitrous oxides, would also be reduced sharply.

But even in the Alternative Policy Scenario, global CO₂ emissions are still one-quarter above current levels in 2030. In a “450 Stabilisation Case”, which describes a notional pathway to long-term stabilisation of the concentration of greenhouse gases in the atmosphere at around 450 parts per million, global emissions peak in 2012 and then fall sharply below 2005 levels by 2030. Emissions savings come from improved efficiency in industry, buildings and transport, switching to nuclear power and renewables, and the widespread deployment of CO₂ capture and storage (CCS). Exceptionally quick and vigorous policy action by all countries, and unprecedented technological advances, entailing substantial costs, would be needed to make this case a reality.

Economic growth in China and India could turn out to be significantly faster than assumed in the Reference and Alternative Policy scenarios, resulting in more rapid growth in energy demand, oil and gas imports and CO₂ emissions. In a High Growth Scenario, which assumes that China’s and India’s economies grow on average 1.5 percentage points per year faster than in the Reference Scenario, energy demand is 21% higher in 2030 in China and India combined. Globally, energy demand rises by 6% and CO₂ emissions by 7%. “In this case, it would be all the more urgent for governments around the world to implement policies to curb the growth in fossil-energy demand and related emissions,” Mr. Tanaka said.

“The emergence of new major players in global energy markets means that all countries must take vigorous, immediate and collective action to curb runaway energy demand,” said Mr. Tanaka. “The next ten years will be crucial for all countries, including China and India, because of the rapid expansion of energy-supply infrastructure. We need to act now to bring about a radical shift in investment in favour of cleaner, more efficient and more secure energy technologies.”

IEA countries have long recognised the advantages of co-operation with China and India, reflected in a steady broadening of the range of collaborative activities through the IEA. "This relationship symbolises the interdependence of the global energy community," Mr. Tanaka said. "One of my priorities as the new IEA Executive Director is to step up our co-operation with both countries. In good time this could hopefully pave the way, with the support of all the governments concerned, to an ultimate objective of their future membership of the Agency."