‹ Analysis & Projections

International Energy Outlook 2013

Release Date: July 25, 2013   |  Next Release Date: September 2014   (See release cycle changes)    |  correction    |  Report Number: DOE/EIA-0484(2013)

World energy demand and economic outlook

Overview

In the IEO2013 Reference case, world energy consumption increases from 524 quadrillion Btu in 2010 to 630 quadrillion Btu in 2020 and 820 quadrillion Btu in 2040, a 30-year increase of 56 percent (Figure 12 and Table 1). More than 85 percent of the increase in global energy demand from 2010 to 2040 occurs among the developing nations outside the Organization for Economic Cooperation and Development (non-OECD), driven by strong economic growth and expanding populations. In contrast, OECD member countries are, for the most part, already more mature energy consumers, with slower anticipated economic growth and little or no anticipated population growth.7

Figure 12. World total energy consumption, 1990-2040.
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Many economic and geopolitical circumstances add considerable uncertainty to any long-term assessment of world energy markets. Currently, there is wide variation in the economic performance of different countries and regions around the world. Among the more mature OECD regions, the pace of growth varies but generally is slow in comparison with the emerging economies of the non-OECD. In the United States and Europe, short- and long-term debt issues remain largely unresolved and are key sources of uncertainty for future growth. Economic recovery in the United States has been weaker than the recoveries from past recessions, although expansion is continuing. In contrast, many European countries fell back into recession in 2012, and the region's economic performance has continued to lag. Japan, whose economy had been sluggish before the devastating earthquake in March 2011, is recovering from its third recession in 3 years [1]. Questions about the timing and extent of a return to operation for Japan's nuclear power generators compound the uncertainty surrounding its energy outlook.

In contrast to the OECD nations, developing non-OECD economies, particularly in non-OECD Asia, have led the global recovery from the 2008-2009 recession. China and India have been among the world's fastest growing economies for the past two decades. From 1990 to 2010, China's economy grew by an average of 10.4 percent per year and India's by 6.4 percent per year. Although the two countries' economic growth remained strong through the global recession, both slowed in 2012 to rates much lower than analysts had predicted at the start of the year. In 2012, real GDP in China increased by 7.2 percent, its lowest annual growth rate in 20 years [2]. India's real GDP growth slowed to 5.5 percent in 2012.

Even with slower than average growth in China and India in the short-term, medium- and long-term prospects for the two nations are good. In the IEO2013 Reference case, China and India continue to lead both world economic growth and energy demand growth. Since 1990, energy consumption in both countries as a share of total world energy use has increased significantly; together, they accounted for about 10 percent of total world energy consumption in 1990 and nearly 24 percent in 2010. From 2010 to 2040, their combined energy use more than doubles in the Reference case, and they account for 34 percent of projected total world energy consumption in 2040. China, which recently became the world's largest energy consumer, is projected to consume more than twice as much energy as the United States in 2040 (Figure 13).

Figure 13. Energy consumption in the United States, China, and India, 1990-2040.
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The IEO2013 Reference case assumes that global gross domestic product (GDP) rises by an average of 3.6 percent per year from 2010 to 2040, with non-OECD economies averaging 4.7 percent per year and OECD economies 2.1 percent per year. Future energy consumption growth is driven by non-OECD demand. Whereas energy use in non-OECD nations was 16 percent greater than that in OECD nations in 2010, the non-OECD economies are projected to consume 47 percent more energy than the OECD economies in 2020 and 88 percent more in 2040 (Figure 14).

Figure 14. World energy consumption, 1990-2040.
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Figure 15. Non-OECD energy consumption by country grouping, 1990-2040.
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While energy use in non-OECD Asia (led by China and India) rises by 112 percent from 2010 to 2040, strong growth in energy use is also projected for much of the rest of the non-OECD region (Figure 15). With fast-paced growth in population and access to ample domestic resources, energy demand increases by 76 percent in the Middle East over the projection period, by 85 percent in Africa, and by 62 percent in Central and South America. The slowest projected growth among the non-OECD regions is for Europe and Eurasia, which includes Russia and the other former Soviet republics, at 42 percent from 2010 to 2040, as the region's population declines and substantial gains in energy efficiency are achieved through replacement of
inefficient Soviet-era capital equipment.

Outlook for world energy consumption by source

The use of all energy sources increases over the time horizon of the IEO2013 Reference case (Figure 16). Given expectations that world oil prices will remain at levels that are high relative
to historical experience throughout the projection, petroleum and other liquid fuels8 are the world's slowest-growing source of energy. Liquids consumption increases at an average annual rate of 0.9 percent from 2010 to 2040, whereas total energy demand increases by 1.5 percent per year. Nuclear power and renewables are the fastest-growing sources of world energy, both increasing at an average annual rate of 2.5 percent. Concerns about energy security, the impact of fossil fuel emissions on the environment, and sustained high world oil prices support expanded use of nuclear power and renewable energy over the projection. Government policies and incentives improve the prospects for non-fossil forms of energy in many countries around the world in the outlook.

Figure 16. World energy consumption by fuel type, 1990-2040.
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Fossil fuels continue to supply most of the world's energy throughout the IEO2013 Reference case projection. In 2040, liquid fuels, natural gas, and coal still supply more than three-fourths of total world energy consumption. Petroleum and other liquid fuels remain the largest source of energy, but their share of world marketed energy consumption declines from 34 percent in 2010 to 28 percent in 2040. On a worldwide basis, liquids consumption increases only in the industrial and transportation sectors while declining in the buildings and electric power sectors. The decrease in the use of liquid fuels in the residential, commercial, and power sectors is a result of rising world oil prices, which result in switching from liquids to alternative fuels where possible. In contrast, the use of liquids in the transportation sector continues to increase despite rising prices. World liquids consumption for transportation grows by 1.1 percent per year from 2010 to 2040 and accounts for 63 percent of the total projected net increment in liquid fuel use. The industrial sector accounts for the remainder of the increase, growing by 1.2 percent per year over the course of the projection.

Figure 17. World natural gas consumption by end-use sector, 2010-2040.
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In the IEO2013 Reference case, the world's total natural gas consumption increases by 1.7 percent per year on average, from 113 trillion cubic feet in 2010 to 132 trillion cubic feet in 2020 and 185 trillion cubic feet in 2040. Increasing supplies of natural gas, particularly from shale formations in the United States and Canada, and eventually elsewhere as well, help to supply global markets. A substantial portion of China's future natural gas production is projected to come from tight gas, shale gas, and coalbed methane. In the future, advances in the application of the horizontal drilling and hydraulic fracturing technologies that have contributed to the rapid increase in U.S. natural gas production in recent years are applied in other parts of the world. As a result, natural gas prices remain below oil prices on an energy content basis, supporting the projected worldwide growth in gas consumption. Over the projection period, natural gas demand increases in all end-use sectors, with the largest increments in the electric power and industrial sectors (Figure 17). Worldwide, natural gas consumption for electric power generation increases by nearly 80 percent from 2010 to 2040, while natural gas consumption in the industrial sector increases by 58 percent. Those two sectors account for 77 percent of the net increase in global natural gas use over the projection period.

Coal continues to play an important role in world energy markets, especially in non-OECD Asia, where the combination of fastpaced economic growth and large domestic resources supports growth in coal demand. World coal consumption increases by an average 1.3 percent per year on average from 2010 to 2040, while coal use in non-OECD Asia increases by 1.9 percent per year. World coal consumption grew by 59 percent from 2000 to 2010, largely because of China's rapidly growing energy demand. In China alone, coal consumption tripled over the 2000-2010 period. Coal accounted for 23 percent of world energy consumption in 2000, compared to a 38-percent share for liquids. In 2010, the gap had narrowed substantially, with the coal share at 28 percent and the liquids share at 34 percent. In the absence of policies or legislation that would limit the growth of coal use, China—and to a lesser extent, India and the other nations of non-OECD Asia—consumes coal in place of more expensive fuels in the outlook. In 2030, coal and liquid fuels account for equal shares of world energy consumption at around 29 percent. After 2030, China's use of coal for steel and cement production slows and then declines, and the coal share of world energy use declines to 27 percent in 2040 (compared to a 28-percent share for the liquid fuels).

Electricity consumption by end users grows faster than their use of other delivered energy sources in the Reference case, as has been true for the past several decades. Net electricity generation worldwide rises by 2.2 percent per year on average from 2010 to 2040. The strongest growth in electricity generation is projected for non-OECD countries, where electricity generation increases by an average of 3.1 percent per year in the Reference case, as rising standards of living increase demand for home appliances and electronic devices, and commercial services, including hospitals, schools, office buildings, and shopping malls, expand. In the OECD nations, where infrastructures are more mature and population growth is relatively slow or declining, the projected growth in power generation averages 1.1 percent per year from 2010 to 2040.

Coal provides the largest share of world electricity generation throughout the Reference case projection, although its share declines from 40 percent of total generation in 2010 to 36 percent in 2040 (Figure 18). The liquids share of total generation also falls in the Reference case, as other fuels are substituted for high-priced liquids in the power generation sector where possible.
The liquids share of total generation falls from 5 percent in 2010 to slightly less than 2 percent in 2040. Natural gas and renewable energy sources account for increasing shares of total generation. The natural gas share of global generation grows from 22 percent in 2010 to 24 percent in 2040, and the renewable share increases from 21 percent to 25 percent. Renewable generation (including hydropower) is the world's fastest-growing source of electric power in the IEO2013 Reference case, rising by an average of 2.8 percent per year and outpacing the average annual increases for natural gas (2.5 percent), nuclear power (2.5 percent), and coal (1.8 percent). Government policies and incentives throughout the world support the rapid construction of renewable generation facilities.

Figure 18. World net electricity generation by energy sources, 2010-2040.
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Worldwide, hydroelectricity and wind are the two largest contributors to the increase in global renewable electricity generation, with hydropower accounting for 52 percent of the total increment and wind 28 percent. The mix of the two renewable energy sources differs dramatically between the OECD and non-OECD regions. In OECD nations, most economically exploitable hydroelectric resources already have been developed. Except in a few cases—notably, Canada and Turkey—there are few opportunities to expand large-scale hydroelectric power projects. Instead, most renewable energy growth in OECD countries is expected to come from nonhydroelectric sources, especially wind. Many OECD countries, particularly those in Europe, have government policies (including feed-in tariffs,9 tax incentives, and market share quotas) that encourage the construction of wind and other nonhydroelectric renewable electricity facilities. In the Reference case, more than 70 percent of the projected growth in OECD renewable energy sources is attributed to nonhydroelectric renewables (Figure 19).

Figure 19. World electricity generation from renewable energy sources, 2010 and 2040.
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In the non-OECD nations, hydroelectric power is the predominant source of renewable energy growth, accounting for 63 percent of the total increment in non-OECD renewable energy use over the projection. Strong increases in hydroelectric generation, primarily from mid- to large-scale power plants, are expected in Brazil and in non-OECD Asia (especially, China and India), which in combination account for 80 percent of the total increase in non-OECD hydroelectric generation from 2010 to 2040. Growth rates for wind-powered electricity generation also are relatively high in non-OECD countries. China has one of the fastest growing non-OECD regional markets for wind power, with projected total generation from wind power plants increasing from 45 billion kilowatthours in 2010 to 637 billion kilowatthours in 2040, at an average rate of 9.3 percent per year. In China, where wind generation accounted for 6 percent of total renewable generation in 2010, its share grows to 26 percent in 2040.

Electricity generation from nuclear power worldwide increases from 2.6 trillion kilowatthours in 2010 to 5.5 trillion kilowatthours in 2040 in the IEO2013 Reference case, as concerns about energy security and greenhouse gas emissions support the development of new nuclear generating capacity. In addition, world average capacity utilization rates have continued to rise over time, from about 68 percent in 1980 to about 80 percent in 2011. The projections assume that most of the older nuclear power plants now operating in OECD countries and in non-OECD Eurasia will be granted extensions to their operating licenses.

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. In many countries, concerns about plant safety, radioactive waste disposal, and the proliferation of nuclear waste materials may hinder plans for new installations. The March 2011 disaster at Japan's Fukushima Daiichi nuclear power plant could have long-term implications for the future of world nuclear power development in general. Following the disaster, Germany and Switzerland announced plans to phase out or shut down their operating reactors by 2022 and 2034, respectively [3]. China—where plans for large increases in nuclear capacity have been announced and are included in the IEO2013 Reference case projection—instituted a temporary moratorium on new approvals for nuclear power construction that lasted 20 months before it was lifted at the end of October 2012 [4]. Clearly, the uncertainty associated with nuclear power projections for Japan and for the rest of the world has increased following the events of March 2011.

In the IEO2013 Reference case, 86 percent of the world expansion in installed nuclear power capacity occurs in non-OECD countries, with China, India, and Russia accounting for the largest increment in world net installed nuclear power from 2010 to 2040 (Figure 20). China adds 149 gigawatts of nuclear capacity between 2010 and 2040 in the Reference case, India 47 gigawatts, and Russia 31 gigawatts. Within the OECD, installed nuclear capacity increases to some extent in almost every region. The extent to which governments in Europe and Japan might withdraw their support for nuclear power is uncertain, but some countries have already revised their nuclear policies after the Fukushima Daiichi disaster. Germany and Switzerland have adopted plans to phase out nuclear power. However, Turkey and Poland are moving forward with plans to install new nuclear capacity, and France, which relies heavily on nuclear power, continues to support its use [5].

Figure 20. World nuclear electricity generation capacity, 2010, 2020, and 2040.
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In the United States, Title XVII of the Energy Policy Act of 2005 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 allocated $18.5 billion in guarantees for nuclear power plants [6]. In the IEO2013 Reference case, U.S. nuclear power capacity increases from 101 gigawatts in 2010 to a high of 114 gigawatts in 2025, before declining to 109 gigawatts in 2036, largely as a result of plant retirements. New additions in the later years of the projection bring U.S. nuclear capacity back up to 113 gigawatts in 2040.

Delivered energy consumption by end-use sector

Understanding patterns in the consumption of energy delivered to end users10 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 and commercial sectors

Energy consumed in the buildings sector is divided between residential and commercial end users and accounts for nearly onequarter of the total delivered energy consumed worldwide. In the IEO2013 Reference case, total world energy consumption in buildings increases from 81 quadrillion Btu in 2010 to 131 quadrillion Btu in 2040, an average annual growth rate of 1.6 percent per year. Energy use in the residential sector is defined as the energy consumed by households, excluding transportation uses.11 In the residential sector, energy is used for heating, cooling, lighting, water heating, and many other appliances and equipment. Income levels and energy prices influence the ways in which energy is consumed in the residential sector, as do various other factors, such as location, building and household characteristics, weather, equipment types and efficiencies, access to delivered energy, availability of energy sources, and energy-related policies. As a result, the types and amounts of energy use by households can vary widely within and across regions and countries.

In the IEO2013 Reference case, energy use in homes accounts for about 14 percent of world delivered energy consumption in 2040. World residential energy consumption increases by 57 percent from 2010 to 2040, mainly as a result of growing residential demand in the non-OECD countries. Total non-OECD residential energy consumption increases at an average annual rate of 2.5 percent, compared with an average of 0.4 percent per year in the OECD countries (Figure 21). China and India continue to lead world growth in residential energy demand in the projection, as a result of rapid economic and population growth. In 2040, their combined residential energy use is almost three times their 2010 total and accounts for nearly 31 percent of total world residential energy consumption.

Figure 21. World residential sector delivered energy consumption, 2010-2040.
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The commercial sector—often referred to as the service sector or the services and institutional sector—consists of businesses, institutions, and organizations that provide services, encompassing 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 traffic lights and city water and sewer services, is also categorized as commercial energy use. The commercial sector accounted for nearly 8 percent of total world delivered energy consumption in 2010. In the IEO2013 Reference case, commercial energy use grows by an average of 1.8 percent per year from 2010 to 2040.

Slow expansion of GDP and low or declining population growth in many OECD nations contribute to slow rates of increase in commercial energy demand in the Reference case. In addition, continued efficiency improvements moderate the growth of energy demand over time, as less efficient 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. Among the OECD nations, delivered energy consumption in the commercial sector increases by 0.9 percent per year from 2010 through 2040, more than twice the rate projected for the residential sector.

Figure 22. World commercial sector delivered energy consumption, 2010-2040.
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In the non-OECD nations, economic activity and commerce increase rapidly, fueling additional demand for energy in the service sectors. Population growth also is more rapid than in the OECD countries, increasing the need for education, health care, and social services and the energy required to provide them. In addition, as developing nations mature, they transition to more service-related enterprises, which increases the demand for energy in the commercial sector. The energy needed to fuel growth in commercial buildings will be substantial, and total delivered commercial energy use among non-OECD nations grows by 3.2 percent per year from 2010 to 2040 in the Reference case, more than three times as fast as the growth of commercial sector energy demand in the OECD nations (Figure 22).

Industrial sector

The industrial sector encompasses manufacturing, agriculture, mining, and construction—and a wide range of activities, such as processing and assembly, space conditioning, and lighting. Industrial energy use also includes natural gas and petroleum products used as feedstocks for the production of non-energy products, such as plastics and fertilizer. 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. The industrial sector consumed 52 percent of global delivered energy in 2010, and its energy consumption grows by an average of 1.4 percent per year from 2010 to 2040 in the IEO2013 Reference case.

Industrial sector energy use in the non-OECD economies increases by 1.8 percent per year in the Reference case, compared with 0.6 percent per year in the OECD economies (Figure 23). The gap in growth rates reflects both faster anticipated economic expansion outside the OECD and differences in the composition of industrial sector production. Industrial operations in the OECD economies generally are more energy-efficient than those in the non-OECD economies, and the mix of industrial output is more heavily weighted toward non-energy-intensive industry sectors. On average, industrial energy intensity (the amount of energy consumed in the industrial sector per dollar of economic output) in non-OECD countries is triple that in OECD countries.

Figure 23. World industrial sector delivered energy consumption, 2010-2040.
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In 2010, liquids made up 38 percent of industrial energy use in OECD countries, compared with 23 percent in non-OECD countries, and coal represented 12 percent of OECD industrial energy use, compared with 34 percent in non-OECD countries. Of the five industrial fuel categories (renewables, electricity, natural gas, coal, and petroleum and other liquid fuels), petroleum and other liquid fuels are dominant in the OECD nations throughout the projection, due to continued significant growth in the use of natural gas liquids in the chemical sector in both the United States and the European Union and the use of motor fuels in agriculture and construction. Coal is the dominant fuel in the non-OECD countries, due in part to China's continuing heavy reliance on accessible and relatively inexpensive domestic coal resources for use in its steel and cement industries.

In the Reference case projection, there are some shifts in the overall industrial fuel mix for both OECD and non-OECD regions. From 2010 to 2040, as liquid fuel and feedstock prices remain at relatively high levels, industrial liquids use in OECD countries grows much more slowly than GDP. In addition, rising coal prices and structural shifts in the OECD industrial sector as a whole result in slow growth of coal use for industrial processes. Both coal and liquid fuels are slowly displaced by growing industrial demand for natural gas, electricity, and renewable energy sources (largely biomass). As a result, the liquids share of OECD delivered industrial energy consumption falls slightly, from 38 percent in 2010 to 37 percent in 2040, while the natural gas share increases from 27 percent to 29 percent. In the OECD countries, the electricity share of industrial energy use remains flat through 2040, while the renewable share increases from 7 percent to 8 percent. In the non-OECD countries, there is a slight shift away from liquids and coal use in the industrial sector, with natural gas and electricity showing small gains as a share of total industrial energy consumption.

Transportation sector

Energy use in the transportation sector includes energy consumed in moving people and goods by road, rail, air, water, and pipeline. The transportation sector accounted for 26 percent of total world delivered energy consumption in 2010, and transportation energy use increases by 1.1 percent per year from 2010 to 2040 in the IEO2013 Reference case. The growth in transportation energy demand is largely a result of increases projected for the non-OECD nations, where fast-paced gains in GDP raise standards of living and, correspondingly, the demand for personal travel and freight transport to meet consumer demand for goods. Non-OECD transportation energy use increases by 2.3 percent per year, compared with an average decrease of 0.1 percent per year decrease in the OECD nations, where consuming patterns are already well established, and slower growth of national economies and populations coupled with vehicle efficiency improvements keeps transportation energy demand from increasing (Figure 24).

Figure 24. World transportation sector delivered energy consumption, 2010-2040.
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The road transport component of transportation energy use 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 used for passenger travel. Growth rates for economic activity and population and trends in vehicle fuel efficiency are the key factors in transportation 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. In addition, increasing demand for personal travel is a primary contributing factor to underlying increases in energy demand for transportation. Increases in urbanization and in personal incomes also contribute to increases in air travel and motorization (more vehicles per capita) in the growing non-OECD economies.

World economic outlook

Economic growth is among the most important factors to be considered in projecting changes in world energy consumption. In IEO2013, 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. World economic growth has fluctuated substantially in recent years, with the global economy contracting by 1.1 percent in 2009 and growing by 4.9 percent in 2010, followed by more modest growth of 3.8 percent in 2011 and 2.8 percent in 2012. Such fluctuations are assumed to stabilize in the Reference case projection.

Figure 25. World total gross domestic product, 1990-2040.
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From 2010 to 2040, real world GDP growth averages 3.6 percent (on a purchasing power parity basis)12 in the Reference case (Table 2). The growth rate slows over the period, peaking at 4.0 percent between 2015 and 2020 and declining to 3.5 percent between 2020 and 2040. Global economic growth in the Reference case is led by the emerging economies. Real GDP growth from 2010 to 2040 averages 4.7 percent for the non-OECD region, compared with 2.1 percent for the OECD region (Figure 25). Slower global economic growth after 2020 is primarily a result of slower growth in the emerging economies, particularly China.

OECD economies

Figure 26. OECD real gross domestic product growth rates, 2010-2040.
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From 2010 to 2040, real GDP growth in the OECD region averages 2.1 percent per year (on a purchasing power parity basis) in the IEO2013 Reference case (Figure 26). In the United States, annual real GDP growth averages 2.5 percent per year from 2010 to 2040 in the Reference case. Growth in the aggregate output of the U.S. economy depends on increases in the labor force, growth of capital stock, and improvements in productivity. U.S. labor force growth slows over the projection period as the baby boom generation starts to retire, but projected growth in business fixed investment and spending on research and development offsets the slowdown. Real consumption growth averages 2.2 percent per year in the Reference case. The U.S. share of GDP accounted for by personal consumption expenditures varies between 66 percent and 71 percent of GDP from 2010 to 2040, with the share spent on services rising mainly as a result of increasing expenditures on health care. The share of GDP devoted to business fixed investment ranges from 10 percent to 17 percent of GDP through 2040. Issues such as financial market reform, fiscal policies, and financial problems in Europe, among others, affect both short-run and long-run growth, adding uncertainty to the projections.

In the Reference case, Canada's economic growth averages 2.2 percent per year from 2010 to 2040. Prospects for the long term are relatively healthy, given Canada's record of fiscal prudence and structural reforms aimed at maintaining competitive product markets and flexible labor markets. Canada is, however, heavily reliant on trade with the United States for both
short-term and long-term economic expansion.

From 2010 to 2040, Chile and Mexico are the fastest growing OECD countries, with their combined GDP increasing by an average of 3.7 percent annually. The two nations are primarily exporters, and as a result their near-term growth is reliant on demand from other advanced economies, which is projected to increase through 2020 before beginning a slow decline. Short-term and longterm commodity prices will also affect export revenues in Chile and Mexico, which remain sensitive to fluctuations in exchange rates with major trading partners, including the United States, countries in OECD Europe, Japan, and China [7]. The two countries are well positioned for medium- to long-run growth, with expanding working-age populations and lower government debt levels than other OECD countries.

Debt and demographic changes are common problems among the slower-growing OECD countries. The debt problems have an effect both in the short term and over the long term, as governments raise taxes and cut spending to lower debt-to-GDP ratios. The demographic challenges grow stronger in the later years of the projection. Even with those concerns, however, slower-growing OECD countries still have the advantages of strong institutions and substantial human capital, along with good infrastructure. In OECD Europe, for example, many countries are carrying high government debt levels and have seen their population growth rates fall. Gross government debt relative to GDP in countries that use the euro was near 95 percent in 2010, and the region's working-age population is or soon will be in decline [8]. In the near term, most European countries will have to deal with the fallout from the European financial crisis and the ensuing credit issues, which have slowed recent GDP gains and depressed investment, longer term implications for GDP growth through capital formation. OECD Europe is among the slowest growing regions in the Reference case, with real GDP growth averaging 1.8 percent per year from 2010 to 2040, compared with 2.2 percent per year for the OECD as a whole.

Like OECD Europe, Japan is dealing with long-term demographic and debt issues. The ratio of gross government debt to GDP in Japan was nearly 200 percent in 2010,13 and the working-age population is declining [9]. The new administration of Shinto Abe has pledged to undertake fiscal policy measures and press for expansionary monetary policy in order to stimulate economic growth [10], but it will be difficult for Japan to sustain higher economic growth in the medium to long term, given the decreasing number of working-age people (between 15 and 65 years old), which will cause the labor force to begin declining over the next decades [11]. The Reference case projection for economic growth in Japan is the lowest among the OECD regions, at 0.6 percent per year.

In contrast to Japan, South Korea is one of the fastest growing OECD economies currently and throughout the Reference case projection. The country recovered quickly from the 2008-2009 global economic crisis,14 with real GDP increasing by 6.3 percent in 2010 and 3.6 percent in 2011, though slowing to 2.2 percent in 2012 [12]. With its relatively low government debt, South Korea is well placed for medium- to long-run growth, although its labor force growth is projected to slow in the short term. In the longer term, South Korea's economic growth is supported by a flexible labor market and an accelerating shift from companies owned and managed by families to shareholder-controlled companies. Consequently, capital investment remains a large component of market-driven real GDP growth [13]. In the IEO2013 Reference case, South Korea's GDP expands by an average of 3.3 percent per year from 2010 to 2040.

In Australia and New Zealand, long-term prospects are also relatively healthy, given their consistent track records of fiscal prudence and structural reforms aimed at maintaining competitive product markets and flexible labor markets. Geographically, the two countries are well positioned to benefit from export market opportunities in the emerging Asian countries, although their aging populations may be one barrier to higher rates of economic growth in the medium to long term. In the Reference case, the combined GDP of Australia and New Zealand grows by an average of 2.2 percent per year from 2010 to 2040.

Non-OECD economies

Real GDP growth from 2010 to 2040 in the non-OECD region as a whole averages 4.7 percent per year in the IEO2013 Reference case (Figure 27). Investment, exports, and the prospects for higher commodity prices support GDP increases in the near term, although slower growth in advanced economies and potential for inflation are a concern. In the medium-to-long term, population growth, the potential for technological advancement, and lower debt levels help to support faster economic expansion in the non-OECD countries. Achieving these faster rates will require additional infrastructure investment and improvements in regulatory and financial institutions.

Figure 27. Non-OECD real gross domestic product growth rates, 2010-2040.
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India has the world's fastest growing national economy in the IEO2013 Reference case, averaging 6.1 percent per year from 2010 to 2040, even though its economic growth has been subdued recently, with household spending tepid, investment slower, and inflation a greater concern than in the past [14]. In the medium term, however, recently announced reforms should help to improve the economic environment if they are fully implemented [15]. Accelerating additional structural reforms—such as ending regulatory impediments to the consolidation of labor-intensive industries, labor market and bankruptcy reforms, and agricultural and trade liberalization—remain essential over the longer term.

China saw its economic growth accelerate in 2011 after a slowdown that began in 2010. Supportive developments included retail sales and industrial production growth, and increases in exports as the economies of major trading partners experienced recovery [16]. Many structural issues remain, however, with implications for China's economic growth over the mid- to long term, including the pace of reform affecting inefficient state-owned companies and a banking system that is carrying a significant amount of nonperforming loans. Development of China's domestic capital markets continues in the Reference case, providing macroeconomic stability and ensuring that its large domestic savings are used more efficiently. China's economic expansion slows substantially toward the end of the projection period as a result of demographic factors related to its aging population and shrinking work force. From 2010 to 2030, China's real GDP grows by 6.6 percent per year in the Reference case but slows to an average of 4.0 percent per year from 2030 to 2040.

Many of the other economies of non-OECD Asia have benefited from trade ties with, and are largely dependent on, China. For those that depend on exports (including Hong Kong, Indonesia, Singapore, and Taiwan), China's strong economic rebound is likely to support growth in the near term. Many also trade heavily with the United States, Japan, and OECD Europe, however, meaning that their economic performance is intertwined with demand from the advanced economies. In the long term, growth prospects in non-OECD Asia remain favorable. Excluding China and India, real GDP in non-OECD Asia is projected to grow by an average of 4.3 percent per year from 2010 to 2040.

In Russia, short-term economic growth is more reliant on consumer spending than is the case for many other commodity exporting countries, and investment is also important [17]. Russia also remains highly reliant on revenue from energy exports to support economic growth [18]. Structural reforms, particularly to labor markets and state-owned enterprises, will be important for Russia to generate long-term growth. The country also faces challenges related to the continuing shrinkage of its labor force and population [19]. In the IEO2013 Reference case, Russia’s economy grows by an average of 2.8 percent per year from 2010 to 2040.

Exports also are an important component of GDP for the countries of Central Europe and the Balkans, especially given their large fiscal deficits. Since late-2007, it has also been more difficult for banks and other entities in non-OECD Europe and Eurasia to gain access to foreign loans, as many lending institutions have restricted cross-border loans [20], which has lowered investment levels and may also affect future productivity. The effects have been softened somewhat by higher world market prices for commodity exports, but given the volatility of energy market prices, it is unlikely that the economies of non-OECD Europe and Eurasia will be able to sustain their recent growth rates until they have achieved more broad-based diversification from energy production and exports.

Brazil's economic performance in 2012 was disappointing, mainly because of falling investment, despite improvement in the country's trade balance. Further improvement in the trade balance is expected in the near term, which in combination with a resurgence in investment spending by firms and continuing employment gains should raise the country's GDP [21]. Structural reforms, particularly to state-owned enterprises and labor markets, will be important for Brazil in generating longterm growth. In the Reference case, Brazil's economic growth averages 3.4 percent per year from 2010 to 2040.

Outside Brazil, investment in the countries of Central and South America is constrained by policy uncertainty, and commodity exports are not expected to provide the level of government revenue that they have in the recent past. The proximity of the region to the United States and the trade relationships of its national economies with the U.S. economy suggest that the region's growth will be linked, in part, to that of the United States. Most countries in the region have flexible exchange rates, positive trade balances, and relatively low fiscal deficits and public debts. Regional inflation is lower than it was in the mid-1990s, and a relatively young labor force supports the region's economic growth prospects. Real GDP in non-OECD Central and South America (excluding Brazil) increases by an average of 3.2 percent per year from 2010 to 2040 in the AEO2013 Reference case.

In Africa, economic prospects for different countries vary widely across the continent. Oil exporters in northern Africa and most of sub-Saharan Africa continue to grow strongly. 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 the impacts of various diseases—present formidable obstacles to the economies of a number of African countries. In the IEO2013 Reference case, Africa's combined real GDP increases by 4.6 percent per year on average from 2010 to 2040.

The slowest growing non-OECD region is the Middle East, where the average annual growth rate is 2.2 percent over the projection period. The Middle East region is challenged by continuing geopolitical instability that discourages foreign investment, as well as heavy reliance on commodity exports for economic growth. From 2003 to 2008, rising oil production and prices helped boost economic growth in the oil-exporting countries of the Middle East, many of which also benefited from spillover effects on trade, tourism, and financial flows from the region's oil exports [22]. In the short run, with relatively high world oil prices and rebounding demand for the region's export commodities, prospects for economic growth remain favorable. However, the medium to long term presents many challenges. Political turmoil and domestic unrest threaten to depress consumer confidence and investment. Demographic issues and the dependence of many Middle East countries on commodity exports for growth also are key challenges for regional economic growth prospects, with reliance on oil and natural gas revenues continuing through much of the projection period.

Sensitivity analyses in IEO2013

Alternative economic growth cases

Expectations for future rates of economic growth are a major source of uncertainty in the IEO2013 projections. To illustrate the uncertainties associated with economic growth trends, IEO2013 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 oil price path of the IEO2013 Reference case.

In the High Economic Growth case, real GDP in the OECD region increases by 2.3 percent per year from 2010 to 2040, as compared with 2.1 percent per year in the Reference case. In the non-OECD region—where uncertainty about future growth is higher than in the developed OECD economies, the High Economic Growth case assumes GDP growth of 5.2 percent per year, or 0.5 percentage points higher than in the Reference case. In the Low Economic Growth case, OECD GDP increases by 1.9 percent per year, or 0.3 percentage points lower than in the Reference case. GDP growth in the non-OECD region is assumed to average 4.1 percent per year, or 0.6 percentage points lower than in the Reference case.

Figure 28. World energy consumption in three economic growth cases, 2010 and 2040.
figure data

In the Reference case, world energy consumption totals 820 quadrillion Btu in 2040—285 quadrillion Btu in the OECD countries and 535 quadrillion Btu in the non-OECD countries. In the High Economic Growth case, world energy use in 2040 is 946 quadrillion Btu—127 quadrillion Btu (about 63 million barrels oil equivalent per day) higher than in the Reference case. In the Low Growth Case, total world energy use in 2040 is 733 quadrillion Btu—87 quadrillion Btu (about 43 million barrels oil equivalent per day) lower than in the Reference case. Thus, the projections for 2040 in the High and Low Economic Growth cases span a range of uncertainty equal to 213 quadrillion Btu, equivalent to 41 percent of total world energy consumption in 2010 (Figure 28).

Alternative oil price cases

Expectations for future world oil prices are another major source of uncertainty in the IEO2013 projections. To illustrate the uncertainties associated with future oil prices, IEO2013 includes a Low Oil Price case and a High Oil Price case in addition to the Reference case. The two alternative oil price cases use different assumptions about future oil prices, based on four key factors: the economics of non-OPEC petroleum liquids supply; OPEC investment and production decisions; the economics of other liquids supply; and world demand for petroleum and other liquids. Each case represents one of many possible combinations of supply and demand that would result in the same price path.

In the Reference case, real oil prices (in 2011 dollars) rise from $110 per barrel in 2012 to $163 per barrel in 2040. The Reference case reflects mid-range expectations regarding exploration and development costs and accessibility of oil resources. It also assumes that OPEC producers will choose to maintain their share at 39 to 43 percent of the global liquid fuels market. In the Reference case, OECD consumption of petroleum and other liquids increases from 46.0 million barrels per day in 2010 to 46.4 million barrels per day in 2040, and non-OECD consumption of petroleum and other liquids increases from 40.7 million barrels per day to 68.6 million barrels per day.

In the Low Oil Price case, crude oil prices are $75 per barrel (2011 dollars) in 2040. GDP growth in the non-OECD countries averages 4.3 percent per year from 2010 to 2040, compared with Reference case growth of 4.7 percent per year. A combination of lower economic activity and lower prices results in non-OECD liquid fuel consumption in 2040 that is very close to that in the Reference case. In contrast, economic growth in the OECD regions is the same in the Low Oil Price case as in the Reference case, and lower prices encourage consumers to use more liquid fuels. On the supply side, OPEC countries increase their output above the Reference case level in the Low Oil Price case, obtaining a 51-percent share of total world petroleum and other liquids production by 2040. Oil production in the non-OPEC countries is lower than in the Reference case, however, because their more expensive resources cannot be brought to market economically.

In the High Oil Price case, oil prices reach $237 per barrel (2011 dollars) in 2040. GDP growth in the non-OECD countries averages 5.1 percent per year from 2010 to 2040 in the High Oil Price case, as compared with Reference case growth of 4.7 percent per year. With higher economic activity, non-OECD liquids consumption increases to 74.9 million barrels per day in 2040, 6.3 million barrels per day higher than in the Reference case. The increase is only partially offset by a decline in OECD liquids demand as consumers improve efficiency or switch to less expensive fuels where possible. On the supply side, oil production in the OPEC countries is lower in the High Price case, and their market share declines to between 37 percent and 39 percent. However, higher world oil prices allow non-OPEC countries to raise production from more costly resources, and their petroleum production is 65.7 million barrels per day in 2040, or 4.0 million barrels per day higher than in the Reference case. The economics of nonpetroleum liquids also benefit from the higher prices, and non-OPEC production totals 8.0 million barrels per day in 2040, or 3.5 million barrels per day higher than in the Reference case. Across the three price cases, OPEC production generally decreases, while non-OPEC petroleum production and other liquids production increase, when oil prices increase.