Climate Considerations in the International Energy Outlook 2023 (IEO2023)

Release date: October 11, 2023

Executive Summary

When developing our International Energy Outlook (IEO) cases, we include only existing climate laws and regulations that can be reasonably quantified using our World Energy Projection System (WEPS). Our IEO cases can serve as a basis to assess future energy policy.

Background

EIA's International Energy Outlook 2023 (IEO2023) presents our long-term analysis of global energy markets across various fuels, technologies, and end-use sectors through 2050. We develop the IEO using WEPS, an integrated economic model, which captures long-term relationships among energy supply, demand, and prices across regional markets. Inputs to WEPS include various assumptions addressing the future uncertainty of technological developments, demographic changes, economic trends, and resource availability, such as oil prices and rates of GDP growth.

Climate laws are an important economic consideration because they play an increasing role in shaping long-term energy consumption and production patterns. A number of net-zero and fossil-fuel-reduction goals and policies have been announced since IEO2021, which was published on October 6, 2021. These goals and policies are especially prevalent in OECD countries and in the electricity and industrial sectors. These policies have a number of energy market impacts:

• Some laws directly limit fuel consumption or production. For example, a carbon emissions cap means that the total amount of fuel used in a market cannot exceed the cap via emissions produced by that fuel's end use. A vehicle tailpipe emission (fuel consumption) standard would similarly require fuel consumption limits.
• Some laws affect behavior, such as a price penalty (tax) for higher-carbon behaviors or an economic incentive for implementing lower-carbon technologies.

The IEO2023 cases include both policy types—policies that directly or indirectly target energy-related carbon dioxide emissions—as they relate to energy markets and where modeling allows. The energy sector components of a country's Nationally Determined Contributions (NDCs) are included where they're codified in laws and regulations.

The WEPS model only represents emissions released from fossil fuel combustion related to energy use. Policies aimed at creating emissions sinks (such as forestry policies) and greenhouse gases (such as methane) aren't accounted for in our projections.

As countries enact climate-related policies, our model projects an increased prevalence of higher-efficiency technologies, which offsets the growth rate of overall energy consumption. In addition, during the projection period (2022–2050) it becomes more economically favorable to use less carbon-intensive sources of energy to meet demand. In summary, active climate policies are meaningful, relevant, and timely inputs to our IEO.

We include existing international climate laws and regulations in our IEO2023 cases. Because our climate policy assumptions reflect current laws and regulations, they remain the same across all modeled cases in IEO2023. In some regions, the distinction between policy statements and law is not clear. In these cases, our analysts use their best judgment, based on their expertise in those areas. Analyst judgement may incorporate many considerations, including:

• A country's previous history in achieving policy statement requirements
• A country's financial ability to achieve policy statement requirements
• A country's economic incentives related to policy statement requirements
• Existing contracts (for example, liquefied natural gas)
• Regional trade flows