Climate Considerations in the International Energy Outlook 2021 (IEO2021)
Release date: October 6, 2021
Executive Summary
In developing our International Energy Outlook (IEO) Reference case, EIA includes only existing climate law that can be reasonably quantified using our World Energy Projection System (WEPS) and assumes no changes in current law. Our Reference case can serve as a base to assess possible legislated energy sector policies as IEO side cases.
Background
EIA’s International Energy Outlook 2021 (IEO2021) presents our analysis of long-term world 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. Multiple net-zero and fossil-fuel-reduction goals and policies have been announced since IEO2019, published September 24, 2019. These goals and policies are especially prevalent in OECD countries and in the electricity and industrial sectors. These policies have multiple 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 amount of 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.
As countries enact these policies, our assumptions project an increased prevalence of higher efficiency technologies, decreasing the growth rate of overall energy consumption. In addition, 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.