World Energy Outlook 2025: Navigating Divergent Futures - Center on Global Energy Policy at Columbia University SIPA | CGEP
Tim Gould: As governments focus on their responses to these pressing energy security issues, they really need to take seriously the synergies and trade-offs with other policy goals, with affordability, with competitiveness, but also with climate change. Our job is not to tell people what the future is going to be, but it’s to make sure that we can have a well-structured conversation about what needs to happen and what might happen if we take certain choices.
Jason Bordoff: Rising geopolitical tensions, oil demand rising through 2050 or plateauing by the end of the decade, a wave of liquified natural gas supply coming to the global market, concentrated critical mineral supply chains, growing demand for electricity and shifting energy policies. Around the globe. And here in the United States, energy markets face huge uncertainties and those uncertainties are reflected in this year’s world energy outlook by the International Energy Agency, which explores a range of possible energy futures, particularly around oil and gas demand, as well as many other forms of energy.
So how have energy policies at the country level, growing economic warfare and rising prices impacted the IEA’s outlook? How should we understand the role of energy security and geopolitical risk. Here in the US, how have policy shifts around energy and climate impacted the energy outlook and how central to the outlook is the transition to electric mobility or the pace of energy innovation?
This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff. Today on the show, Tim Gould.
Tim is the chief economist at the International Energy Agency. As part of this role, he co-leads the work on the world energy outlook. Tim joined the IEA in 2008 as a specialist on Russian and Caspian energy and before joining the IEA, he worked on European and Eurasian energy issues in Brussels. As he did last year, Tim joined me to talk about the IEA’s flagship annual report just days after its release. We discussed the range of risks and vulnerabilities related to global energy trends, the chances of long-term demand growth for oil and gas, and challenges related to meeting the growing demand for electricity. We also talked about energy access trends in the developing world, and we considered how new generation sources may play out in the different scenarios. I hope you enjoy our conversation.
Tim Gould, welcome to Columbia Energy Exchange again. Great to have you here and what I know is a very busy week for you and all your colleagues at the International Energy Agency after releasing the WEO. Grateful to you for making time to be with us.
Tim Gould (02:49): Well, thanks very much, Jason. It’s always a pleasure.
Jason Bordoff (02:51): So this was, as always, every year the world energy outlook is much anticipated, maybe especially so this year given things you and your colleagues had said about new scenarios that would be included. And just want to make sure everybody understands what this world energy outlook says. There’s been a lot of coverage about different parts of it, but from your standpoint, just for everyone listening, how would you characterize the main takeaways, the main insights that you think people should understand from this year’s world energy outlook?
Tim Gould (03:22): So thanks, Jason. I think the thing that strikes us about the starting point for today’s world energy outlook is just the sheer range of energy security issues that we face across different parts of the energy sector. That’s true for oil with sanctions. It’s true for gas with the continued uncertainty and reverberations of Russia’s cut to pipeline gas supply to Europe, electricity. We’ve had blackouts in Chile, we’ve had blackouts in the Iberian Peninsula, but there’s also other elements. I mean in the race for AI, it seems that now elements like transmission lines are becoming highly politicized and a matter of also economic security and of course looming in the background. There’s all these questions that you’ve discussed so well as well on supply chains, concentration, critical minerals. And so that’s one of the features of the starting point for this discussion. And into that, we put our suite of scenarios.
(04:21): I’m sure we’ll end up discussing a lot of the differences between them, but there are some common elements that are perhaps worth highlighting to start off. And one of them is just that rising role of electricity in the energy system. So a lot of times you’ll get people focusing on the fact that it’s only slightly over 20% of final consumption, but it’s the key input for economic sectors that really account for 40% of global GDP and all the ones that are in the news around tech and advanced manufacturing and digital services and so on. And a second—
Jason Bordoff (05:01): And you see rising electrification, sorry, I didn’t mean to interrupt, but you see rising electrification in all scenarios, not just ones that assume deep decarbonization.
Tim Gould (05:09): That’s really common across the board. So electricity use is rising much faster than overall energy use. Another common element is this feeling that the baton is passed from China to a larger group of emerging and developing economies when it comes to having that determining influence on global energy trends, because China’s changing, it doesn’t have the same influence on the growth in energy demand as perhaps it did over the last 10, 15 years. And instead it’s really India, Southeast Asia, perhaps the Middle East, Latin America that are driving some of those global trends forward. Third, a common element in all our scenarios is that renewables do well. And one of the reasons for that is that by and large, the countries that are the focus for energy demand growth are also ones where the solar resource is very good. So there’s a good fit between the energy demand trends and also the availability of a high quality solar resource. And indeed the availability of the technology—solar panels are cheap and widely available. So that’s one of the reasons why renewables in general, but solar in particular does quite well in our outlook.
Jason Bordoff (06:27): And so I’m really glad you started with energy security and geopolitical risks both to traditional oil and gas and to emerging technologies, critical minerals, the power grid. Obviously, as you know, that’s something I’ve thought about, written about for quite a while, so I want to talk about that and what the other trends are. Given that it made headlines in places like the Financial Times and Bloomberg and elsewhere, I just wanted to make sure our listeners understood as a starting point, the return of the so-called current policy scenario. So you have these different scenarios. The way I’ve always thought about them, but maybe I misunderstood, is there’s scenarios. What would it look like in a world where we achieve net zero by 2050? I don’t think anyone thinks that’s the path we are currently on track for, but it’s helpful to understand what that would look like. And then there was a reference case, a baseline that said, here’s the closest approximation to where the world may be headed today. That may be the wrong way to think about something like the stated policy scenario, but now you have two, current policy and stated policy. Just help people understand the difference between the two and how should we think about the best outlook today for where the world is currently headed on current trends?
Tim Gould (07:39): So thanks for that, Jason. And indeed, you need to distinguish clearly between scenarios that are designed to hit specific outcomes like the net zero emissions by 2050 scenario and ones that set up a series of starting conditions and then see where they lead. And indeed the current policy scenario and the stated policy scenario are two of those exploratory scenarios. The key difference between them is that in the current policy scenario, it’s much more of a static view, a snapshot of legislation that’s in place today already affecting the energy sector. And we also feel that in that kind of setup, there are more barriers to bringing new technologies into the system. So it is one where the pace of change by design is less rapid than in the stated policy scenario where we take a slightly broader and more dynamic, shall we say, view about the policy settings we take into account—not just what’s in place already, but the things that governments say they intend to achieve. And when we talk about things like that, we don’t mean long-term aspirational goals.
Jason Bordoff (08:52): You don’t mean we promise to be net zero by 2050 and it’s just a target or a goal.
Tim Gould (08:57): Exactly. There has to be a detailed sectoral policy that’s in the process of going through the legislative or regulatory process. We would also take into account things like power sector development plans, which are common in emerging and developing economies, which give a sense of where the governments or where the authorities feel that they see their power sector developing. And that gives us orientation for the future in a way that we wouldn’t take into account in the CPS.
Jason Bordoff (09:28): Is there one or two concrete examples you can give listeners just so they can form their own judgment? I mean people will maybe disagree about what kind of assumptions are reasonable or not in a dynamic policy environment, but as you said, it’s not just people promising to be net zero by 2050. What’s an example of a concrete thing that is in current policy and how it’s different in STEPS when people think about policy differences?
Tim Gould (09:54): Well, I mean I saw your article in Foreign Policy and you cited one there, which I’m just going to repeat now. It’s an example of a fuel efficiency standard which has a certain rate of improvement to a defined date. I think you mentioned Japan to 2030. In the CPS that is achieved and then it kind of flatlines after 2030. In the stated policy scenario, we would assume that it’s replaced by an initiative of similar intensity. So you’d see continued progress along that line beyond the stated end date of the policy. That’s the sort of difference that you’d have between those two approaches.
Jason Bordoff (10:36): And when you made the comment about you assume that there are more barriers or slower uptake of new technology, are there differences in when people think SMRs might have a breakthrough or is it smaller more piecemeal things about permitting reform and the ability to build infrastructure and things like that?
Tim Gould (10:56): So I think it’s more the latter. An issue that we mentioned quite a lot in the outlook is how successfully do governments grapple with, say, grid integration challenges for renewables? So what’s the assumed level of curtailment of new solar coming into the system? How cost effectively do we use some of those new resources that come in? And by and large in the CPS, we would take a slightly more downbeat view of how successfully governments grapple with that and we take a slightly more upbeat view in the STEPS. So that’s another way to differentiate the sorts of outcomes that we get.
Jason Bordoff (11:32): And so just so I think people at this point probably will have seen some of those articles. So in that more static view, current policy, because in your previous outlooks the last couple of years, or at least last year, you had demand for all fossil fuels peaking by the end of this decade. I think that is still the case, at least for oil and coal by 2030 in the stated policy scenario. And in current policy, oil demand keeps rising to 113 million barrels a day from around a hundred today by 2050. And as you know, there have been people who’ve been critical that the IEA has been over optimistic about the outlook for transitioning away from fossil fuels. How should people see those two scenarios and how should they understand where the world is headed today?
Tim Gould (12:16): Well, I think it’s useful to dig in to understand the reason why we get those different outcomes. So if you take the oil demand outlook that you’ve just mentioned, we have that flattening in the stated policy scenario around 102 million barrels a day at the end of this decade, but continued growth in the CPS all the way through to 2050. Now there’s a number of reasons for that. I mean, we just talked about fuel efficiency policies. There’s also differing views on how successful we are at collecting and recycling plastics, which affects then the demand for oil products as a petrochemical feedstock. But the really key differentiating factor is in road transport and about how widely you start to see electric mobility picking up. There are important countries that go ahead down that electrified route no matter which scenario we’re talking about. And China’s clearly the one that everyone is focused on.
(13:15): So 50% of new car sales in China today are electric. That’s over 90% by 2035 in all of our scenarios. And it’s important to have in mind in relation to China, that it’s not just about cars, it’s all modes of road transport. And there’s some really remarkable numbers coming out of China now on the road freight side where sales in the first half of this year were 25% of heavy freight sales were electric and another 20% were LNG fueled trucks. So that’s a really big change from where we were. So there’s important things happening in China and in the CPS, they’re followed down that electrified route by Europe, but elsewhere there are some barriers that prevent electricity being the fuel of choice for mobility. And they could be barriers like the absence of recharging infrastructure, which means then that sales in the CPS are confined only to that relatively well off segment of populations where they have the option to charge at home, but they don’t become a mass adoption technology. Whereas in the stated policy scenario, we take a slightly more expansive view about how rapidly those technologies are introduced to the system, not just in the established markets, but also in many of the emerging and developing economies where you are already starting to see some pickup in sales in places like Vietnam, Ethiopia, and some other countries.
Jason Bordoff (14:55): But in the current policy scenario where oil demand keeps rising outside of China and the European Union, the uptake of electric vehicles you’re saying is pretty flat. And so people will make different judgments about what they believe the outlook to be. But if you think penetration of EVs into the transport sector is going to grow outside of those regions, the US, Southeast Asia, that would take you to a place that looks more like stated policies and a gradual plateau and maybe gradual decline after that as reflected in stated policies. Is that what I’m hearing you say?
Tim Gould (15:31): Yeah, exactly. And in a sense we’re delegating that choice to the reader, but it’s very important to understand not just the headline numbers, but really what are the things that differentiate the scenarios and then people can take a view as to which one they think better coincides with the world that they see, the world that they anticipate.
Jason Bordoff (15:51): Can I ask what you see? I don’t know if that’s a fair question, but when you look at the US rolling back some clean energy policies, pushback with concerns of energy security and affordability, when one looks at what’s happening in the world today, does it seem closer to one of those two scenarios to you?
Tim Gould (16:10): Jason, I’m going to give a very safe answer here because I mean in the end, from where I’m sitting right now, I can see the benefits of having multiple scenarios because I think it allows for—I was very impressed with the conversation you had recently with John Arnold, the importance of a data-driven conversation about energy. And I think the scenarios that we produce allow for that. And I think that’s the service that we’re trying to provide to the energy debate.
Jason Bordoff (16:40): And as you said, one of the key drivers there will be geopolitics, energy security and how countries respond to that. Can you talk a little bit more about how that plays out in ways that would affect the outlook for energy? The executive summary of the world energy outlook talks quite a bit about how geopolitics is front and center and help people understand in a granular way what that means. Does the BP outlook, for example, talk a lot about how if countries try to reduce dependence on China and have much more domestic manufacturing, it’s very cost inflationary and that could slow down the pace of adoption of clean energy? Is that one example? And what are other examples of how this rise of geopolitics affects the scenarios?
Tim Gould (17:27): So I think when you’re looking at choices through that energy security lens, you tend to prize sources that you attach a high reliability to. And in many cases those would be domestically produced sources. But of course there are trade-offs there because one of the other things that’s very visible when you look at the energy system today is that there is ample manufacturing capacity for a lot of technologies that is available, that could be available on the basis of imports. That’s true for batteries, it’s true for solar panels. There’s plenty of oil in the market today as well. And within a few years there’s going to be this extraordinary influx of supplies of LNG onto international markets. So there’s a tension there between that energy security mindset, shall we say, and the fact that we don’t see, at least for the next few years, the prospect of much tighter supplies for some key parts of the energy system.
(18:32): I was very interested to listen to your discussion with Meghan O’Sullivan on this podcast a few weeks ago. And I think Meghan made the point that where you see what you’ve talked about as the weaponization of energy, you need to see market concentration and you need to see tight supplies. Well, at least for the next few years though, that tightness on the supply side is not particularly visible for some of the key parts of the system. It is though becoming visible for critical minerals. I think copper is a good example of that where you have seen inflationary pressures on copper prices and of course you’ve had the geopolitical concerns over resilience of those supplies as well
