Final energy consumption - outlook from IEA (Outlook 011) - Assessment published Jun 2007

Indicator definition

Definition: Final energy consumption covers all energy supplied to the final consumer for all energy uses. It is usually disaggregated into the final end-use sectors: industry, transport, households, services and agriculture.

Model used: World Energy Model (WEM)

Ownership: International Energy Agency

Temporal coverage: 2004 - 2030

Geographical coverage: ^{Transition countries, excluding the Russian Federation (Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Estonia, Serbia and Montenegro, the Former Yugoslav Republic of Macedonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Republic of Moldova, Romania, Slovenia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, Cyprus, Malta); the Russian Federation; OECD Europe (Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, Turkey, the United Kingdom); USA; India; China.}

Units

Total final consumption in absolute terms is measured in million of oil equivalent (Mtoe).
In relative terms it is provided in percentage.

Policy context and targets

Context description

The indicator shows the trends in total final energy consumption and the contributions of each end-use sector and each energy type. It can be useful to monitor  perfomances of the wide range of policies at pan-european and national level that attempt to influence energy consumption and energy efficiency, and, therefore, extent of environmental impacts.

Global policy context

The major documents that relate to trends of the energy consumption at the global level were developed and presented during the World Summit on Sustainable Development  in Johannesburg (WSSD,2002) in Agenda 21. WSSD, 2002 aims to achieve a sustainable energy future, including diversified energy sources using cleaner technologies. Moreover, there is a number of sub-negotiations and declarations concerning more sustainable ratio in balance between a global energy supply and consumption of different energy types.

Pan-European context

The recent pan-european policies concerning different aspects of energy consumption and efficiency have been developed under different intenational fora. 

The Committee on Sustainable Energy seeks to reform energy prices and subsidies and ways how to carry out it to meet more sustainable energy production and consumption in the region (UNECE Guidelines).

Kiev Declaration " Environment for Europe" (2003) aims at supporting further efforts to promote energy efficiency and renewable energy to meet environmental objectives.

EU policy context

On 23 January 2008 the European Commission adopted the 'Climate Action and Renewable Energy' package. The Package sets a number of targets for EU member states with the ambition to achieve the goal of limiting the rise in global average temperature to 2 degrees Celsius compared to pre-industrial times including: GHG reduction of 20% compared to 1990 by 2020. (under a satisfactory global climate agreement this could be scaled up to a 30% reduction); 20% reduction in energy consumption through improved energy efficiency, an increase in renewable energy's share to 20% and a 10% share for sustainably produced biofuels and other renewable fuels in transport. With these goals in mind, each Member State will by June 30th 2010 submit a National Renewable Energy Action Plan to the Commission.

EECCA policy context

The main policy illustrating regional objectives of EECCA countries is EECCA Environment Strategy. One of the main goals is "to contribute to improving environmental conditions and to implement the WSSD Implementation Plan in EECCA countries" regarding energy issues as well as Kiev Declaration's energy perfomance tasks.

Targets

Structural goals and targets

Global level

• Implement energy strategies for Sustainable Development, including diversified energy sources using cleaner technologies (WSSD)

Pan-European level

• Increase the share of renewable sources...to meet environmental objectives (Kiev Declaration)

EU level

"Climate Action and Renewable Energy Package" of December 17th 2008/April 6th 2009 stes targets of saving 20% of energy consumption by 2020, increase the share of renewables in its overall energy mix to 20%, including a 10% biofuel target for transport by 2020.

Other related EU tagets

• 10% biofuel target for transport by 2020 (2008, Climate Action and Renewable Energy Package )
• Greater energy recovery from waste (2006 EC Thematic Strategy on Waste)
• Diversifying energy supplies, including via new infrastructure (e. g. pipelines) (2006 EC Green Paper on energy)
• Trans-European Energy networks, also beyond EU (2006 EC Green Paper on energy)

EECCA

• energy infrastructure improvements for sustainability by 2025 (EECCA Strategy)

Efficiency goals and targets

Pan-European level

• to improve energy efficiency (Kiev Declaration)

EU level

• 20% reduction in energy consumption through improved energy efficiency, (2008, Climate Action and Renewable Energy Package)
• "Reduce energy demand", including via labelling for buildings and appliance (EU Sustainable Dev. Strategy, 2001)

EECCA level

• Repair, modernise and/or decommission obsolete or accident-prone equipment at hydropower facilities (Cooperation Strategy to promote Rational and Efficient Use of Energy Resources in Central Asia)
• Introduce energy-conservation technologies (EECCA Strategy)

Link to other policy goals and targets

Pan-european level

• Reforming energy prices and subsidies (UNECE Guidelines)

EU level

• Promoting carbon capture and storage. Up to 12 demonstration projects for CCS and innovative renewable energy technologies will be funded from the proceeds from auctioning 300 million EU ETS allowances. (2008, Climate Action and Renewable Energy Package)
• Greater support for R&D for: For 2007-2013, the EU has substantially increased its research and development budget for environment, energy and transport to €8.4 billion. This is helping to support the deployment of clean technologies as well as further strengthening knowledge of climate change and its impacts.(2008, Climate Action and Renewable Energy Package)
• Strengthening and expansion from 2013 of the Emissions Trading Scheme (EU ETS)  (2008, Climate Action and Renewable Energy Package)

• An international agreement on energy efficiency (2006 EC Green Paper on energy)

• Major infrastructure investment in transport, energy and environment (2006 re-launched Lisbon strategy)

EECCA level

• Improve integration of energy efficiency and environment into energy policies (EECCA Strategy)
• Remove adverse energy subsidies (EECCA Strategy)
• Support regional cooperation for energy trade (EECCA Strategy)
• Incorporate energy efficiency into climate change policies (EECCA Strategy)

Related policy documents

• European Commission's Energy Package (10/01/2007)
   

Methodology

Methodology for indicator calculation

Total final energy demand (consumption) is the sum of energy consumption in each final demand sector. In each sub-sector or end-use, at least six types of energy are shown: coal, oil, gas, electricity, heat and renewables. However, this aggregation conceals more detail. For example, the different oil products are modeled separately for the transport sector, and renewables are split into "biomass and waste" and "other renewables". Note that the terms "total final energy demand" and "total final energy consumption" are convertible accordingly to the World Energy Outlook 2004.

The projections are made with the use of the World Energy Model 2004 developed by Internation Energy Agency.

Overview of the World Energy Model 2004 (WEM)

The WEM is a mathematical model made up of five main modules: final energy demand, power generation; refinery and other transformation; fossil fuel supply and CO2 emissions. Figure C1. (World Energy Outlook, 2004, p.532) provides a simplified overview of the structure of the model.

The main exogenous assumptions concern economic growth, demographics, international fossil fuel prices and technological developments. Electricity consumption and electricity prices dynamically link the final energy demand and power generation modules

The IEA's WEM is a principal tool used to generate detailed sector-by-sector and region-by-region projections for the Reference and the Alternative Scenarios. (see definitions of scenarios under section reference scenario). The model has been updated and revised over years and the development process continues.
In the WEM 2004 projections of Total Final Energy Consumption are made within 4 sectors: Industry, Transport, Residential and Services, and non-Energy Use sectors.

Industry sector

The industrial sector in the OECD regions is split into six sub-sectors: iron and steel, chemicals, paper and pulp, food and beverages, non-metallic minerals and other industry. For the non-OECD regions, the breakdown is typically based on four instead of six sub-sectors.

The output level of each sub-sector is modelled separately and is combined with projections of its fuel intensity to derive the consumption of each fuel by sub-sector.

Transport sector

Transport energy demand is split between passenger and freight and is broken down among light duty vehicles, buses, trucks, rail, aviation and navigation. Passenger cars and light trucks are subdivided by fuel used - gasoline, diesel, alternative fuels or hybrids of these. Freight trucks are divided between gasoline- and diesel-driven. The gap between test and on-road fuel efficiency is also projected.

For each region, activity levels for each mode of transport are estimated econometrically as a function of population, GDP and price. Additional assumptions to reflect passenger vehicle ownership saturation are also made. Transport activity is linked to price through elasticity of fuel cost per km, which is estimated for all modes except passenger buses and trains and inland navigation. This elasticity variable accounts for the "rebound" effect of increased car use that follows improved fuel intensity.

Residential and services Sectors

For the certain number of the non-OECD regions, energy consumption in the aforementioned sectors has been calculated econometrically for each fuel as a function of GDP, the related fuel price and the lag of energy consumption. For the OECD regions and major non-OECD regions, the number of households using each fuel for water heating and space heating is projected econometrically, with some saturation limits on shares.

Lighting intensity and appliance intensity per household are then projected separately and combined with total household numbers to yield electricity demand for these end-uses.

The services sector model splits consumption by fuel into three end-uses: heating, hot water and cooking use (HHC); personal computer use (including related equipment); and other electricity end-uses, including ventilation, space cooling and lightning.

The procedures for calculation of the non-Energy Use sector was not identified in the World energy Outlook 2004 methodology description.

Detailed schemes for calculating projections for other sectors mentioned above are presented in pp. 537, 538 of the World Energy Outlook 2004 (Annex. C)

Key model assumptions for the reference case

The central projections derived from a Reference Scenario. They are based on  a set of assumptions about governmental policies, microeconomic conditions, population growth, energy prices and technology.

Governmental policies and measures
The reference Scenario takes into account only those governmental policies and measures that were already enacted - though not necessary implemented - as of min-2004.   The Reference Scenario does not include possible< potential or even likely future policy initiatives. Major new energy policy initiatives will inevitably be implemented during the projection period, but it is difficult to predict which measures will eventually be adopted and how they will be implemented, especially towards the end of the projection period.

Although the Reference Scenario assumes that there will be no change in energy and environmental policies through the projection period, the pace of implementation those policies and the way they are implemented in practice are nonetheless assumed to vary by the fuel and region. For example electricity and gas market reforms are assumed to move ahead, but at varying speeds among countries and regions. In all cases, the share of taxes in energy process is assumed to remain unchanged, so that retail process are assumed to change directly in proportion to international prices. Similarly, it is assumed that there will be no changes in national policies on nuclear power. As a result, nuclear energy will remain an option for power generation only in those countries that have not officially banned it or decided to phase it out.

Macroeconomic factors
Economic growth is by far the most important driver of energy demand. The link between total energy demand and economic output remains close. Detailed GDP assumptions by region are set out in Table below.

Economic Growth Assumptions (average annual growth rates, in %)

Population growth affects the size and composition of energy demand, directly and through its impact on economic growth and development. The WEO population growth rate assumptions are drawn from the most recent UN populations' projections contained in World population Prospects: the 2002 Revision. Detailed populations assumptions by region are set out in Table below.

Population growth assumptions (average annual growth rates, in %)

As in previous additions of the WEO, average and-user process for oil, gas and coal are derived from assumed price trends on wholesale or bulk markets. Tax rates are assumed to remain unchangeable over the projection period. Final electricity prices are based on marginal power generation costs. The assumed price paths assumed in the table presented below should not be interpreted as forecasts. Rater, they reflect IEA judgment of the prices that will be needed to encourage sufficient investment in supply to meet projected demand over the Outlook period.

Fossil-Fuel Price Assumptions (in year-2000 dollars)

Technological innovation and the rate of development of new technologies for supplying or using energy are important considerations. In general, it is assumed that available end-use technologies become steadily in use and the overall intensity of energy consumption will depend heavily on the rate of retirement and replacement of the stock of capital. Since the energy-using capital stock in use today will be replaced only gradually, most of the impact of technological developments that improve energy efficiency will not be felt until near the end of the projection period.

The rate of capital-stock turnover varies considerably according to the type of equipment. Most cars and trucks, heating and cooling systems and industrial boilers will be replaced by 2030. on the other hand, most existing buildings, roads, railways and airports, as well as many power stations and refineries will still be in use then. The very long life of this type of energy-capital stock will limit the extent to which technological progress can alter the amount of energy needed to provide a particular energy service. Retiring these assets before the end of their normal lives is usually costly and would, in most cases, require major new governmental initiatives - beyond those assumed in the Reference Scenario. Refurbishment can, however, achieve worthwhile improvements in energy efficiency in some cases.

Technological developments will also affect the costs of energy supply and the availability of new ways of producing and delivering energy services. Power generation efficiencies are assumed to improve over the projection period, but at different rates for different technologies. Towards the end of the projection period, fuel cells based on hydrogen are expected o become economically attractive in some power generation applications ad, to a much smaller extent, also expected to improve, lowering the unit production costs and opening up new opportunities for developing resources. But the Reference Scenario assumes that no new breakthrough technologies beyond those known today will be used before 2030.

The World Alternative Scenario

WEO also considers Alternative policy Scenario to analyze how the global energy market could evolve were countries around the world to adopt a set of policies and measures that they are either currently considering or might reasonably be expected to implement over the projection period. The purpose of this scenario is to provide insights into how effective those policies might be in addressing environmental and energy-security concerns.

Methodology for gap filling

The development and running of the WEM requires access to huge quantities of historical data on economic and energy variables. Most of the data are obtained from the IEA's own databases of energy and economics statistics. A significant amount of additional data from a wide range of external sources is also used.

The parameters of the demand-side modules' equations are estimated econometrically, usually using data fro the period 19971-2002. Shorter periods are sometimes used where data are unavailable or significant structural breaks are identified. To tae into account expected changes in structure, policy or technology, adjustments to these parameters are sometimes made over the Outlook period, using econometric and other modeling techniques. In regions such as transition economies, where most data are available only from 1992, it has not been possible to use econometric estimations. In such cases, IEA results have been prepared using assumptions based on cross-country analyses or expert judgment.

Simulations are carried out on annual basis. Demand modules can e isolated and simulations run separately. This is particularly useful in the adjustment process and in sensitivity analyses of specific factors.

The WEM makes use of wide range of software, including specific database management tools, econometric software and simulation programmes.

Methodology references

• World energy outlook 2004 IEA (2004) International Atomic Agency (2004) . World energy outlook 2004, OECD/IEA, Paris. Online not available

Uncertainties

Methodology uncertainty

In common with all attempts to describe future market trends, the energy projections presented in the Outlook are subject to a wide range of uncertainties energy markets could evolve in ways that are much different from either the Reference Scenario or the Alternative Policy Scenario. The reliability or WEM projections depends both on how well the model represents reality and on the validity of the assumptions it works under.

Macroeconomic conditions are, as ever, a critical source of uncertainty. Slower GDP growth than assumed in both scenarios would cause demand to grow less rapidly. Growth rates at the regional and country levels could be very different from those assumed here, especially  over short periods. Political upheavals in some countries could have major implications for economic growth. Sustained high oil process  which are not assumed in either of WEM scenarios - would curb economic growth in oil importing countries and globally in the neat term. The impact of structural economic changes, including the worldwide shift from manufacturing to service activities, is also uncertain, especially late in the projection period.

Uncertainty about the outlook for economic growth in China is particularly acute.

The effects of resource availability and supply costs on energy process are very uncertain. Resources of every type of energy are sufficient to meet projected demand through to 2030, but the future costs of extracting and transporting those resources is uncertain - partly because of lack of information about geophysical factor.

Changes in government energy and environmental policies and the adoption of new measures to address energy security and environmental concerns especially climate change, could have profound consequences for energy markets. Among the leading uncertainties in this area are: the production and pricing policies of oil-producing countries, the future of energy-market reforms, taxation and subsidy policies, the possible introduction of carbon dioxide emission-trading and the role of nuclear power.

Improvements in the efficiency of current energy technologies and the adoption of new ones along the energy supply chain are a key source of uncertainty for the global energy outlook. It is possible that hydrogen-based energy systems and carbon-sequestration technologies, which are now under development, could dramatically reduce carbon emissions associated with energy use. If they did so, they would radically alter the energy supply picture in long term. But these technologies are still a long way from ready to be commercialized on a large scale, and it is always difficult to predict when a technological breakthrough might occur.

It is uncertain whether all the investment in energy-supply infrastructure that will be needed over the projection period will be forthcoming. Ample financial resources exist at a global level to finance projected energy investments, but those investments have to compete with other sectors. More important than the absolute amount of finance available worldwide, or even locally, is the question of whether conditions in energy sector are right to attract the necessary capital. This factor is particularly uncertain in the transition economies and in developing nations, whose financial needs for energy development are much greater relative to the size of their economies than they are in OECD countries. In general, the risks involved in investing in energy in non-OECD countries are also greater, particularly for domestic electricity and downstream gas projects. More of the capital needed for energy projects will have to come from private and foreign sources than in the past. Crating an attractive investment framework and climate will be critical to mobilizing the necessary capital. 

Data sets uncertainty

Major challenge is a reliable input data energy statistics. The statistics of IEA which provide a major input to the WEO, cover 130 countries worldwide. Most time-series begin in 1960 for OECD counties and in 1971 for non-OECD countries. Recently, however, maintaining the very high caliber of IEA statistics has become increasingly difficult, in many cases because national administrations have faced growing problems in maintaining the quality of their own statistics. Breaks in time series and missing data have become frequent in some countries. The lapses compromise the completeness of IEA statistics. They could seriously affect any type of analysis, including modeling and forecasting.

The projections from WEO should not be interpreted as a forecast of how energy markets are likely to develop. The Reference Scenario projections should rather be considered as a baseline vision of how the global energy system will evolve if governments will take no further action to affect its evolution beyond that which they have already committed themselves to.

Rationale uncertainty

In common with all attempts to describe future market trends, the energy projections presented in the Outlook are subject to a wide range of uncertainties energy markets could evolve in ways that are much different from either the Reference Scenario or the Alternative Policy Scenario. The reliability or WEM projections depends both on how well the model represents reality and on the validity of the assumptions it works under.