Oil Change International

Exposing the true costs of fossil fuels

Upcoming EIA Energy Outlook: Not a Forecast

As energy wonks across the country gear up for the release of the Energy Information Administration’s (EIA) International Energy Outlook (IEO), we here at Oil Change International wanted to be sure everyone is on the same page as we read over the EIA’s analysis.

Most importantly, when it comes to the words “outlook” or “forecast” in reference to the EIA’s scenarios, the classic line from The Princess Bride comes to mind: “You keep using that word. I do not think it means what you think it means.”

Whether it’s the EIA’s “Annual Energy Outlook” or this upcoming International Energy Outlook, what the EIA is doing is not putting out a “forecast” in the usual sense of the word. The EIA’s work is not intended to be a prediction of what the future will look like. Rather, the outlooks are a set of scenarios that project energy dynamics under a specific set of conditions.

In particular, the EIA’s Reference Case is often referred to as a roadmap of where energy is heading. This scenario in particular must be understood for what it is. But rather than take my word for it, a couple lines from the EIA itself are helpful here:

“EIA’s AEO Reference Case projections provide a critical jumping-off point for analyses that assess the implications of potential new policies that go beyond current laws and regulations. But it is vital to consider the EIA Reference Case in its proper context, incorporating existing laws and policies rather than as a singular most likely case.

Put into simpler terms, the Reference Case should not be seen as a forecast of future energy supply and demand; instead it should be seen as a starting point for assessing the impact of other possibilities.

This was made clearer in a statement during the launch of the EIA’s 2015 Annual Energy Outlook: “Projections in the Annual Energy Outlook 2015 (AEO 2015) focus on the factors that shape U.S. energy markets through 2040 under the assumption that current laws and regulations remain generally unchanged throughout the projection period.”

Think about that for a second. Putting aside our disdain for a do-nothing Congress, it’s hard to imagine a world where laws and regulations remain unchanged for decades at a time. It simply doesn’t happen. And that doesn’t even begin to touch on technological change, which in recent years has led to an unprecedented rise in efficiency and renewable energy generation that has surpassed all expectations, including the EIA’s.

But despite these explicit future policy neutral assumptions in the Reference Case, many commentators treat the report as a forecast and appear surprised or outraged when reality turns out differently. They would be wiser to heed the words of one analyst from the University of Texas.

As reported by Alan Neuhauser at US News and World report:

“These poor forecasters at EIA have the hardest job in the world,” says Michael Webber, deputy director of the Energy Institute at the University of Texas at Austin, says of the EIA forecasts. “They’re required by law to be wrong.”

Unfortunately, most observers of these EIA reports do not understand, or do not want to understand, the implications of this. Webber makes this very clear in Neuhauser’s article.

“The effort to become policy-neutral becomes an accidental policy statement,” Webber says. “It’s a very mild policy statement but one that people run with, and it’s very potent. People who don’t want change end up the getting the ammunition they need to prevent the change.”

This gets to the heart of the issue. We know that the end of the fossil fuel era is fast approaching, if not already underway. With the Paris Agreement struck last year by over 190 countries, massive new movements standing in the way of new fossil fuel infrastructure, and politicians starting to wake up to the fact that acting on climate is a political winner, it makes no sense to consider a “no new policy” scenario as a realistic forecast of the future. Indeed, the Reference Case is only really useful for showing us the future we must avoid. A future in which  fossil fuel use and emissions continue at a similar pace to the past is a future that the world is increasingly mobilizing to prevent.

However, those that intend to resist that change in order to continue profiting from fossil fuels are comfortable with Reference Case as a forecast despite the dangers.

David Roberts from Vox has written numerous critiques of energy modeling in recent years. His most recent overview gives a great overview of this dynamic as well. It’s well worth a read. On the reference case, he writes:

“…EIA’s public communications tend to emphasize its “reference case,” its baseline scenario, giving the impression that it constitutes a prediction.It is not a prediction. It is not even meant to be taken as any more probable than any other scenario. It is just the center in a range of scenarios.But journalists and pundits can’t help treating it as a prediction. What’s worse, utility executives and energy investors treat it that way. It distorts their decisions, causing them to underestimate wind and solar growth.”

So, as we gear up for the latest from the EIA, here’s hoping we can remember to look around us at the reality of our energy future. That reality is one that sees massive movements standing up and demanding action by our decision-makers to move away from fossil fuels. That reality is one where renewables are surging and fossil fuels are faltering. That reality is one where our fossil fuel fatalism is no longer.

Any scenario that suggests our energy policy will remain static is not a prediction or a forecast, but a roadmap to a disaster we are striving to prevent. Reporting of the IEO should reflect this rather than uncritically parroting the numbers within as if they have been written in stone.

Our future depends on a radical change in energy and the world’s leaders have made explicit commitments to bring about this change. We need all agencies within government to contribute to realizing those commitments. The EIA should not only produce an energy scenario that reflects those commitments, but should also be much more assertive about what the Reference Case actually is, and how it should be regarded by energy professionals.

So if in the next week you read reporting of the International Energy Outlook that speaks uncritically of continued dependence on fossil fuels into the 2040s and beyond, we hope you will know what that really means. The future will not be static. The only thing that is in fact inevitable, is radical change.

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