Oil Change International

Exposing the true costs of fossil fuels

Why Does the IEA Keep Forecasting Climate Failure?

There’s a battle taking place over how we think our energy future will unfold. And tomorrow, the organization that arguably holds a near monopoly over how most decision-makers perceive this future – the International Energy Agency (IEA) – will release its latest volley.

Perceptions matter, because they shape how long-lasting energy decisions are made today. Are we planning for a future without coal, oil and gas? Or are we assuming our fossil fuel dependence continues to grow?  Will we decarbonize our energy system quickly enough to avoid a climate catastrophe? Will fossil fuels continue to dominate for decades to come?  

Every year around this time, the IEA, a global energy advisory body working on behalf of 30 member countries, releases its vision for our energy future – World Energy Outlook (WEO). If you have heard a prediction about the future of global energy, there’s a very good chance it comes from WEO. Created using a sophisticated econometric energy model, energy statistics, a global database of energy policies, and of course many subjective assumptions – WEO explores several distinct possible futures.

Not one of IEA’s scenarios, however, describes a future where we are likely to be successful in reaching climate safety. For media, governments, investors, or anyone else making decisions on energy, you would hope their guide shows them a path to achieving a safe climate future. But IEA is failing to do this.

Energy outlooks are self-fulfilling prophecies. Everywhere we turn, we see examples of IEA’s analysis being used to justify new fossil fuel infrastructure that would trash our chances at a safe future. IEA’s long shadow is cast over investment decisions, regulatory hearings, industry lobbying, and policy supporting the ongoing growth of fossil fuels. Each decision locks in carbon, bringing the IEA’s vision of climate failure one step closer to reality.

WEO’s main base case, the ‘New Policies Scenario,’ assumes governments enact their existing policy commitments and no more, with the result that oil and gas demand continue to rise until 2040. This is a dark vision of climate catastrophe. A majority of WEO readers it seems, accept this vision as a prediction of the future. IEA sometimes tells us that it is not advocating for, or even necessarily predicting, the given outcome – it is showing what would happen given certain assumptions. But in making that claim, the IEA is ignoring how the WEO is read and used in practice.

IEA also has a ‘climate scenario’ (known as 450S), which assumes greater action in the future. Some decision-makers use this to consider an alternative future for investments or policies (though most interpret the base case as the most likely). Unfortunately, it describes a future where the odds that temperatures will be kept below the critical 2°C danger level are no better than a coin toss. Planning for a future with a 1 in 2 chance of failure is reckless.

IEA’s ‘climate scenario’ is not based on the goals of the Paris Agreement, which see a 2°C warming limit as an absolute maximum that could be tolerated, not an aspirational goal to aim for. This, in spite of the fact that all of its 30 member countries (save Turkey) have signed and ratified the accord. The Paris Agreement calls for a future where global temperature rise stays well below 2°C while aiming for 1.5°C. The carbon budget required to stay within that range is far lower than the one used in 450S.

The IEA has other ways of shielding fossil fuels from the reality of climate change. Its analysis has a history of under-forecasting renewable energy deployment and over-reliance on unproven carbon capture and storage schemes. IEA analysis has also hidden the required speed of emissions cuts by assuming more can take place after the horizon of its forecasts. Combined, these make it possible for IEA to claim that fossil fuel demand will be much higher in 2040 than is actually required or safe.  

The distortion and lack of ambition in IEA’s climate model is so substantial that Shell, one of the few oil companies that bothers to acknowledge IEA’s climate scenario, uses the weak ambition in 450S as a shield to downplay its carbon risk to investors.

In spite of some positive moves on climate in recent years, the IEA was created to serve the incumbent fossil fuel industry and it remains largely captured. Of the membership of IEA’s only recognized advisory group, the IEA Energy Business Council, 89% are companies which produce, consume, service, finance, or lobby for fossil fuels. IEA still convenes a cretaceous era ‘Coal Advisory Council.’ It has organized regular carbon capture and storage summits. And it is increasingly dedicating its efforts towards promoting natural gas as a ‘bridge fuel’ – in spite of ample evidence to the contrary (read our new gas briefing here).

While the IEA may be a dominant force in controlling our understanding of the future, it’s far from the only player. What little space for influence that remains is mostly dominated by international oil companies. This is no accident. Shell was actually the first to pioneer the use of energy scenarios in the early 1970’s as a way to plan internally. But before long, Shell and the others began to realize that energy outlooks were better employed in shaping perceptions of the future of energy, rather than describing it.

Today, BP, Shell, Statoil, Exxon, and others publish regular energy outlook scenarios describing their fantasy futures, and arguing that their core business won’t be threatened by action (or lack thereof) on climate change. As OCI uncovered in ourForecasting Failure” report earlier this year, international oil company outlooks are a powerful PR exercise, not credible analysis. Oil company forecasts systematically underestimate the pace of renewable energy investment and other disruptive technologies, assume policy failure to address climate change, and envision endless expansion for fossil fuels in our future. They continue to receive considerable mainstream recognition, despite the obvious conflicts of interest.

So, now that the outlook for our future has been captured by industry, how do we take it back?

We at OCI see multiple fronts to push back against energy outlooks that forecast climate disaster. Analysts are using industry data and carbon budgets to debunk bad outlooks. Media, investors, and policymakers are catching up on forecast literacy. And the IEA is under pressure from a growing campaign to change its ways. To be successful, however, the broader climate movement will need to work together to shine a light on this hidden, but critical piece of the climate problem.

Sometimes the IEA talks the talk on climate: it calls for governments to do more. But if it means it, the IEA must stop leading them down the wrong path. The WEO must use a climate scenario as the base case, which is where it focuses most of its narrative and data. And this climate scenario must reflect the Paris goals.

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