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China and India Expected to Drive New Energy Demand Through 2040

Last Thursday, at an event at Columbia University’s Center for Global Energy Policy, the U.S. Energy Information Agency highlighted major trends they expect to see in the energy and electricity sectors over the next 25 years, including a 48% increase in total energy demand driven primarily by increasing economic development in China and India.

The EIA’s annual “International Energy Outlook” report, which was originally released in May, looks at changes in energy and electricity demand, fuel sources, and production based on business-as-usual policies combined with technological, demographic, and economic trends around the world. The report provides a good baseline for the energy picture of the future and highlights some of the challenges that will need to be overcome through a combination of policy change, public and private investment, and technological development.

One of the most notable projections in the EIA report highlights the shift in energy demand from OECD countries like the United States, EU members, Japan, and South Korea to developing non-OECD countries like China and India.

Overall, global energy demand is expected to rise 48% from 549 quadrillion BTU in 2012 to 815 quadrillion BTU in 2040, with the overwhelming majority of that increase coming from non-OECD countries. In fact, India and China alone are projected to account for more than half of this overall global increase in demand, driven largely by their growing economies and increasing GDPs per capita.

Where exactly will all this new energy come from? The EIA expects renewable energies like wind and solar to be the fastest growing source of energy at a rate of 2.6% per year with nuclear close behind at 2.3% per year due to major expansions in developing countries like China and India.

And while the share of global energy from carbon-intensive fossil fuels like oil, coal, and natural are expected to decline over the next few decades, they will remain the three biggest sources of energy for the foreseeable future, contributing 78% of total energy by 2040, a decline from 84% in 2012.

The continued importance of fossil fuels highlights the size of the climate mitigation task ahead. Though the U.S. under President Obama has moved aggressively to reduce the role of coal in the country’s energy mix, 27 quadrillion BTU of new coal is expected to come online in the next 25 years - a 17.6% increase from 2012. As such, coal will remain the single biggest source of carbon dioxide emissions from energy at 38%, followed by liquid fuels and natural gas.

If there’s one area of optimism in the EIA’s report, it’s the decoupling of GDP growth from electricity consumption. The tight coupling of the two lines prior to 2012 in the graph below shows just how important increased electricity consumption has traditionally been to increased economic growth.

Economic growth is the single biggest driver of increased energy consumption in countries like China and India, which creates new resource and climate problems, but limiting economic growth isn’t a reasonable solution the problem at hand. But increasingly, countries like the U.S. have been able to grow economically without a corresponding increase in primary energy consumption. The challenge for policymakers, economists, and scientists will be to figure out how to further separate those two lines of energy consumption and GDP growth.

The EIA report is by no means an iron-clad prediction of what our energy future will look like. Many assumptions are built in about technological progress, market prices, economic development, and population growth - any of which can end up different than expected. Furthermore, these are projections without any significant policy changes - no price on carbon, no expansion of the Clean Power Plan, no ratcheting up of the Paris climate goals. But the numbers and projects in the report looking at the next quarter century give us an idea of where we’re heading and where we need to close the gap from an economic development, energy security, and climate mitigation perspective.