PARIS – A short walk from the Eiffel Tower, Fatih Birol oversees the world’s energy watchdog, whose analyses of fuel demand have long been viewed as the gold standard by government officials, energy executives and investors.
But now the Turkish economist and the International Energy Agency are facing mounting pressure from groups concerned about climate change — including investors, scientists and former United Nations diplomats — over the IEA’s widely watched annual outlook.
The newly released World Energy Outlook shapes expectations among governments, companies and investors over the future use of coal, oil and gas.
The report said growth in oil demand is expected to slow from 2025 as fuel efficiency improves and the use of electric vehicles increases, but energy consumption will continue to increase in the next two decades.
The agency’s central scenario is for demand for oil to rise by around 1 million barrels per day every year to 2025, from 97 million in 2018, and then increase by 0.1 million bpd a year during the 2030s, reaching 106 million in 2040.
The IEA outlook sees primary energy demand growing by a quarter by 2040, with renewable energy accounting for half of the rise and gas for 35 percent.
The IEA’s central scenario also does not see energy-related carbon dioxide emissions peaking by 2040 due to economic growth and population increases.
“Although emissions are rising, some governments are pushing major policy changes,” Birol told journalists in Paris.
An expected rise of just over 100 million tons a year between 2018 and 2040, although lower than the average rate of increase since 2010 of 350 million tons a year, would not be enough of a reduction to curb global temperature rises.
The IEA expects there will be 330 million electric cars on the road by 2040, up from an estimate of 300 million in last year’s outlook. That would displace 4 million bpd of oil use, compared to the 3.3 million forecast previously.
Critics say the IEA underplays the speed at which the world could switch to renewable sources of energy. The result, they say, is to bolster the case for continued investment in fossil fuel companies, undermining the fight against climate change.
“The IEA is effectively creating its own reality. They project ever-increasing demand for fossil fuels, which in turn justifies greater investments in supply, making it harder for the energy system to change,” said Andrew Logan, senior director of oil and gas at Ceres, a U.S. nonprofit group that promotes environmentally friendly business.
Senior IEA officials say they share concerns over climate change but defend their organization’s work, saying the criticism is based on a misunderstanding of what the World Energy Outlook intends to show. They say the goal of the publication is to help governments assess the likely consequences of existing energy policies, not forecast what the world’s energy system will look like decades into the future.
The IEA — which is mainly funded by industrialized nations, including the United States, Germany and Japan — advises governments on energy policy.
“If they criticize us, the only option that comes to my mind is that they don’t know exactly what we are doing,” said the 61-year-old Birol during a recent interview at the IEA’s headquarters in Paris. “They must be misunderstanding, or they must have been misled.”
IEA officials also say there is also some wishful thinking about how quickly the transition to cleaner energy could happen.
“A lot of times people want to believe there’s some simple lever that you push: ‘Change the IEA and the world will be better,'” said David Turk, who was a senior climate official in former U.S. President Barack Obama’s administration and now heads the IEA’s strategic initiatives office.
The IEA has long faced criticism from other energy analysts who say the outlook has failed to capture dramatic falls in the cost of solar power. Tim Buckley, a Sydney-based analyst at the Institute for Energy Economics and Financial Analysis think tank, said the cost in the United States has fallen to below $40 per megawatt hour but the previous World Energy Outlook implied a current figure closer to $90.
The IEA says that much of the dramatic expansion of the solar industry has been driven by policy changes in China, which the outlook was not designed to predict, and that projections in other areas have proved accurate.
The increased scrutiny of the World Energy Outlook shows how the once-esoteric subject of energy modeling is becoming a focus of the mainstream investment community as worries over climate change intensify.
Concerns among fund managers about the implications for their investments escalated after the world’s climate scientists issued a landmark U.N.-backed report late last year offering a stark assessment of the likely consequences of rising global temperatures.
The report said the worst effects could be averted by limiting the temperature increase to 1.5 degree Celsius (2.7 Fahrenheit) above the levels of pre-industrial times. That target is the most ambitious goal of the 2015 Paris Agreement, the global pact to curb global warming.
Birol was instrumental in developing the models used to compile the World Energy Outlook during his previous role as the agency’s chief economist. The outlook is published each year with a different cover featuring the yellow and red colors of Birol’s favorite soccer club, Istanbul-based Galatasaray.
The publication’s main report, or scenario, maps how demand for different forms of energy would evolve over the next couple of decades based on existing government policy commitments. Some critics say that because it doesn’t take account of the likelihood that governments will take more drastic action to curb emissions, it means projections will inevitably be conservative.
IEA officials emphasized that the outlooks are not forecasts; rather, they explore the implications of existing policies, which is made clear in the introduction.
Another scenario, called the Sustainable Development Scenario, aims to show how the global balance of renewable energy and fossil fuel would need to change to meet the temperature goals of the Paris accord, cut air pollution and expand access to electricity for the world’s poor.
Investors and climate activists are lobbying Birol to include a scenario that uses the most ambitious Paris Agreement target of a 1.5-degree increase, rather than 1.7 to 1.8 degrees.
Investors say using the more ambitious target could spur a faster switch to renewables by showing the financial markets a path for meeting the goal.
Among those pressing Birol for that change is a group of institutional investors representing $30 trillion of assets under management, called the Institutional Investors Group on Climate Change.
In a previously unreported letter sent to Birol earlier this year, the group said that appropriate scenarios are important to institutional investors for understanding their exposure to climate risks and deciding how to allocate capital. The IEA’s scenarios “materially impact expectations for future investment returns,” the investors wrote.
Birol, who downplays the extent to which the outlook guides investment decisions, said the new World Energy Outlook takes the latest findings of climate science into account.
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