Ticha IEA Transition Scenarios Paper

IEA Transition Scenarios

Introduction

The IEA Transition Scenarios are a series of energy transition scenarios produced by the International Energy Agency (IEA). Their aim is to project the potential pathways for the global energy sector’s transition towards sustainability. These scenarios provide necessary insight for national and international policymakers, energy stakeholders, and businesses to understand the future implications of various policies and technologies on the energy landscape. Currently, the IEA’s most used scenarios include the Stated Policies Scenario (STEPS), Announced Pledges Scenario (APS), Net Zero Emissions by 2050 Scenario (NZE), and the Sustainable Development Scenario (SDS). Despite their significance, the IEA’s Transition Scenarios and associated policy recommendations face scrutiny for potential biases, methodological challenges, and transparency issues.

Background

The International Energy Agency (IEA) is an autonomous intergovernmental organization focused on collecting and analyzing global energy data and making policy recommendations. IEA is based in Paris, France, and was established by the Organisation for Economic Cooperation and Development (OECD) countries in 1974 to share information and technological insight on energy security following the 1973 oil crisis. IEA’s insights on energy and sustainability topics are particularly valuable. This is because its 31 members (as of 2024) account for 80% of global energy demand, 62% of global energy production, 80% of global CO2 emissions, and 87% of global clean investment.

IEA’s main research focuses on energy security, economic development, and sustainability. Its systematic data collection and analysis make it a crucial data source for energy- and oil-related subjects for academia and the private and public sectors. Moreover, IEA-published Transition Scenarios inform and advise governments and businesses globally on energy security and sustainable transition. There are many organizations engaging in climate scenario predictions, most notably the United Nations Environmental Program and the International Panel on Climate Change. However, the IEA Transitions are most widely used in the financial sector, alongside those published by the Network for Greening the Financial System (NGFS).

Types of Scenarios

IEA generally divides its Transition Scenarios into three categories: business-as-usual scenarios, exploratory scenarios, and normative scenarios.

Business-as-usual Scenarios

Business-as-usual (BAU) scenarios is a reference scenario that assumes the continuation of past trends into the future. In other words, they project future trends of the energy sector based on historical data and assume no future change to current policies, technologies, and behaviors. As such, BAU scenarios often serve as a reference point against which new policies, technologies, and behaviors are compared. According to researchers from J.P. Morgan, BAU scenarios “show the distance of announced commitments” to keeping the world temperature 1.5°C below pre-industrial levels “assuming that all commitments are met in full.” They also help emphasize the urgency of climate change and other environmental disasters should the world continue on its current path with no further action made towards a sustainable future.

Exploratory Scenarios

Unlike BAU scenarios, exploratory scenarios illustrate long-term projections that consider specific changes to policies, technologies, and behaviors that could significantly alter the future energy landscape. These scenarios are designed to explore possible futures, each predicated on a different mix of assumptions about how key variables might evolve.

According to the IEA Energy to 2050 Report (2003), exploratory scenarios help identify the “main dimensions and drivers that shape future worlds,” explain the “dynamic links among the main drivers to assess their relative importance,” and “allow a more systematic and full appreciation of the uncertainties that lie ahead.” This approach helps stakeholders understand the full range of potential outcomes, plan for them accordingly, and produce the “least regret” strategies that “produce the fewest drawbacks.”

Most notable examples of exploratory scenarios include the Stated Policies Scenario (STEPS), which provides projections given policy environments; and the Announced Pledges Scenario (APS), which provides projections based on currently announced ambitions and targets.

Stated Policies Scenario (STEPS)

The States Policies Scenario (STEPS) makes projections based on current socioeconomic trends and the policies that are in place. It is the most conservative of all projections as it assumes that no new policies beyond the current ones will be made and that historical socioeconomic trends will continue into the future. The IEA uses STEPS as a benchmark scenario to assess the effects of near term policy changes on climate scenarios.

In the 2023 World Energy Outlook, the STEPS scenario predicted an imminent decline in demand for fossil fuels despite an annual 0.7% increase in demand to 2050 (see Graph1). More specifically, STEPS predicted that the demand for coal, oil, and natural gas would peak before 2030, and their combined share in global energy supply would drop from around 80% to 73% by 2030. Despite this significant shift, the sustained high demand for these fossil fuels, as projected in STEPS, falls short of the reductions needed to meet global climate goals.

Graph 1: Share of global total final consumption by selected fuel and scenario, 2022-2050, IEA(2023)

Announced Pledges Scenario (APS)

The Announced Pledges Scenario (APS), introduced in 2021, incorporates all announced commitments to reduce emissions, and assumes that all climate pledges made by countries and industries will be fully implemented. It builds bottom-up projections based on countries’ and industries’ current climate pledges and targets that go beyond existing policies that are part of STEPS. According to the IEA, these commitments include “Nationally Determined Contributions (NDCs) and longer-term net zero targets, as well as targets for access to electricity and clean cooking”.

The IEA uses the APS to demonstrate how current pledges and targets measure up to the goal of keeping global warming under 1.5°C from pre-industrial levels. In other words, it reveals the “ambition gap”, i.e. the difference between current pledges and what needs to be done to meet the 2015 Paris Agreement goals. Furthermore, the IEA defines the difference between the STEPS and the APS, i.e. the gap between implemented policies and announced targets, as the “implementation gap”. The APS projects that Solar and Wind Energy consumption will overtake that of coal and natural gas by the late 2020s, which is also when total energy consumption is projected to peak (see Graph 1).

Normative Scenarios

Normative Scenarios are prescriptive, outlining a specific target or set of goals that society aims to achieve, such as limiting global warming to a certain temperature threshold. These scenarios work backward from the desired outcome, identifying the actions and pathways that could lead to achieving these goals. According to the IEA, normative scenarios “assumes that appropriate policy actions can shape a future in the desired image, and is designed to identify the policy actions required.”

Most notable normative scenarios published by the IEA include the Net Zero Emissions by 2050 Scenario (NZE), which outlines a pathway for the world to achieve net-zero greenhouse gas emissions by 2050; and the Sustainable Development Scenario (SDS), which projects a comprehensive approach that integrates goals on climate change, air quality, and energy access, according to the IEA.

Net Zero Emissions by 2050 Scenario (NZE)

The Net Zero Emissions by 2050 Scenario (NZE) outlines what governments and industries need to do to achieve net zero energy-related carbon dioxide emissions by 2050. The NZE limits the global temperature rise to 1.5°C from pre-industrial levels, in alignment with the 2015 Paris Agreement. Furthermore, the NZE also achieves universal energy access and clean cooking by 2030, in accordance with the United Nations Sustainable Development Goals.

IEA’s objective in introducing the NZE in 2021 was to understand the milestones and the time frame within which they need to be met for different governments and industries to achieve net zero emissions by 2050. These include, for example, no new sale of fossil fuel boilers by 2025, 60% of global car sales being electric by 2030, and 90% electricity generation from renewables by 2050. As can be seen in Graph 1, the NZE would also entail phasing out natural gas by 2050, and renewable sources overtaking fossil fuel electricity generation by mid to late 2020s.

Sustainable Development Scenario (SDS)

The Sustainable Development Scenario (SDS) aims to achieve net-zero emissions, clean air for all, and universal energy access by 2070. As such, it aligns with the Paris Agreement as well as the United Nations Sustainable Development Goals (SDGs) three, seven, and thirteen.

According to the IEA, “if emissions turn net negative after 2070, the SDS could lead to 50% chance of limiting the temperature rise to below 1.5°C”. Furthermore, greater energy generation capacity than that of STEPS is needed to realize the SDS. Lastly, the SDS relies on industry emission cuts to be primarily realized by increases in energy efficiency and fuel switching. Graph 2 compares the differences in energy mixes in the STEPS and the SDS. The SDS projection relies heavily on the uptake of Solar, which would have to overtake all other generation sources by the end of the 2020s and Wind generation overtaking gas in early to mid 2030s.

Graph 2: Global power capacity by source, IEA (2019)

Conclusion

In conclusion, the IEA Transition Scenarios are instrumental tools in understanding the potential trajectories of the global energy sector towards sustainability. Through scenarios like the Stated Policies Scenario (STEPS), Announced Pledges Scenario (APS), Net Zero Emissions by 2050 Scenario (NZE), and the Sustainable Development Scenario (SDS), the IEA offers valuable insights into the implications of various policies and technologies in the energy landscape. While these scenarios provide valuable guidance for policymakers, energy stakeholders, and businesses, they are not immune to criticism. Concerns about potential biases, methodological issues, and transparency remain prevalent and their projections and policy recommendations need to be taken with a grain of salt. Despite these challenges, the IEA Transition Scenarios serve as key resources for informing decisions and shaping strategies aimed at achieving a more sustainable and resilient energy future.