The International Energy Agency (IEA) projected a decline in world consumption of fossil fuels even under its most optimistic demand scenario, the Stated Policies Scenario (STEPS), in a recent report. IEA said that under STEPS, demand peaks by 2030.
According to the IEA, the gas consumption drives the change, where consumption is 15% lower by 2050 than in the 2021 report.
It indicated that high gas prices owing to the supply crunch has accelerated a shift towards renewables in Europe whilst stymieing its potential as a transition fuel in emerging Asia. Growth in advanced economies has been underpinned by measures such as the Inflation Reduction Act in the US.
On the other hand, there has been little change to the outlook for oil demand, with projections only 1% lower by 2050 and demand peaking in the 2030s, the report stated.
It added that the impetus behind weakness in long-term demand is road transport sector electrification, with electric vehicles expected to account for 25% of all car sales by 2030 compared to 10% in 2021.
IEA believes that after a near-term boost to demand owing to gas-to-coal substitution, coal demand is expected to return to its downward trajectory, with demand 5% lower in 2050 compared to the 2021 report.
Overall, the IEA’s projections suggest a faster pace of transition compared to 2021. But more investment is needed to fund the shift at a time of weaker macroeconomic growth. The outcomes hinge on governments’ prioritising their climate-change commitments and on tighter monetary policy having little impact on economic activity. At the same time, energy security concerns could spur a faster transition than in the STEPS scenario, such as under the REPowerEU plan.