Report#: DOE/EIA-0484(98)

World Energy Consumption

IEO98 projects that total annual world energy consumption could be 75 percent higher in 2020 than it was in 1995. Demand for all sources of energy except nuclear power is expected to grow over the projection period.

Altenative Growth Cases
Trends in Energy Intensity
Emissions of Greenhouse Gases and the Kyoto Protocol
Carbon Emissions
Reference Case Trends in Primary Energy Consumption
Forecast Comparisons

By 2020 the world is projected to consume three times the amount of energy it used 25 years ago (Figure 11). Despite the recent economic crisis in Southeast Asia, which may reduce expected growth of energy consumption in the short term, EIA believes that almost half of the world’s projected energy increment will occur in developing Asia. Indeed, the IEO98 reference case projections for Asia adopt the widely held expectation that the recession in that part of the world will not be protracted, and that by 2000 there will be a return to the strong economic growth—and, as a result, strong growth in energy demand—that was expected before the crisis emerged. By 2010, energy use in developing Asia (including China and India, but excluding Japan, Australia, and New Zealand) is projected to surpass consumption in all of North America; and by 2020 it is expected to exceed North American consumption by more than 50 quadrillion British thermal units (Btu) (36 percent).

Figure 11. World Energy Consumption, 1970-2020

Sources: History: Energy Information Administration (EIA), Office of Energy Markets and End Use, International Statistics Database and International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998). Projections: EIA, World Energy Projection System (1998).

IEO98 projects that total world energy consumption will reach 639 quadrillion Btu, growing by 2.3 percent annually between 1995 and 2020, as much as it had in the previous 25-year period (Table 2). All sources of energy except nuclear are expected to grow over the projection period (Figure 12). Renewables are not expected to grow as quickly in the forecast period as they have in the past 25 years. By 2020, the total increment in world energy consumption from its 1995 level is projected to be about 274 quadrillion Btu, representing a 75-percent increase in total energy consumption from 1995 to 2020.

Figure 12. World Energy Consumption by Fuel Type, 1970-2020

Much of the growth in energy consumption occurs outside the industrialized world, which today consumes about 86 quadrillion Btu more than the developing countries (Figure 13 and Table 3). In fact, by 2005, nonindustrialized countries are projected to consume as much energy as the industrialized countries. And by the end of the forecast, energy consumption in the developing countries (developing Asia, Africa, the Middle East, and Central and South America) exceeds that of the industrialized world by 16 quadrillion Btu (Figure 14). Such large increases will have an enormous impact on the energy markets of the future. The projections assume substantial levels of new investment in all phases of energy production and distribution. To achieve such investment in many areas of the world, government policies must continue to evolve, favoring private incentives for saving, trade, and development.

Table 2. World Energy Consumption by Energy Source, 1970-2020
(Quadrillion Btu)

Energy Source	1970	1995	2010	2020	Annual Percent Change
Energy Source	1970	1995	2010	2020	1970-1995	1995-2020
Oil	97.8	142.5	195.5	237.3	1.5	2.1
Natural Gas	36.1	78.1	133.3	174.2	3.1	3.3
Coal	59.7	91.6	123.6	156.4	1.7	2.2
Nuclear	0.9	23.3	24.9	21.3	13.9	-0.4
Renewables	12.2	30.1	42.4	50.2	3.7	2.1
Total	206.7	365.6	519.6	639.4	2.3	2.3
Sources: History: Energy Information Administration (EIA), Office of Energy Markets and End Use, International Statistics Database and International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998). Projections: EIA, World Energy Projection System (1998).

Two events in 1997 have rendered the assessment of energy supply and demand scenarios even more hazardous than usual. Under any conditions, substantial uncertainty attends the development of any long-term scenario for world energy supply and demand. Assumptions must be made about the rate and regional composition of worldwide economic growth, and many characteristics of the relationship between economic growth and energy use patterns must be specified, as must feasible paths of energy supply development. Added to such normal sources of uncertainty are the new issues that arose in 1997. First, the potential consequences of the Kyoto Climate Change Protocol for energy and economic growth are substantial. Second, the extent of economic disruption that could flow from economic recessions currently underway in the Asia Pacific region is not known.

The Kyoto Protocol could forestall much energy demand growth in the industrialized world. Most business-as-usual projections currently available would have industrialized countries accounting for about one-third of world growth in energy demand between now and 2010. Were emissions targets identified in the Protocol to be achieved by reducing fossil energy usage, energy consumption overall could be reduced by between 40 and 60 quadrillion Btu—equivalent to between 20 and 30 million barrels per day of oil demand. On the other hand, potential fuel switching opportunities could soften the effects of the agreement.

Figure 13. Nonindustrialized Energy Consumption by Region, 1970-2020

Even though the 1995 energy demand in developing Asia was only 36 percent of the total energy demand in industrialized countries, the rate of expected growth is such that more incremental demand—an increase of more than 65 quadrillion Btu by 2010—is expected in this region than from all industrialized countries combined. Thus, in the context of the projections prepared in 1997, the Asian economic crisis and the Kyoto Protocol put at risk about 100 quadrillion Btu or two-thirds of potential growth in energy demand through 2010.

Figure 14. World Energy Consumption by Region, 1970-2020

Table 3. World Energy Consumption by Region, 1970-2020
(Quadrillion Btu)

Region	1970	1995	2010	2020	Annual Percent Change
Region	1970	1995	2010	2020	1970-1995	1995-2020
Industrialized	135.1	199.1	247.5	271.5	1.6	1.2
United States	67.6	90.4	112.2	118.6	1.2	1.1
Developing	32.0	113.3	203.0	287.5	5.2	3.8
Developing Asia	18.9	71.8	137.4	199.4	5.5	4.2
EE/FSU	39.7	53.2	69.0	80.4	1.2	1.7
Total World	206.7	365.4	519.5	639.4	2.3	2.3
Sources: History: Energy Information Administration (EIA), Office of Energy Markets and End Use, International Statistics Database and International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998). Projections: EIA, World Energy Projection System (1998).

The current projections of near-term energy demand presented in this IEO have been adjusted downward only modestly relative to last year’s edition. No adjustments are made to try to account for the potential impacts of the Kyoto Protocol (see discussion on page 15), because the IEO98 projections consider only current laws and regulations as of October 1, 1997. As of March 1998, the Kyoto agreement has not yet been ratified by the conference participants. Those adjustments which have been made reflect an effort to account for current economic troubles in Asia. The reference case projection for Asia reflects adoption of the most broadly held expectation—that economic recession in the region will be sharp but not protracted. Thus, it is expected that, by 2000, economic expansion in Asia will resume at rates above the average for the world economy as a whole.

To date, the countries most harmed by currency and debt crises include South Korea, Thailand, Malaysia, and Indonesia. Although these countries accounted for less than 15 percent of energy consumption for all of Asia in 1995 (Table 4), increases in their consumption account for 25 percent of the change in energy demand for the entire region since 1985. In each of the four countries, energy demand has grown more rapidly than gross domestic product (GDP) over the past decade. Thus, quick economic recovery in the region is important if a wide range of energy development projects currently underway or planned are to be profitable. The effects of the recession are already evident from the variety of actions that have been initiated to stretch out or postpone projects to expand liquefied natural gas (LNG) trade, electric power generation, and oil refining.

The IEO98 assumes that world economic growth will average about 3.1 percent annually between 1995 and 2020. Over the past quarter century, world GDP grew by about $12 trillion (1990 U.S. dollars). Over the next 25 years, GDP is expected to increase by more than twice that amount, reaching $53 trillion by 2020. The bulk of the growth occurs in the developing countries, which average 5.2 percent annual growth—compared with 2.3 percent annual growth in the industrialized countries and 3.7 percent in the recovering economies of Eastern Europe and the former Soviet Union (EE/FSU) (Table 5).

Alternative Growth Cases

Current discussions underscore the uncertainties inherent in economic growth projections, both near- and long-term. Discussion surrounding the Asian financial crisis reveals two predominant perspectives (as of winter 1998). One perspective, adopted for the IEO98 reference case, likens current developments to those experienced in Mexico beginning in 1990—severe currency devaluation, debt repayment difficulties, shortage of investible funds, and crisis in confidence. The Mexican economic crisis led to rescue efforts by international agencies and internal policy adjustments that promoted reform and recovery and relatively quick movement toward

Table 4. Energy Use and Economic Growth for Selected Developing Asian Countries, 1985-1995

Country	1995 Energy Consumption		Average Annual Growth, 1985-1995
Country	Quadrillion Btu	Percent of Total Asia	Energy Use (Percent per Year)	Gross Domestic Product (Percent per Year)
Indonesia	3.3	3.4	7.2	6.7
Malaysia	1.5	1.5	7.8	7.7
South Korea	6.5	6.6	11.2	8.9
Thailand	2.2	2.2	12.2	9.4
Total	13.5	13.7	9.8	8.3
Sources: Energy Information Administration, International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998); and WEFA Energy, World Economic Outlook: 20-Year Extension (Eddystone, PA, April 1997).

renewed economic expansion. Those holding similar expectations for Asia point to the wide array of actions underway or promised which are expected to have beneficial effects on confidence in international capital markets and the functioning of indigenous economies.

Table 5. Annual Growth Rates in Gross Domestic Product by Region and for Selected Countries, 1970-2020
(Average Annual Percent Growth)

Region/Country	History		Projected
Region/Country	1970-1980	1980-1990	1990-2000	2000-2010	2010-2020	1995-2020
Industrialized	3.1	2.9	2.0	2.4	2.2	2.3
North America	2.8	2.8	2.1	2.3	1.9	2.1
Western Europe	2.9	2.4	2.1	2.5	2.4	2.4
Pacific	4.5	3.9	1.7	2.5	2.5	2.3
Nonindustrialized	4.3	2.6	2.2	5.2	5.1	4.9
EE/FSU	2.6	1.9	-3.8	4.8	3.6	3.7
Former Soviet Union	2.6	2.0	-4.4	4.8	3.4	3.6
Eastern Europe	2.9	0.8	1.6	4.6	4.4	4.4
Developing	5.6	3.1	4.8	5.3	5.4	5.2
Developing Asia	5.8	7.3	6.8	6.3	6.4	6.2
China	5.3	9.3	10.0	7.8	8.0	7.9
Other	5.9	6.7	5.5	5.4	5.2	5.2
Middle East	5.7	0.2	3.0	3.7	4.1	3.8
Africa	3.6	2.1	2.6	4.1	4.2	4.1
Central and South America	6.3	0.9	3.5	4.5	4.2	4.3
Total World	3.4	2.8	2.1	3.2	3.2	3.1
Note: India is including in developing other Asia. Sources: Derived from WEFA Energy, World Economic Outlook: 20-Year Extension (Eddystone, PA, April 1997). U.S. data from Energy Information Administration (EIA), Annual Energy Outlook 1998, DOE/EIA-0383(98) (Washington, DC, December 1997); and EIA, World Energy Projection System (1998).

A more pessimistic perspective likens current and prospective Asian developments to the Latin American debt crisis of the 1980s, after which long-term regional growth nearly ceased for a decade. This view emphasizes the difficulty of affecting economic reforms already promised within such countries as Indonesia, Thailand, and South Korea. The view also reflects an expectation that the adverse economic effects evident in a few countries will spread to others, including most notably China and Japan, both of which are sensitive to the increased competition in export markets that could follow the devaluation of many Southeast Asian currencies.

Experience demonstrates that growth prospects can change markedly and for extended periods of time, involving major sections of the world economy. A major case in point is the collapse of the former Soviet Union in the 1990s, in stark contrast to the remarkable growth record of developing Asia.

IEO98 includes a high economic growth case and a low economic growth case in addition to the reference case. The reference case forecast was formulated by establishing a set of regional assumptions about economic growth paths and energy elasticity (the relationship between changes in energy consumption and changes in GDP). The two alternative growth cases, based on alternative ideas about the possible paths of economic growth, were formulated to provide users with a way to quantify the range of uncertainty associated with the reference case.

For the high and low economic growth cases, different assumptions were made about the range of possible economic growth rates for developing and industrialized nations, reflecting the greater uncertainty inherent in attempts to forecast economic growth in developing economies. The same pattern of change in energy intensity relative to change in GDP (discussed below) was assumed for the high and low growth cases as for the reference case. For industrialized countries, increments of +1.0 and -1.0 percentage points, respectively, were added to the reference case growth rates to generate the high and low growth cases. For nonindustrialized countries and/or regions, apart from China and EE/FSU, increments of +1.5 and -1.5 percentage points were used to generate the high and low growth cases.

China and the EE/FSU countries are special cases with regard to prospects for future economic growth. China has experienced quite high economic growth in the past few years, and the EE/FSU region has suffered a severe economic downturn. In both regions there is opportunity for a substantial change in growth: China has the potential for a larger decline in growth rate given its currently high rate, and there are prospects for a substantial increase in the rate of growth for EE/FSU nations should their current political and institutional problems be moderated sufficiently for the recovery of a considerable industrial base. Reflecting these uncertainties, -3 percentage points were added to China’s growth rate for the low economic growth case and +1.5 for the high case; and +3.0 percentage points were added to the EE/FSU growth rate for the high economic growth case and -1.5 for the low case.

Uncertainties in Economic Growth

The economic crisis in East Asia began in the summer of 1997 and continued to deepen into the winter of 1998. In most of the countries of the region, local currencies have fallen drastically relative to the U.S. dollar. The Malaysian ringitt lost 47 percent of its value compared to the dollar between January 2, 1997, and January 9, 1998; the Thai baht 41 percent; the Korean won 53 percent; and the Indonesian rupiah 77 percent (see table below). As of January 1998, the International Monetary Fund (IMF) had arranged more than $100 billion in funding for South Korea, Indonesia, and Thailand—loans that will require them to cut energy subsidies and to deregulate and privatize their energy industries [1]. Indonesia has agreed to phase out subsidies on fuel and electricity as part of its IMF loan package. Thailand’s government has put oil and gas privatization on a “fast track.”

These recent economic events have highlighted the uncertainties attached to any economic growth forecasts—both short-term and long-run. Most of the major uncertainties regarding economic growth have centered in the developing world, since their economies need to devote much of their economic resources to improving infrastructure (education, transportation, and communication as well as energy resources) and tend to rely on international capital flows to finance much of their investment. But international capital flows, especially portfolio investment, are volatile and may have substantial impacts on short-term growth. Whether long-run growth is also affected depends on the reasons for the financial instability, the underlying economic characteristics of the country (such as the skill of the labor force), the domestic savings rate, the prospects for traded goods in global competition, and the infrastructure that supports the economy.

The long-run potential for economic growth depends on the economy’s capacity to expand aggregate supply, or potential output. Potential GDP is that level of output that could be produced if all resources were fully employed. The growth in aggregate supply depends upon the increase in the labor force, the growth of capital stock, and productivity improvements. Labor force growth depends upon population and demographic growth and labor force participation rates. Also critical to long-run expansion of aggregate supply are capital stock accumulation and productivity growth, as well as fiscal and monetary policies.

The analysis of the short-run behavior of the economy focuses on the business cycle and emphasizes factors that determine how close or how far actual output varies from potential. On an international scale, international capital flows can typically be explained by short-run phenomena; however, if fiscal or monetary policies imposed in response to short-run capital market fluctuations lead to increased rigidity in the markets, then the growth of output can be hindered.

Starting in late spring 1997, currency markets in Southeast Asia became extremely volatile, with Thailand, Malaysia, and Indonesia experiencing sharp depreciations first, followed shortly by the Philippines and South Korea. Since the beginning of 1997, the dollar has risen by 61 percent against the Thai baht, nearly 43 percent against the Malaysian ringitt, and more than 45 percent against the South Korean won. These economies share many characteristics: relatively rapid growth over the past 3 to 6 years; high domestic savings rates; export-led instead of domestic demand growth to sustain economic expansion; high current account deficits; high foreign capital inflows; and relatively lax financial regulations.

In Thailand, Indonesia, and South Korea, the IMF has agreed to supply increased capital in exchange for agreement to a set of fiscal and monetary policies designed to reduce volatility in financial markets. The policies are aimed at decreasing government expenditures, removing some government controls over the financial sector, allowing insolvent financial institutions and businesses to fail, and allowing more foreign ownership to encourage foreign direct investment. The short-run impacts of such policies are likely to be higher inflation, lower imports, and reductions in sectors of the economy that are sensitive to interest rates (such as construction and investment). One result is projected lower growth rates for the next several years.

Whether these sharp currency devaluations will lead to lower growth rates over the next 25 years depends in large part on the type of policies enacted in response to short-run phenomena. If the financial reforms enacted make financial transactions more transparent, then market conditions will judge the efficacy of new investments. Making investment decisions more market-driven will lead to potentially higher long-run potential growth, especially given the relatively high education levels and savings rates of the labor force in Southeast Asia.

The economic growth rates used in the IEO98 forecast represent long-term trend forecasts, which abstract the impacts of exogenous shocks or business cycles. Economic output is assumed to converge toward its potential maximum, with all resources fully utilized.

Uncertainties in Economic Growth (Continued)
Asian Currencies Relative to the U.S. Dollar, January 2, 1997, to January 9, 1998
(Currency per U.S. Dollar)

Country	Date						Depreciation, 1997-1998 (Percent)
Country	1/2/97	11/17/97	12/1/97	12/11/97	1/2/98	1/9/98	Depreciation, 1997-1998 (Percent)
India (rupee)	35.84	36.68	38.50	39.00	39.21	39.64	-9.5
Pakistan (rupee)	40.07	44.00	45.40	44.00	44.00	44.00	-8.9
Bangladesh (taka)	42.45	45.00	45.30	45.45	45.45	45.45	-6.6

Malaysia (ringitt)	2.48	3.29	3.50	3.66	3.89	4.68	-47.0
Thailand (baht)	25.68	38.70	39.85	42.35	48.15	53.47	-40.9
Indonesia (rupiah)	2,372.5	3,445.0	3,645.0	4,405.0	5,495.0	10,100.0	-76.5

Philippines (peso)	26.30	33.48	34.65	35.25	39.90	44.92	-41.4
Singapore (dollar)	1.40	1.57	1.59	1.61	1.68	1.78	-21.3
Vietnam (dong)	11,183.3	12,202.5	12,224.0	12,291.5	12,292.5	12,292.0	-9.0

Hong Kong (dollar)	7.73	7.73	7.73	7.74	7.74	7.74	-0.1
China (yuan)	8.29	8.28	8.28	8.28	8.28	8.27	+0.2
Taiwan (dollar)	27.40	31.00	32.07	32.23	32.66	34.36	-20.3

South Korea (won)	848.1	988.7	1,119.5	1,565.9	1,695.1	1,787.5	-52.6
Japan (yen)	117.10	125.88	126.95	129.02	130.01	132.63	-11.7
Australia (dollar)	1.27	1.44	1.47	1.49	1.53	1.57	-19.1
New Zealand (dollar)	1.41	1.60	1.62	1.66	1.72	1.76	-19.8
Note: The Hong Kong dollar and Chinese yuan are pegged to the U.S. dollar. Source: “Will Asia Ever Be the Same Again?” Financial Times: Power in Asia (January 12, 1998).

In the reference case, total world energy consumption is projected to reach 639 quadrillion Btu in 2020, with industrialized countries consuming 271 quadrillion Btu and the rest of the world 368 quadrillion Btu (Table 6 and Figure 15). Under the assumptions of the high economic growth case, total world energy consumption would be 781 quadrillion Btu in 2020, 142 quadrillion Btu higher than the reference case projection. In the low economic growth case, worldwide consumption would be 519 quadrillion Btu, 121 quadrillion Btu less than in the reference case. Thus there is a substantial range between low and high economic growth cases. The range between the cases for total world energy consumption—262 quadrillion Btu—is more than 40 percent of the total reference case consumption projected for 2020. Developing nations contribute 159 quadrillion Btu to this spread, reflecting the uncertainty associated with their economic prospects.

Figure 15. World Energy Consumption by Economic Growth Case, 1970-2020

Table 6. Annual World Energy Consumption by Region in Three Economic Growth Cases, 1970-2020
(Quadrillion Btu)

Region	History		2010			2020
Region	1970	1995	Low	Reference	High	Low	Reference	High
Industrialized	135.1	199.1	231.5	247.6	264.1	242.1	271.5	303.0
EE/FSU	39.7	53.2	62.4	69.0	84.2	68.2	80.4	111.2
Developing	32.0	113.3	166.1	203.0	237.2	208.4	287.5	366.9
China	11.6	36.4	55.4	71.3	80.8	72.6	109.7	134.5
Other Asia	7.2	35.4	55.3	66.0	78.7	68.9	89.8	116.6
Total World	206.7	365.6	460.0	519.6	585.5	518.8	639.4	781.1
Sources: 1970: Energy Information Administration (EIA), Office of Energy Markets and End Use, International Statistics Database. 1995: EIA, International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998). Projections: EIA, Annual Energy Outlook 1998, DOE/EIA-0383(98) (Washington, DC, December 1997), and World Energy Projection System (1998).

Trends in Energy Intensity

Still another dimension of uncertainty regarding long-term energy demand is the way in which energy demand evolves relative to GDP over time. Economic growth and energy demand are linked, but the strength of that link varies among regions and stages of economic development (Table 7). In industrialized countries, history shows the link to be relatively weak—that is, energy demand growth trails economic growth. For every percent increase in economic activity, energy demand increases only about half a percent. In developing countries, demand and economic growth have tended to be more closely linked, with energy demand growth tending to track the rate of economic expansion. Historic behavior in the FSU is more problematic. Until 1990, increases in economic activity were more than matched by increased energy consumption. From 1990 to 1995, however, economic problems in the EE/FSU distorted the region’s energy intensities. GDP and energy consumption were both declining, but GDP fell more rapidly, causing a rise in energy intensity and a positive energy-to-GDP elasticity.

Figure 16. Energy, GDP, and Population Trends in Industrialized Countries, 1995-2020

Sources: 1995: Energy Information Administration (EIA), Office of Energy Markets and End Use, International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998). Projections: EIA, World Energy Projection System (1998).

The stage of economic development and the standard of living of individuals in each region strongly condition the link between economic growth and energy demand. Advanced economies with high living standards tend to have relatively high energy use per capita, but they also tend to be economies where per capita energy use is relatively stable or changes very slowly. In this context, rising energy demand tends to track employment and population growth (Figure 16). In industrialized countries, use of modern appliances and personal transport equipment is widespread. As a result, increments to personal income tend to result in spending on goods and services that are not energy intensive. To the extent that spending is directed at energy-using goods, it involves more often than not purchases of new equipment to replace old capital stock. The new stock is often more efficient than the equipment it is replacing, so that the relation between income and energy demand is weaker. In developing countries, standards of living, while rising, tend to be low relative to those in more advanced economies. As a result, many energy-using devices are being widely adopted for the first time, causing energy use to track more closely with rising income levels (Figure 17).

The growth in energy consumption in the developing countries also indicates improving lifestyles made possible by rising personal incomes. In the developing world, income per capita is expected to increase by almost 149 percent between 1995 and 2020, from $1,104 to $2,744 per person. While this increase is impressive, the developing world will still—on a per capita basis—consume less than one-fifth the energy of the industrialized world (Figure 18). Moreover, per capita energy use in the Middle East and Africa is not expected grow at all between 1995 and 2020, because a near doubling of their population levels over the 25-year period offsets the growth in energy consumption.

Table 7. Average Energy Elasticity by Region, 1970-2020
(Change in Energy Consumption vs. Change in GDP)

Region	1970-1975	1975-1980	1980-1985	1985-1990	1990-1995	1995-2000	2000-2005	2005-2010	2010-2015	2015-2020
Industrialized	0.74	0.69	0.03	0.55	0.84	0.83	0.54	0.53	0.42	0.41
EE/FSU	1.27	2.89	1.39	0.39	0.68	0.55	0.43	0.43	0.43	0.43
Developing	0.98	0.94	1.77	1.33	1.17	0.89	0.79	0.68	0.66	0.65
Asia	1.03	0.71	0.81	0.66	0.88	0.84	0.73	0.62	0.60	0.60
China	0.88	0.63	0.48	0.51	0.51	0.60	0.59	0.56	0.55	0.55
Developing Asia Without China	1.21	0.95	1.05	0.84	1.22	1.03	0.83	0.63	0.60	0.60
Total World	0.95	0.94	0.69	0.69	0.85	0.92	0.75	0.69	0.65	0.65
Notes: EE/FSU = Eastern Europe/Former Soviet Union. The elasticities for each 5-year period were calculated by dividing the percentage change in energy consumption by the percentage change in gross domestic product (GDP). Sources: History: Derived using GDP data from WEFA Energy, World Economic Outlook: 20-Year Extension (Eddystone, PA, April 1997), and energy consumption data from Energy Information Administration (EIA), Office of Energy Markets and End Use, International Energy Statistics Database (1970-1979) and International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998) (1980-1995). Projections: EIA, World Energy Projection System (1998).

Rising levels of personal income mean that more areas of the world are—for the first time—gaining access to electricity. Access to electricity means an expansion in the amount and variety of home appliances that can be used. Simultaneously, the demand for personal automobiles also becomes an important part of consumer demand in the industrializing areas—which, of course, results in higher consumption of petroleum products for transportation. In many Asian countries, such as South Korea, Thailand, India, and China, growth rates for automobile ownership have exceeded 10 percent in recent years. The potential market in the countries of this region is enormous. By one estimate, there are only about 6.6 motor vehicles per thousand persons in China, as compared with 720 in the United States, 520 in Japan, and 130 in South Korea [2].

Figure 17. Energy, GDP, and Population Trends in Developing Countries, 1995-2020

The composition of industrial activity also affects the relationship between economic activity and energy consumption. For example, steel and cement production are important for China as it undertakes to build modern infrastructure throughout the country. China is currently the world’s largest producer of iron, steel, and cement which even with the most modern production technology are among the most energy-intensive industrial activities. The FSU was also a center of large-scale, energy-intensive industrial activity prior to the initiation of efforts at market reform. In both regions, relatively high energy use per dollar of output reflects heavy reliance on production from energy-intensive industries.

Figure 18. World Energy Consumption per Capita by Region, 1970-2020

Given historic differences across regions, what can be expected in the future? The reference case projections assume declining ratios of energy use per dollar of GDP. Thus, energy demand growth is projected to trail economic growth. While world economic growth is projected to average 3.1 percent per year between 1995 and 2020, energy growth is projected at 2.3 percent per year. This assumes a nearly 25-percent reduction in energy intensity worldwide, with declines of one-third or more in the developing countries and in the EE/FSU.

The decline in energy-to-GDP elasticity for developing nations is projected to continue through 2020, but at a slower rate than for the industrialized nations (Figure 19). The projected decline in energy intensity is based on the assumption that energy-efficient technologies used in the industrialized world will also be adopted in the developing world. The widespread use of efficient technology could come about through pressures for economic efficiency as developing and transitional economies become more market-driven and more integrated into the global economy. It is also possible, however, that the drive for modern living standards could lead to significant further increases in energy use per capita, pushing world energy requirements well beyond the reference case projections. In recent years, most projections for developing countries have indicated an expectation of declining energy intensities. For many countries, however, economic growth and energy growth have moved together, making it necessary to move back the expected dates for declines in energy growth relative to GDP growth, and causing upward revisions to expectations of world energy requirements.

Figure 19. Energy Intensities by Region, 1970-2020

On the other hand, recent commitments by industrialized countries to reduce greenhouse gas emissions below 1990 levels, to be achieved, would require substantial reductions in the ratio of energy growth to GDP growth. For the commitments to be achieved through reduced energy use alone, the projected rate of decline in energy intensity would have to nearly triple relative to current expectations.

Emissions of Greenhouse Gases and the Kyoto Protocol

In 1992, a Framework Convention on Climate Change was endorsed in Brazil, with a stated aim of stabilizing atmospheric concentrations of greenhouse gases. The initial agreement called for voluntary actions by Annex I countries (including all industrialized countries, except Mexico, and including Belarus, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Slovenia, and the Ukraine) that would stabilize greenhouse gas emissions at 1990 levels by 2000.

By 1995 it was recognized that progress toward emissions stabilization among the Annex I countries was insufficient and that additional steps were needed to identify a path toward emissions stabilization for the industrialized countries. As a consequence, new negotiations were initiated under what came to be known as the “Berlin Mandate” to elaborate and agree upon targets and timetables for reducing greenhouse gas emissions after 2000.

On December 11, 1997, in Kyoto, Japan, the parties to the Framework Convention agreed to a new set of commitments for reducing greenhouse gas emissions. The agreement --the Kyoto Protocol-- may signal a significant change in the level of effort among industrialized countries to reduce greenhouse gas emissions [3]. The pledge, if realized, will markedly reduce or change energy use among signatory participants. If the agreement proves to be meaningful, substantial shifts in the composition of energy supply away from high-carbon fuels, substantial reductions in energy use intensity, or some combination will have to be achieved in developed countries. Table 8 summarizes the extent of change projected to be required relative to current reference case projections for countries committing to fixed targets under the Protocol. It should be noted that the percent reduction in emissions that a country would have to make relative to the 1990 levels could change, based on sinks and offsets that must be evaluated for each country. Further, international carbon trading permits could lessen the cost of compliance or the severity of the reductions.

Table 8. Carbon Emissions in the Annex I Countries, 1990 and 2010,
and the Effects of Kyoto Protocol in 2010

Country	Million Metric Tons Carbon				Percent Change
Country	1990 Emissions	2010 Baseline Projection	2010 Kyoto Target	Reduction from 2010 Baseline	From 1990	From 2010 Baseline
Annex I Industrialized Countries
United States	1,346	1,803	1,252	552	-7	-31
Canada	126	170	118	52	-6	-30
Japan	274	342	258	85	-6	-25
Western Europe	971	1,101	893	208	-8	-19
Australasia	90	119	97	22	8	-18
Total	2,807	3,535	2,618	917	-7	-26
Annex I Transitional Economies^a
Former Soviet Union	991	792	991	-199	0	25
Eastern Europe	299	280	277	3	-7	-1
Total	1,290	1,072	1,268	-196	-2	18
Total Annex I Countries	4,097	4,607	3,886	721	-5	-16
^aIncludes Non-Annex I countries. IEO98 does not project emissions for separate countries within the EE/FSU region; however, Annex I countries in the EE/FSU region currently account for about 87 percent of the region’s total emissions. Source: Energy Information Administration, International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998), and World Energy Projection System (1998).

To achieve the targets proposed under the Kyoto Protocol, emissions in 2010 would have to be 26 percent lower than those currently projected for the industrialized Annex I countries in the IEO98 reference case (Table 8). In the United States and Canada alone, meeting the targets would require reductions of 31 and 30 percent, respectively, from 2010 projected emissions. In contrast, emissions in the EE/FSU are so much lower now than they were in 1990 that it is doubtful they could be restored to those levels by 2010. If energy consumption in the countries of the FSU grew as shown in the reference case forecast, carbon emissions would remain about 25 percent below levels allowed under the Kyoto Protocol, which requires no reductions to the 1990 emissions levels in the transitional economies of the FSU.² Even in Eastern Europe—where countries are expected to hold emissions to 7 percent below their 1990 levels by 2010—carbon emissions must be reduced by only 1 percent from the reference case projections.

There are many possible paths to the fulfillment of national commitments under the Protocol. In the energy arena, nonfossil energy may be substituted for fossil fuels. Alternately, high-carbon fuels—notably coal— may be replaced by low-carbon fuels—particularly natural gas. Further, improved end-use efficiency or reduced reliance on energy-intensive activities may serve to reduce the link between rising economic activity and increased energy consumption. Emissions can also be reduced through reductions in the demand for energy services, such as lowering thermostats, driving cars less, or switching to mass transit.

Actions not related to energy may also promote programs toward the goals set out by the Protocol. In addition to carbon dioxide, five categories of gases were identified as greenhouse gases to be controlled and for which control credits could be counted in moving toward Protocol targets (see box). The gases include methane (CH₄), nitrous oxide (N₂O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF₆). Reductions for carbon dioxide, methane, and nitrous oxide—gases which represent the bulk of all emissions—will be calculated from a 1990 baseline. Reductions of other gases will be credited in comparison with a 1995 baseline. In addition, actions which enhance carbon storage or sequestration in forests may also provide credit toward targeted commitments. Lastly, carbon permits may be earned through international agreements to moderate the degree of reduction needed to be judged in compliance with national commitments. The implementation of the latter path to compliance is subject to further negotiation and specification over the next year.

Greenhouse Gases Targeted Under the Kyoto Protocol

A number of greenhouse gases have been targeted for reduction under the Kyoto Protocol. Provided below is a description of each of the targeted greenhouse gases and, whenever possible, an estimate of world emissions of each gas [4, pp. 3-5]. Carbon dioxide is the most abundant greenhouse gas. Others, while volumetrically less significant, can have disproportionate effects in trapping heat in the Earth’s atmosphere.

Carbon Dioxide. Carbon is a common element on the planet, and immense quantities can be found in the atmosphere, in soils, in carbonate rocks, and dissolved in ocean water. Records from Antarctic ice cores indicate that the carbon cycle* has been in a state of imbalance for the past 200 years, with carbon dioxide emissions into the atmosphere exceeding absorption. As a result, atmospheric carbon dioxide concentrations have been rising steadily.

The most important natural sources of carbon dioxide are releases from the oceans (90 billion metric tons per year), aerobic decay of vegetation (30 billion metric tons per year), and plant and animal respiration (30 billion metric tons per year) [5]. Known anthropogenic sources account for 7 billion metric tons of carbon per year. The principal anthropogenic source is the combustion of fossil fuels, which accounts for about 75 percent of total anthropogenic emissions of carbon worldwide.

Methane. Methane (CH₄) is also a common compound. Methane is released primarily by anaerobic decay of vegetation, by the digestive tracts of termites in the tropics, and by several other lesser sources. The main anthropogenic sources are leaks from the production of fossil fuels, human-promoted anaerobic decay in landfills, and the digestive tracts of domestic animals. Known and unknown sources of methane are estimated to total about 600 million metric tons annually; known sinks (i.e., absorption by natural processes) total about 560 million metric tons. The annual increase inmethane concentration in the atmosphere accounts for the difference of 35 to 40 million metric ton.

Nitrous Oxide. The sources and absorption of nitrous oxide (N₂O) are much more speculative than those for other greenhouse gases. The major sources are thought to be bacterial breakdown of nitrogen compounds in soils, particularly forest soils, and fluxes from ocean upwellings. The primary human-made sources are enhancement of natural processes through application of nitrogen fertilizers, combustion of fuels, and certain industrial processes. The most important sink is thought to be decomposition in the stratosphere. Worldwide estimated known sources of nitrous oxide total 13 to 20 million metric tons annually, and known sinks total 10 to 17 million metric tons.

Hydrofluorocarbons. Hydrofluorocarbons (HFCs) are engineered chemicals that do not exist in nature. They were rare prior to 1990 but since then have come into widespread use as refrigerants and blowing agents, replacing chlorofluorocarbons, which are being phased out under the terms of the 1987 Montreal Protocol. The most commonly used HFC, HFC-134a, is now the standard refrigerant used in automobile air conditioners and home refrigerators in the United States.

Perfluorocarbons. Perfluorocarbons (PFCs) are chemicals composed of one or two carbon atoms and four to six fluorine atoms, containing no chlorine. They are emitted as a byproduct of aluminum smelting and are also used in semiconductor manufacturing.

Sulfur Hexafluoride. Sulfur hexafluoride (SF₆) is an engineered chemical, produced in very small quantities, which has direct radiative forcing effects. It is a colorless gas, soluble in alcohol and ether and slightly soluble in water. SF₆ is used as a dielectric in electronics and is also a fugitive emission from magnesium smelting. Worldwide emissions in 1995 were about 5,700 metric tons.

*The “carbon cycle” is the process by which carbon dioxide (CO₂) is extracted from the air by plants and decomposed into carbon and oxygen, with the carbon being incorporated into plant biomass and the oxygen released into the atmosphere. Plant biomass, in turn, ultimately decays (oxidizes), releasing carbon dioxide back into the atmosphere, or storing organic carbon in soil or rock. There are vast exchanges of carbon dioxide between the ocean and the atmosphere, with the ocean absorbing carbon from the atmosphere and plant life in the ocean absorbing carbon from water, dying, and spreading organic carbon on the sea bottom, where it is eventually incorporated into carbonate rocks.

Since fossil fuel use is the major source of anthropogenic greenhouse gas emissions (for example, 84 percent of U.S. greenhouse gas emissions consist of carbon produced by energy-related activities [4, p. ix]), it is difficult to contemplate achievements of commitments without marked changes in energy supply and usage. As noted earlier, if the industrialized Annex I countries were to meet emissions targets specified by the Kyoto Protocol solely by reducing the consumption of fossil fuels, the reference case forecast could face decreases in energy use in the range of 40 to 60 quadrillion Btu by 2010. However, because fuel switching and emissions trading will also be used to reduce a country’s emissions, the potential fossil fuel consumption reductions noted above are probably overstated.

Carbon Emissions

Because of the recency of the Kyoto Protocol agreement and the many possible paths to compliance, no explicit adjustment has been made to the IEO98 forecasts, which were based on current laws and regulations in effect on October 1, 1997. The countries that agreed to the reductions in the Protocol had not yet ratified or even signed the treaty at the time this report was prepared for publication.

If energy consumption grows to levels projected in the reference case, annual carbon emissions will reach 8.3 billion metric tons by 2010 and 10.4 billion metric tons by 2020 (Figure 20). The resulting emissions would exceed 1990 levels by 44 percent in 2010 and by 81 percent in 2020. Emissions are projected to grow by 2.5 billion metric tons between 1990 and 2010 and another 2.1 billion metric tons by the end of the projection period. Coal contributes 1.7 billion metric tons to the overall increase between 1990 and 2020, oil 1.5 billion metric tons, and natural gas 1.4 billion metric tons.

Figure 20. World Carbon Emissions by Fuel Type, 1970-2020