The Reference Scenario takes account of those government policies and measures that were enacted or adopted by mid-2006, though many of them have not yet been fully implemented. Possible, potential or even likely future policy actions are not considered.

Global primary energy demand in the Reference Scenario is projected to increase by 53% between 2004 and 2030 – an average annual rate of 1.6%. Over 70% of this increase comes from developing countries. The powergeneration sector contributes close to one-half of the global increase. Demand grows by one-quarter in the period to 2015 alone.

Primary oil demand grows by 1.3% per year over 2005-2030 in the Reference Scenario, reaching 99 mb/d in 2015 and 116 mb/d in 2030 – up from 84 mb/d in 2005. The pace of demand growth slackens progressively over the projection period. More than 70% of the increase in oil demand comes from developing countries, which see average annual demand growth of 2.5%. Demand in OECD countries rises by only 0.6% per year. The transport sector absorbs most of the increase in global oil demand.

Global coal demand in the Reference Scenario is projected to grow at an average annual rate of 1.8% between 2004 and 2030, such that coal’s share in the global energy mix remains broadly constant at around one-quarter. Coal use rises by 32% by 2015 and 59% by 2030 (expressed in tonnes) – a significantly faster rate of growth than in WEO-2005. Of the total increase in demand, 86% comes from developing Asia, particularly China and India. OECD coal use grows modestly.

World electricity demand is projected to double by 2030 in the Reference Scenario, growing at 2.6% per year on average. Developing Asia is the main engine of growth: China and India see the fastest growth in demand.

The Alternative Policy Scenario analyses how the global energy market could evolve if countries were to adopt all of the policies they are currently considering related to energy security and energy-related CO2 emissions. The aim is to understand how far those policies could take us in dealing with these challenges and at what cost.

The Alternative Policy Scenario yields considerable savings in energy demand, energy imports, and CO2 emissions at a lower total investment cost. The savings require a profound shift in energy investment patterns and are attained through a combination of increased investment in more energy-efficient goods and processes, and different fuel choices in the power and transport sectors.

World electricity generation is 12% lower in 2030 than in the Reference Scenario, mainly because of greater end-use efficiency. The shares of renewables, nuclear power and combined heat and power are higher. The efficiency of fossil-based generation is also higher. Global CO2 emissions from power plants are reduced by 22%, almost 4 gigatonnes. More than half of this reduction occurs in developing countries. In the OECD, power sector emissions are 6% lower than in 2004.

Achieving the results of the Alternative Policy Scenario depends upon a strong commitment on the part of governments urgently to adopt and implement the policies under consideration. Considerable hurdles need to be overcome, not least policy inertia, opposition from some quarters and lack of information and understanding about the effectiveness of the opportunities which are open.

The price of crude oil imported into IEA countries averaged just over $50 per barrel in 2005, almost four times the nominal price in 1998 and twice the 2002 level. Prices continued to rise strongly through to mid- 2006. Real prices paid by most final energy consumers have increased far less than international prices in percentage terms, because of the cushioning effect of taxes and distribution margins and, in some countries, subsidies and a fall in the value of the dollar. We estimate that consumption subsidies in non-OECD countries amount to over $250 billion per year.

Oil and gas industry investment has surged in recent years. In 2005, investment by the industry reached $340 billion dollars, 70% more than in the year 2000 in nominal terms. However, most of the increase was due to rising materials, equipment and labour costs, especially since 2004. Expressed in cost inflation-adjusted terms, investment in 2005 was only 5% above that in 2000.

Concerns over energy security, surging fossil-fuel prices and rising CO2 emissions have revived discussions about the role of nuclear power. Nuclear power is a proven technology for large-scale baseload electricity generation that can reduce dependence on imported gas and CO2 emissions.

Interest in biofuels – transport fuels derived from biomass – is soaring for energy-security, economic and environmental reasons. Biofuels hold out the prospect of replacing some imported oil by indigenously produced fuels and of diversifying sources. They can also help curb greenhouse-gas emissions, depending on how they are produced, and contribute to rural development. Higher oil prices have made biofuels more competitive with conventional oil-based fuels, but further cost reductions are needed for most biofuels to be able to compete effectively without subsidy.

In developing countries, especially in rural areas, 2.5 billion people rely on biomass, such as fuelwood, charcoal, agricultural waste and animal dung, to meet their energy needs for cooking. In many countries, these resources account for over 90% of household energy consumption.

Brazil is Latin America’s largest energy consumer, accounting for over 40% of the region’s consumption. Its energy mix is dominated by renewable energy sources and oil. In the Reference Scenario, primary energy demand is projected to grow annually at 2.1%, from 200 Mtoe in 2004 to 352 Mtoe in 2030. Energy demand is 38 Mtoe lower in the Alternative Policy Scenario, growing at just 1.7% per year, thanks to energy-efficiency improvements. Electricity and oil make up most of the reduction.

The world is facing twin energy-related threats: that of not having adequate and secure supplies of energy at affordable prices and that of environmental harm caused by consuming too much of it. Soaring energy prices and recent geopolitical events have reminded us of the essential role affordable energy plays in economic growth and human development, and of the vulnerability of the global energy system to supply disruptions. Safeguarding energy supplies is once again at the top of the international policy agenda. Yet the current pattern of energy supply carries the threat of severe and irreversible environmental damage – including changes in global climate. Reconciling the goals of energy security and environmental protection requires strong and coordinated government action and public support.