IEEJ：October©IEEJ 2021

Special Bulletin
A Japanese Perspective on the International Energy Landscape (555)

October 19, 2021

Key Points of IEEJ Outlook 2022
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn October 15, the Institute of Energy Economics, Japan, published the IEEJ Outlook
2022 at its 439th meeting on research reports in the form of a teleconference. The outlook projects
global energy supply and demand through 2050, being positioned as the IEEJ’s flagship publication.
The IEEJ releases the annual outlook every October, providing a long-term energy supply anddemand analysis in the form of annual “regular exercise” and special analyses on up-to-date topics.
In addition to a long-term analysis based on the Reference Scenario and the Advanced Technologies
Scenario for “regular exercise”, the latest Outlook gives (1) an updated analysis on the Circular
Carbon Economy/4Rs Scenario focusing on the decarbonization of fossil fuels, and (2) an analysis
titled “Challenges and Issues toward Carbon Neutrality” dealing with key issues that could beinduced by economic activities, energy security, and upstream oil and gas investment shortages inthe world going in the direction of carbon neutrality. The following summarizes key points of thelatest Outlook.
In the Reference Scenario in which current trends will be sustained, global primary energy
demand will steadily increase under sustained economic growth, posting a rise of about 1.2-foldfrom 2019 in 2050. The increase will be driven by Emerging Market and Developing Economies,
including India, the Association of Southeast Asian Nations (ASEAN) and the Middle East & North
Africa that will account for three quarters of the global increase. Of fossil fuel demand, coal will
decline through 2050. However, natural gas and oil will steadily increase. Fossil fuels as a wholewill continue to account for most of global primary energy demand. In 2050, they will command
77% of global primary energy demand. In the Advanced Technologies Scenario in which advancedenergy technologies will penetrate as much as possible to enhance climate change prevention andenergy security measures, primary energy demand in 2050 will be 17% less than in the Reference
Scenario due to powerful progress in energy efficiency improvement. Demand will sharply grow for
non-fossil energy sources such as renewable energy and nuclear, while slackening for fossil fuels.
Coal demand will decrease substantially. Oil demand will peak in the 2030s and natural gas demandin the 2040s. As a result, global energy-related CO2 emissions in 2050 will be 15.8 billion tons or
42% less than in the Reference Scenario. Nevertheless, fossil fuels will still account for 63% ofprimary energy demand in 2050, keeping their position as an important energy source.
The IEEJ Outlook forecasts future global energy supply and demand under various
assumptions while being based on changes to date. The outlook of the forecast type contrasts withthe backcasting analysis adopted by the International Energy Agency (IEA) to indicate how global
energy supply and demand would have to change to reach a specific goal. The two types arecommonly useful for analyzing future conditions but differently significant. The Net Zero Emission
Scenario in the IEA’s World Energy Outlook 2021 is a representative backcasting analysis, assuming
net zero greenhouse gas emissions for the world in 2050. It indicates how the world would have tochange to reach the net zero emission goal in 2050. The Advanced Technologies Scenario in the1IEEJ：October©IEEJ 2021

IEEJ Outlook indicates how energy markets would change if advanced technologies that have beencommercialized penetrate the markets to the maximum extent (based on the assessment by IEEJexperts). In this sense, it is a bottom-up outlook against the IEA’s backcasting, or top-down, outlook.
It is indispensable for any long-term energy supply and demand analysis to use the two types whileunderstanding their differences.
The first special analysis in the IEEJ Outlook covers the Circular Carbon Economy/4Rs
Scenario. As the world grows interested in decarbonization, comprehensive decarbonization
initiatives are becoming more important. The promotion of non-fossil energy sources such as
renewables and nuclear is important as a matter of course. Also important as part of comprehensive
initiatives is the decarbonization of fossil fuels that will remain significant as energy sources in thefuture. Then, a circular carbon economy that will use 4Rs technologies to reduce, reuse, recycle andremove CO2 emissions from fossil fuel consumption is attracting interest in the world. Last year’s
IEEJ Outlook took up the special analysis for the first time. This year, the IEEJ attempts to update
and refine the analysis.
In this scenario analysis, we estimate the effects of the maximum penetration of 4Rs
technologies. Fossil fuel consumption in 2050 in the scenario will be almost the same as about 9.1
billion tons oil equivalent in the Advanced Technologies Scenario. Thanks to the expanded use ofblue hydrogen (clean hydrogen produced from fossil fuels with CO2 emissions subjected to carbon
capture and storage technology), blue ammonia, and synthetic methane and other fuels made fromblue hydrogen and ammonia, however, global CO2 emissions will be as much as 6 billion tons or
28% less than in the Advanced Technologies Scenario. In this scenario in which natural gas is
assumed to play a central role in producing blue hydrogen and ammonia, natural gas demand will
expand, with the Middle East and North America becoming significant blue hydrogen and ammonia
exporters. In the scenario, fossil fuel trade will shift to hydrogen and ammonia trade. As hydrogenand ammonia trade expands, the Middle East and Asia will remain dependent on each otherregarding energy trade. There are many challenges regarding the 4Rs technologies, including how tothoroughly improve economic efficiency regarding global supply chains for these new fuels and how
to secure their social acceptability. However, this scenario indicates a world in which fossil fuels will
be effectively used, with great contributions being made to initiatives for substantial global CO2emission cuts and decarbonization. Nevertheless, the world will fail to reach carbon neutrality in
2050. In realizing carbon neutrality, the further expansion of hydrogen use, as well as DAC (directair capture of CO2), CCUS (carbon capture, utilization and storage) and other innovativetechnologies will have to play a key role.
The second special analysis focuses on challenges and issues toward carbon neutrality,
dealing with various issues that could arise in the world going in the direction of carbon neutrality. It
considers whether green growth will be realized and whether costs to address climate change as aneconomic externality will exert any negative impact on economy, indicating that a net impact could
become positive or negative depending on individual conditions of countries. Through analysis on
carbon neutrality’s economic burdens on ASEAN, it also points out that the implementation of toughpolicies to realize carbon neutrality could widen various gaps including those between Advanced andDeveloping Economies. A key challenge toward carbon neutrality is how to prevent gaps fromwidening and maintain international cooperation. The analysis also indicates that energy security
will be further complicated by new issues including new energy security problems emerging throughthe expansion of blue hydrogen and ammonia trade, how to secure stable supply of electricity
growing more important, new risks such as the impacts of cyberattacks and the expansion of variable
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IEEJ：October©IEEJ 2021

renewable energy on electricity supply, and how to secure stable supply of critical minerals playing
key roles in promoting renewable energy and electrification. The analysis warns that if upstream oiland gas investment becomes insufficient due to uncertainties amid decarbonization initiatives, thesupply-demand balance would tighten to destabilize crude oil and liquefied natural gas markets inthe not-so-distant future. Toward the tough goal of realizing carbon neutrality, inclusive initiatives
that respect the diversity of countries and actors will be significant
Long-term global energy supply and demand outlooks entail great uncertainties. No one
knows how the world would be in the far future. However, it is important for all energy stakeholders
to develop future pictures of the world based on various assumptions and premises. The IEEJ isdetermined to continuously contribute to solving energy problems in the world through analyses inthe IEEJ Outlook.

Contact: report@tky.ieej.or.jp
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