Eye on Energy: The IEA Struggles With Its Mandate

 

The 1973 Arab oil embargo significantly altered the global energy market. 

No longer were the Seven Sisters (the Anglo-American fraternity of major oil companies) in charge. Decisions about oil production and supply were to be made by the Organization of the Petroleum Exporting Countries (OPEC), an alliance established in 1960 in response to pressure from Western oil companies on oil prices and, consequently, the profits of the exporting countries.

In retaliation for Western governments' support of Israel's defense against a surprise attack by Egypt and Syria that spawned the 1973 Yom Kippur War, the Arab members of OPEC, led by King Faisal of Saudi Arabia, agreed to a total embargo against Canada, Japan, the Netherlands, the U.K. and the U.S. Later it added Portugal, Rhodesia (now Zimbabwe) and South Africa.

Suddenly, major Western countries faced significant oil shortages, which would cripple their economies. Drastic actions were called for.

In response, the International Energy Agency was established to advise and help manage the limited oil supplies among Western country members. The IEA's mandate was to help countries meet their energy security needs – critical to their economies and ultimately their national defense. A coordinated effort to shift global supplies proved to be the answer.

Change In Focus

Over the years, the IEA's agenda expanded beyond energy security, and eventually it became the arbiter of which forms of energy countries should use. The agenda broadened during the 1990s as climate change and its purported link to the burning of fossil fuels emerged as a global social movement.

The IEA began modeling what the future world would look like if specific climate policies were adopted that dictated fuel use. This agenda gave the IEA the license to present scenarios based on the assumption that governments would enact future energy policies in response to climate change fears. 

Scenarios were created based on the need for dramatic changes in the world's energy fuel mix. That meant replacing fossil fuels with renewable energy to reduce carbon emissions. Less carbon dioxide would slow the increase in the world's average temperature, a goal of the Paris Agreement adopted by the U.N. Climate Change Conference in December 2015. The legally-binding agreement's goal is to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels" and pursue efforts "to limit the temperature increase to 1.5°C above pre-industrial levels.”

Climate activists focused exclusively on the 1.5°? goal, although these numbers were picked out of thin air and had no basis in climate science. Influenced by its European members, the IEA embraced this goal and developed a net-zero emissions scenario. In reports and presentations, the NZE model became the focus of the IEA.

New Scenarios

In 2020, with the NZE scenario dominating the discussion, the IEA ended its Current Policies Scenario, which assumed that the current energy policies in response to climate change remain in place. It was the "business as usual" model. Clearly, it would not get you to net zero emissions,

Therefore, CPS was replaced by two scenarios, STEPS ("Stated Policies Scenario") – what countries were actually doing – and APS ("Announced Pledges Scenario"), which included what countries pledged to do in the future. In effect, these scenarios were NZE-light, in an attempt to suggest that business-as-usual scenarios would fail the world.

These scenarios led the IEA to project a peak in coal consumption in 2022 and an oil demand peak by 2030. However, the peak coal call has been revised every year since 2019. Likewise, oil consumption has grown more than the IEA expected. Nevertheless, it continued to claim that the switch to electric vehicles would curb oil consumption growth by 2028, leaving only aviation, shipping and petrochemical feedstocks as sources of oil use growth to 2040. Thereafter, all uses of oil would decline.

Reality Intervenes

Leading coal and oil companies questioned those projections. Their management was constantly assessing the markets and discussing clients' future demand needs. Managers' future business plans essentially countered the IEA's projections. 

The Biden Administration's exit and the Trump Administration's arrival altered the political landscape of U.S. energy policy and climate science, as well as its voice in the global debate. The Trump Administration established energy security as its guiding principle for energy and climate policies. This represented a radically different approach from the Biden Administration, which had elevated climate concerns and positioned renewable energy at the center of its energy policy.

The Biden Administration's policies resulted in a 39 percent increase in household energy costs, as reflected in the average price per kilowatt-hour, during its tenure in office. The price increased from $0.19 to $0.26/kWh, representing a 6.8 percent annual rise.

With an overall inflation rate of 4.4 percent, American household electricity bills were increasing at a rate more than 50 percent faster than the overall inflation rate.

Moreover, the incidents of blackouts was increasing because electricity grids require power every second of every hour of the day. Since renewable energy – solar and wind – is weather-dependent, the grid must maintain a backup power system to deliver electricity when the sun doesn't shine and the wind doesn't blow. This backup power, along with the need for additional transmission investments to connect remote renewable energy supplies to the grid, is what drove up U.S. electricity prices.

Under pressure from the Trump Administration, the IEA is reintroducing its Current Policies Scenario in place of the STEPS and APS scenarios. The World Energy Outlook 2025 draft report is being circulated for comments, but people who have seen it have noted a significantly different outlook for the world's energy mix in 2050. The IEA is now projecting the world will need 114 million barrels a day in 2050 under the CPS. The revised estimate represents a nearly 10 percent increase from the previous estimate of 104 million barrels of oil used daily.

Compared to last year's scenarios, the new 2050 oil consumption projection is 22.5 percent higher than STEPS and more than double the amount under APS. The IEA reaffirms its belief that oil consumption will grow primarily in aviation and shipping as well as in petrochemical feedstocks.

The IEA doesn't hide its disdain for the energy/climate policies of the Trump Administration. In discussing the oil market, it's projecting that sales of electric vehicles will increase dramatically in China and the E.U. However, it has reportedly been written in the draft report that “EV adoption stalls in regions lacking strong policy support,” specifically targeting the U.S., where EV subsidies are set to end on September 30.

We suspect the IEA also thinks the U.S.’s abandoning subsidies for wind and solar projects is another terrible move. It must be experiencing a problem with the lack of bids in several European government solar and wind lease sales, which have no subsidies attached.

Has the IEA connected the low or no bids in these lease auctions with the reality that, in the absence of that assured money, these technologies are not profitable? Furthermore, it's worth noting that the U.K. has significantly increased its renewable energy subsidies to attract developers as it continues to strive for net-zero emissions.

Seeking A Balance

A former IEA official told us he has noted an increased use in op-eds, articles and speeches of the phrase, "energy security,” by agency leaders. He believes this further demonstrates that the IEA is coming to grips with the reality that it has strayed from its original mandate with limited success in impacting global energy use.

Producing repeatedly inaccurate forecasts diminishes the agency's reputation and ability to influence the energy/climate policies of its member governments. To preserve the organization's relevance and keep their positions, IEA leaders are beginning to accept the realities of renewable energy. 

Renewable energy has benefits, but also shortcomings. It's contributing to the increase in electricity prices, which is detrimental to people's budgets. Higher costs with little appreciable environmental impact, combined with more frequent blackouts, have angered people.

Perhaps, with the IEA recognizing energy security as its primary mandate, future energy models will offer a clearer vision of the energy policies that governments should implement. – MarEx 

This article originally appeared in the September-October 2025 issue of The Maritime Executive. You can read the full issue online.