World Energy Outlook 2007

the global energy system over the projection period. The results are described
in Chapter 5. Achieving this outcome would be possible only with very strong
political will worldwide and at substantial economic cost.
The High Growth Scenario
The economies of China and India have continued to grow strongly in recent
years, exceeding most forecasts and our own assumptions in previous
Outlooks. Our projections of energy demand – in all countries and regions –
remain highly sensitive to future rates of GDP growth. We assume in
the Reference and Alternative Policy Scenarios that GDP growth in
China and India slows progressively over the projection period, as their
economies mature. But their economic prospects are inevitably uncertain.
Past forecasts of GDP have often been revised significantly upwards
(see Chapter 3). Were GDP growth to slow less quickly than assumed in the
Reference and Alternative Policy Scenarios, energy demand could turn out to
be much higher than projected. The cumulative impact of even a marginally
higher annual rate of GDP growth means that the level of demand in 2030
could be substantially higher, with far-reaching implications both for China
and India and for the rest of the world.
To shed light on the global impact of faster than expected economic growth in
China and India, we have developed a High Growth Scenario. The starting
point of this analysis is the assumption that GDP growth in both countries is
on average 1.5 percentage points per year higher than in the Reference
Scenario. This results in an average growth rate to 2030 of 7.5% for China and
7.8% for India. For China, we assume that the main driver of growth in this
scenario is sustained high investment and continued rapid productivity gains,
as the government pushes ahead with reforms to increase the role of the private
sector and to open up the economy to foreign investment. For India, we
assume an acceleration and deepening of structural and institutional reforms,
combined with faster infrastructure development.
To model the energy-market impact of these higher assumed GDP growth
rates, the WEM has been integrated into a general equilibrium model. 9 The
resulting hybrid model, WEM-ECO, provides a consistent energy and
macroeconomic modelling framework within which energy pathways interact
with the macro-economy, in terms of changes in economic structure,
productivity and trade that affect the rate, direction and distribution of
economic growth and energy demand and supply. It also allows us to quantify
the broader economic gains and losses by region. By assuming higher Chinese
and Indian growth rates, the integrated model recalculates the global
9. For this purpose we integrated the WEM into the IMACLIM-R framework, developed by
CIRED. See Chapter 3 for details.
Introduction 69