World Energy Outlook 2006

at a micro-level, it was necessary to incorporate detailed “bottom-up” submodels
of the energy system into the WEM, allowing all policies to be analysed
within a coherent and consistent modelling framework. These sub-models
explicitly take account of the energy efficiency of specific technologies, as well
as the activities that drive energy demand and the physical capital stock of
energy-using equipment. The rebound effect on energy demand of introducing
more efficient energy-consuming goods is also modelled.
Estimates of the rate of replacement of capital stock play a vital role in
determining the overall effectiveness of policies on both the demand side and
the supply side. The very long life of certain types of energy capital goods limits
the rate at which more efficient technology can penetrate and reduce energy
demand. The detailed capital stock turnover rates embedded in the sub-models
capture these effects.
The policies of the Alternative Policy Scenario are expected to result in the
faster development and deployment of more efficient and cleaner energy
technologies. Although most technological advances will be made in OECD
countries, non-OECD countries will be able to benefit from them. As a result,
global energy intensity falls more rapidly in this scenario than in the Reference
Scenario.
It is important to bear in mind that the projected energy savings and reductions
in CO2 emissions do not reflect the ultimate technical or economic potential.
Even bigger reductions are possible; but they would require efforts that go
beyond those currently enacted or proposed. Such additional efforts could
further enhance the penetration of existing advanced technologies and lead to
the introduction of additional new technologies in the energy sector.
Policy Assumptions
Over the past two years a series of supply disruptions, geopolitical tensions
and surging energy prices have renewed attention on energy security.
Notable events include the Russian-Ukrainian natural gas price dispute at
the beginning of 2006, which led to natural gas supplies to Western and
Central Europe being temporarily curtailed; hurricanes of unprecedented
destructiveness in the Gulf of Mexico in 2005, which knocked out oil and
gas production facilities; civil unrest in Nigeria, which curbed oil output;
nationalisation of hydrocarbon resources in Bolivia; and the discovery of
corrosion in the trans-Alaskan oil pipeline, causing its temporary closure, in
August 2006.
These developments have prompted policy responses in many countries. In his
annual State of the Union address in January 2006, President Bush announced
new measures for improving energy efficiency and for promoting indigenous
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© OECD/IEA, 2007