Energy Scenarios: The Value and Limits of Scenario Analysis

Sergey Paltsev

April 2016

A need for a low-carbon world has added a new challenging dimension for the long-term energy scenarios development. In addition to the traditional factors like technological progress, demographic, economic, political and institutional considerations, there is another aspect of the modern energy forecasts related to the coverage, timing, and stringency of policies to mitigate greenhouse gas emissions and air pollutants. Modern tools for the energy scenario development provide a good basis for the estimates of the required changes in the energy system to achieve certain climate and environmental targets. While the current scenarios show that a move to a low-carbon energy future requires a drastic change in energy investment and the resulting mix in energy technologies, the exact technology mix, paths to the needed mix, price and cost projections should be treated with a great degree of caution. The scenarios are unlikely to be successful at producing precisely definitive estimates, but they can be used as a qualitative analysis of decision-making risks associated with different pathways. If history is any guide, energy scenarios overestimate the extent to which the future will look like the recent past. As future costs and the resulting technology mixes are uncertain, a wise government policy is to target emissions reductions from any source, rather than focus on boosting certain kinds of low-carbon energy.

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