Why did the historical energy forecasting succeed or fail? A case study on IEA¡¯s projection

Hua Liao (), Jia-Wei Cai, Dong-Wei Yang and Yi-Ming Wei

No 92, CEEP-BIT Working Papers from Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology

Abstract: Medium-to-long term energy prediction plays a widely-acknowledged role in guiding national energy strategy and policy but could also lead to serious economic and social chaos when poorly executed. A consequent issue may be the effectiveness of these predictions, and sources that errors can be traced back to. The International Energy Agency (IEA) has published its annual World Energy Outlook (WEO) concerning energy demand based on its long term world energy model (WEM) under specific assumptions towards uncertainties such as population, macro economy, energy price and technology etc. Unfortunately, some of its predictions succeeded while others failed. We in this paper attempts to decompose the leading source of these errors quantitatively. Results suggest that GDP acts as the leading source of demand forecasting errors while fuel price comes thereafter, which requires extra attention in forecasting. Gas, among all fuel types witness the most biased projections. Ignoring the catch-up effect of acquiring rapid economic growth in developing countries such as China will lead to huge mistake in predicting global energy demand. Finally, asymmetric cost of under- and over-estimation of GDP suggests a potentially less conservative stance in the future.

Keywords: energy demand; Medium-to-long term prediction; forecast error; social development (search for similar items in EconPapers)
JEL-codes: Q40 Q54 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2016-04-15
New Economics Papers: this item is included in nep-cse, nep-ene and nep-for
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Citations: View citations in EconPapers (5)

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