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global fundamentals

Global fundamentals

What will the world’s energy needs look like in 2040 and beyond?

Answering this question begins with recognizing the fundamental forces that continue to shape long-term energy trends in nations around the world. These forces include population growth, demographic shifts and economic expansion.

Through 2040, we see China, India and other non-OECD countries – home to seven-eighths of the world’s population – needing much more energy to fuel economic development and rising living standards. On the other hand, the U.S., Europe and other OECD nations will see declines in overall energy demand and emissions, even as their economic output continues to grow.

All around the world, we expect energy efficiency to continue to improve, and a greater share of demand to be met by cleaner fuels. In part, these gains will be the result of governments and consumers seeking to meet their demand for energy while also addressing the risks of climate change.

The world’s demand for energy is driven by many factors, but the two biggest are population and economic growth.

By 2040, the world’s population will have reached 9 billion – up from about 7.2 billion today – and global GDP will have more than doubled. This growth will create more need for affordable, reliable energy – energy for homes, transportation, business and industry.

We see global energy demand rising by about 25 percent from 2014 to 2040. This is a significant increase, but would have been far higher (exceeding 110 percent) if we did not foresee steep improvements in energy efficiency across all demand sectors.

China and India lead growth in energy demand

Although energy demand worldwide is projected to rise by 25 percent, global totals can be misleading because trends will vary greatly by nation. We anticipate some developed economies to see net declines in overall energy demand through 2040. We believe that at this point in time, the future of energy is best understood by looking at three distinct groups of nations:

  • China and India. By 2040, India will have passed China as the world’s most populous nation, with 1.6 billion people. China and India also lead the developing world in raising standards of living and achieving technology improvements. Both nations are starting to take steps toward adopting additional policies on energy and climate change. Together, we see China and India accounting for almost half the projected growth in global energy demand to 2040.
  • A group of 10 Key Growth countries whose rising populations and living standards will drive strong increases in energy demand. This group comprises Brazil, Mexico, South Africa, Nigeria, Egypt, Turkey, Saudi Arabia, Iran, Thailand and Indonesia. Collectively, these 10 nations account for about 30 percent of the projected growth in energy demand through 2040.
  • OECD32 is a group of developed nations including the United States and all other OECD members except Mexico and Turkey, which we include in Key Growth. Already enjoying relatively high living standards and widespread use of advanced technology, these economies are expected to expand at a relatively moderate pace, while their populations remain stable. OECD32 nations have some of the most aggressive policies on improving efficiency and curbing emissions. Energy demand in the OECD32 group is expected to decline by 5 percent from 2014 to 2040.

While population and GDP are reliable indicators of a country’s energy demand, they don’t tell the whole story. We also need to look at the citizens themselves. Are they young or old? Rich or poor? Living in a modern city or a rural community? The answers to these questions help determine how much a country’s economy will grow, and how much energy its citizens will need.

Long-term trends in demographics, productivity and income

Countries with a relatively high percentage of working-age citizens (ages 15 to 64) tend to have faster economic growth, provided there are sufficient job opportunities in those economies.

A relatively large working-age group is an important factor supporting future economic growth in India, the Key Growth group and other developing nations. On the other hand, aging populations will continue to pose a challenge to economic growth in the OECD32. Aging will also impact China’s potential growth. By 2040, more than 20 percent of China’s population will be age 65 or older, up from just 9 percent today.

But for people and families everywhere, what matters most economically is incomes – and the living standards those incomes can support. A simple measure of income is GDP per capita. Through 2040, per capita GDP will rise widely across the globe, but we expect that the gains will be strongest in the non-OECD, particularly China and India. By 2040, per capita income in China and India is expected to be more than three times today’s level; in Key Growth countries, it will be on average almost twice as high.

Because of these rising incomes, we expect the world to see the largest expansion of the global middle class in history. The Brookings Institution estimates that the number of people earning enough to be considered middle class will grow from just over 2 billion in 2014 to nearly 5 billion in 2030, with most of the growth centered in India and China.

At the same time, China, India and other developing nations continue to experience the urbanization shift that permeated the developed world in the 20th century. By 2040, close to 65 percent of the world’s population will live in cities, up from under 55 percent today.

These shifts in developing nations are expected to have significant impacts on energy demand. As people rise into the middle class and move from rural to city settings, their per capita consumption of modern energy tends to increase rapidly. This growth is tied to a wide range of uses – everything from refrigerators to cars to office buildings to the energy needed to manufacture consumer goods.

25 percent

Near-term dynamics in the global economy and energy market

In 2009, the world economy experienced the worst global recession in the post-World War II years. Since then, apart from an initial rebound in 2010, recovery has been slow and uneven across various regions of the world. Today, there are limited signs of improvement in developed economies, led by the United States. On the other hand, there have been economic headwinds coming from developing countries, including slowing growth in China, and declines in the prices of commodities, including energy, upon which many developing economies depend.

Times like these are a reminder of how energy and the economy are intertwined. In the pre-industrial era, lack of access to modern energy constrained economic growth and living standards. That condition unfortunately still holds today in some less-developed countries. But for much of the world, modern energy continues to move the economy and society forward. At the same time, the ups and downs of the global economy inevitably feed back to the energy market. These cycles are the norm, not the exception.

While we recognize the importance of looking at short-term dynamics of the energy market at this juncture of world economic recovery, we also believe that by focusing more on the long-term forces shaping energy trends, the public and policymakers can have a stronger foundation upon which to meet future energy needs in a safe, secure and environmentally responsible way.

Charting the numbers - projections

  1. Demographics
  2. GDP
  3. 2040 GDP per capita
  4. Urbanization ratio
  5. Energy demand

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