In mid-November, the International Energy Agency (IEA), an intergovernmental agency with 32 member countries that calls itself “the global energy authority,” released its annual World Energy Outlook study for 2025. This report is the IEA’s flagship publication, providing global energy and energy market projections, analysis, and statistics. At the time of the study’s release, headlines focused on the fact that the Trump administration had pressured the agency to re-include a “Current Policies Scenario” that assumes no additional climate action, alongside scenarios based on proposed policies to tackle climate change. The “Current Policies” forecast reversed the IEA’s previous finding that peak oil demand was on the horizon and instead showed oil and gas dominating for the next several decades, along with the associated increase in climate emissions.
Yet the underreported part of the new analysis is that with ambitious climate action, global oil demand would decrease enough to drop oil prices by more than half in the next 10 years. The last time oil prices were that low, a gallon of gasoline in the United States cost less than $2. Conversely, the IEA finds that following along with the Trump administration’s policies absent additional climate action would drive up global oil demand enough to raise oil prices by more than 10 percent in the next 10 years and by 34 percent by 2050. The last time oil prices were that high, a gallon of gasoline in the United States cost upward of $4.50.
It’s hard to overstate the implications that the administration’s oil lobby-friendly policy decisions will have on consumer energy costs over the next 25 years—or the positive effects of climate action. But the findings do make clear why the oil industry is pushing so hard to keep its policies at the top of President Donald Trump’s to-do list. The industry is massively exposed to policies that drive oil demand down in the next 10 years. The estimated climate action-induced price drop for oil by just 2035 could make three-quarters of the industry in the United States unprofitable.
The effect of climate policy on prices over the next 25 years
The IEA’s World Energy Outlook presents multiple scenarios based on the latest and most comprehensive data on policies, technologies, and markets, supported by rigorous modeling. The report projects three scenarios: “Current Policies,” “Stated Policies,” and “Net Zero Emissions by 2050.”
The Current Policies Scenario assumes that governments do not enact their stated climate policies and that the deployment of clean energy technology largely flatlines. Without additional climate action, global oil demand would continue to climb and global temperatures would continue to rise to 2.9 degrees Celsius by 2100.
In contrast, with ambitious climate action under the Net Zero Emissions by 2050 Scenario, countries would adopt incredible new climate policies, including clean energy and electrification. Through these actions, global temperatures could return to present-day levels of 1.5 degrees Celsius above preindustrial levels. Moreover, according to the IEA’s 2023 study, this would reduce global oil demand 76 percent from today’s levels by 2050.
If the world embraces climate action as modeled in the IEA’s ambitious scenario, global demand for oil would plateau and oil prices would fall drastically from today’s prices.
It stands to reason that national climate policies around the world would add up to significant changes in the global climate. But another drastic difference between these two scenarios is the effect on fuel prices. Oil prices today are relatively low by historical standards, hovering at around $60 per barrel. If the world embraces climate action as modeled in the IEA’s ambitious scenario, global demand for oil would plateau and oil prices would fall drastically from today’s prices—to $33 per barrel by 2035 and $25 per barrel by 2050. However, if the world rejects climate action, as modeled in the IEA’s least ambitious scenario, global demand for oil would continue to climb, driving prices up to $89 per barrel by 2035 and $106 per barrel by 2050.
The divergence between these two scenarios is dramatic: By 2050, oil prices could differ by more than $80 per barrel depending on the policy. Current policies, driven by President Donald Trump’s “energy dominance” agenda, would push oil prices up 34 percent by 2050, whereas a net-zero trajectory would drive them down by nearly 70 percent—a swing of more than 100 percentage points between the two futures.
The price of oil translates directly to prices at the pump. The last time a barrel of oil was $106, a gallon of gasoline cost more than $4.60, according to data from the Federal Reserve. And the last time oil was $25 a barrel, the price at the pump was less than $1.80.* That’s more than a $40 difference to fill up an average tank of gas.
Policymakers must ensure that American energy is affordable, and a transition to clean, homegrown energy is the way to do that.
For natural gas, which is closely tied to electricity prices, the Current Policies Scenario sees a price increase in U.S. natural gas prices from $2.20 per million British thermal units (MBtu) to $5 per MBtu in 2050. Meanwhile, in the net-zero scenario, U.S. natural gas prices would remain comparable to today’s prices through 2050. That’s an increase of more than 127 percent under the blueprint of the Trump administration’s energy regime.
While this analysis focuses on just the two far ends of the IEA’s scenario spectrum, it should be noted that even the smaller scale of climate action taken in the Stated Policies Scenario would lead to lower prices for both oil and natural gas.
The oil industry’s incentive to keep prices high
Big Oil is incredibly sensitive to a future change in oil demand, and for good reason: A decrease in oil demand over the next 10 years could be significant for their bottom line. Research on oil supply finds that small increases in global demand could raise prices, while even a slight decrease—or plateau—means lower prices.
Oil companies rely on oil to be a certain price—the “break-even price”—to profitably drill oil. The higher the price of oil, the more profitable drilling becomes. The United States has relatively expensive break-even costs for oil and gas production, at around $50 to $80 per barrel. Meanwhile, Saudi Arabia and some other members of the Organization of Petroleum Exporting Countries (OPEC) oil cartel have huge amounts of substantially lower-cost oil that breaks even around $20 per barrel.
Depending on OPEC’s response to a decrease in oil demand and subsequent decrease in price, a lot of U.S. oil production could be on the line. Research on energy supply curves suggests that at the IEA’s net-zero emissions projection of $33 per barrel oil by 2035, just a quarter of U.S. oil reserves would be profitable.
This threat would be bad news for an industry that has made billions in profits over the past decade. It also makes clear why the oil and gas lobby is fighting climate policies so hard and why it has opened its wallet for President Trump to enact its agenda. In fact, it’s possible that oil interests were behind the push for the IEA to model the Current Policies Scenario showing an expansion of future oil demand. The IEA has received a tremendous amount of pushback from the oil and gas industry regarding its forecasts over the years. Major oil industry players, such as the National Petroleum Council, Exxon Mobil, and Aramco, have heavily criticized previous forecasts, accusing them of being unrealistic, politically motivated, and damaging to investment. They have a strong interest in showing Wall Street and other investors that the industry will continue to rake in profits and keep prices high.
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Conclusion
The assumption that climate action is a necessary but costly endeavor is flat-out wrong. According to the IEA’s findings, ambitious clean energy investment and climate action would save Americans money on energy in the not-too-distant future. The industry is fighting tooth and nail—and paying a large upfront price tag—for the Trump administration to do its bidding and keep prices high in the meantime. Policymakers must ensure that American energy is affordable, and a transition to clean, homegrown energy is the way to do that.
The author would like to thank Trevor Higgins, Kat So, Steve Bonitatibus, Chester Hawkins, and Meghan Miller for their contributions to this column.
* Author’s note: According to Federal Reserve Economic Data, the global price of oil last reached approximately $106 in July 2022, when the average price of gasoline in the United States was $4.65. Oil last reached nearly $25 in April 2020, when gas was $1.77.