The Annual Energy Outlook (AEO): A Brief Overview

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December 1, 2020
The Annual Energy Outlook (AEO): A Brief Overview
The Annual Energy Outlook (AEO) provides an annual
system conditions under assumptions detailed in
projection of U.S. energy supply, demand, prices, certain
accompanying EIA reports. In general, the AEO’s reference
energy-related air emissions, and other factors over a 25-30
case assumes (1) no changes in current U.S. laws and
year period. Congress has an ongoing interest in whether
regulations, and (2) the continuation of historic industry and
and how to use the AEO in potentially forthcoming
technology trends. The AEO attempts to reflect all federal
discussions about energy policy. Additionally, Congress
laws and regulations and most key state laws and
may examine the resources and guidance it gives the U.S.
regulations that affect the energy sector.
Energy Information Administration (EIA) to conduct the
AEO, and whether any changes are necessary.
The AEO also includes projections for side cases
scenarios with certain alternative assumptions. Side cases
EIA—an independent statistical agency within the U.S.
can help identify how sensitive model results are to changes
Department of Energy (DOE) (P.L. 95-91; 42 U.S.C.
in these assumptions. They also can demonstrate the range
7135)—reports that it publishes the AEO each January to
of possible changes in the energy system, based on the
satisfy the Department of Energy Organization Act of 1977,
range of assumptions included in the side cases. The 2020
which requires the EIA Administrator to prepare annual
version of the AEO (AEO2020) presented eight side cases
reports on trends and projections for energy use and supply.
exploring the potential impact of differing assumptions
Publicly accessible print records of the AEO date back to
about oil and gas supply, oil prices, economic growth rates,
and renewable energy costs.
The AEO has been referenced as an authoritative source by
Figure 1 shows how AEO side cases can differ from the
Congress—and its support agencies—and by executive
reference case, using electricity generation as an example.
agencies, industry, and others. For instance, the AEO has
The dark line shows the AEO2020 reference case projection
been referenced at multiple congressional hearings related
for the share of electricity coming from wind and solar
to energy and climate change. Executive agencies that have
energy nationwide. In the reference case, that share grows
used the AEO include the Environmental Protection
from 12% in 2020 to 30% in 2050. In the AEO side cases,
Agency, to project affected facilities in an oil and gas
the share of electricity coming from wind and solar energy
rulemaking, and the National Highway Traffic Safety
in 2050 ranges from 18% to 43%. The differences, in this
Administration, as a part of a rulemaking for federal motor
case, arise from assuming lower or higher costs for these
vehicle safety standards. Also, the AEO has been
and competing energy sources, which affect the market
referenced in legislation in the past, for instance, bills to
share of wind and solar relative to the reference case.
require a particular AEO projection to be used as a baseline
for certain analysis and reporting.
Figure 1. Projected Share of Total Electricity
Generation from Wind and Solar Sources, 2020-2050
What Is the AEO?
The AEO is an annual assessment of U.S. energy markets
for the next few decades. It contains numerous projections,
including for energy supply by fuel type (e.g., petroleum),
energy demand by sector (e.g., transportation), energy
prices by fuel type and sector, and energy-related carbon
dioxide emissions. The AEO presents these projections in
both written summaries and graphics. Many of the graphics
in the AEO show historical data alongside the projections.
EIA also releases data tables associated with the AEO
projections. Projections are reported for the United States as
a whole, while some information also is reported regionally.

Source: EIA, Annual Energy Outlook 2020.
Not all aspects of the energy system are included in the
Notes: Dark line represents EIA’s reference case. Shaded area
AEO. For example, the AEO does not contain employment
represents the range of outcomes in EIA’s side cases. Assumptions
projections for the various energy sectors, nor does it
for each scenario are described in the Annual Energy Outlook 2020.
contain projections for certain environmental metrics (e.g.,
methane emissions) associated with energy production.
EIA does not refer to the AEO as a forecast. For example,
in the AEO2020 EIA states that the value of its projections
An integral component of the AEO is its reference case—a
“is not that they are predictions of what will happen, but
scenario constructed by EIA which projects future energy
rather, they are modeled projections of what may happen

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The Annual Energy Outlook (AEO): A Brief Overview
given certain assumptions and methodologies.” Further,
Figure 2. U.S. Net Petroleum Imports: AEO
“the AEO2020 Reference case should be interpreted as a
Projections vs. Actual Imports
reasonable baseline case that can be compared with the
cases that include alternative assumptions.” In other words,
while the AEO is a collection of projections based on
certain assumptions, EIA does not intend it to be used as a
prediction or a forecast. This distinction is relevant when
evaluating the extent to which AEO projections have
aligned with actual changes in the energy system. An AEO
projection can be expected to approximate actual market
changes only if the underlying assumptions are accurate.
Considerations for Congress
The AEO can provide insight into possible changes in the

Source: EIA, Annual Energy Outlook 2018 Retrospective Review.
U.S. energy system. The AEO is used prominently within
the energy sector, to justify investments, assess industry
Notes: Every other year, EIA publishes a retrospective review of the
trends, and—especially—to inform policy decisions, among
AEO’s projections, comparing every AEO projection since 1994 with
other uses. When referring to AEO projections, there are at
actual values.
least four primary considerations: accounting for the
unknown, long-term accuracy, policy assumptions, and few
Third, the AEO contains assumptions that existing laws and
alternative sources for U.S. projections.
regulations remain unchanged. Changes in laws, though,
can influence the energy sector. For example, repeal of U.S.
First, the AEO, like other model-based analysis, can be, and
crude oil export restrictions in 2015 likely explains some of
has been, “surprised” by changing developments in U.S.
the decline in actual net petroleum imports from 2016 to
energy markets and the broader economy. In general,
2017. EIA defends this practice as being consistent with its
models can, to some extent, account for “known unknowns”
mandate to be policy neutral, and has stated in the past, “the
(e.g., through side cases), but they can struggle to account
[AEO] projections provide policy-neutral baselines that can
for “unknown unknowns,” such as disruptive technologies
be used to analyze policy initiatives.” Additionally, EIA
or military conflicts. This challenge has raised questions
reports that it “neither formulates nor advocates policy
about the usefulness of model projections, including AEO
conclusions,” and thus is not in the position to include
projections. For example, AEO assumptions in the last 20
assumptions in the AEO about what policies may (or may
years did not anticipate certain key developments in U.S.
not be) enacted by Congress and the states. EIA
net petroleum imports. (See Figure 2.) Solid lines in the
occasionally assesses potential policy outcomes, usually
figure show AEO projections in five-year increments from
upon congressional request.
1998 to 2013. The AEO1998 was the first to make
projections through 2017, the most recent year of actual
Fourth, few other analyses exist that are comparable to the
data in the most recent retrospective review. Five-year
AEO, in part due to the extensive resources required to
increments were selected as illustrative examples of
produce a multi-decadal projection of the U.S. energy
projection variability over time. The dashed line shows
system. One analogous set of projections, the World Energy
actual petroleum imports. During the time period when the
Outlook (WEO), is produced annually by the International
projections were made (i.e., 1998-2013), several factors led
Energy Agency. This agency uses different assumptions
to decreased net imports, including advancements in
than EIA, including assumptions about new policies.
drilling practices which caused a large increase in U.S. oil
Recent editions of the WEO have included policy scenarios
production. The projections did not fully capture this
focused on achieving United Nations sustainability and
structural change; all are higher than the actual values.
climate change goals. For example, the 2020 edition of the
Additionally, the AEO did not anticipate the shock to the
WEO included a scenario with net zero greenhouse gas
energy system caused by the 2008-2009 recession—the
emissions from the global energy sector. Compared to the
AEO2008 overestimated imports in 2013. The decline in
AEO, the WEO has similar types of data available for the
U.S. oil demand due to the Coronavirus Disease 2019
United States (e.g., energy demand by sector), though
pandemic is another example of a market shock which
typically with less granularity. Some, but not all, WEO data
would not likely be anticipated in an AEO projection.
are available for free. Several private companies also make
projections or forecasts about the U.S. energy sector (e.g.,
A second challenge with AEO projections is that they tend
BP’s Energy Outlook). Projections offered by private
to be less accurate as they go farther out into the future.
companies differ in the extent to which they make their
(See Figure 2.) While all the AEO projections
assumptions and data available to the public.
overestimated actual petroleum imports in 2013-2017, the
1998 and 2003 projections are much farther from the actual
Ashley J. Lawson, Analyst in Energy Policy
value than the projections from 2008 and 2013. This
Kelsi Bracmort, Specialist in Natural Resources and
challenge is common to economic models, but may be
Energy Policy
important to consider when interpreting AEO projections.

The Annual Energy Outlook (AEO): A Brief Overview

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