IEA forecasts rise in electricity-related emissions by 1% in 2026

Global electricity demand expected to surge by nearly 4% in 2026

Global electricity demand is forecast to grow by 3.7% in 2026, following a 3.3% increase in 2025, according to the International Energy Agency’s latest electricity outlook. Consumption is expected to exceed 29,000 terawatt-hours by the end of 2026. This represents the fastest sustained growth in electricity use in years, outpacing overall energy demand across the same period.

The agency attributes the sharp rise to several converging factors. Industrial production continues to drive substantial load growth, particularly in emerging economies. Household electricity use is climbing as air conditioning and appliances become more widespread. Meanwhile, electric vehicle adoption and the expansion of data centres are adding entirely new sources of demand to national grids.

For UK businesses, this global picture carries direct implications. Supply chains are increasingly exposed to electricity price volatility in manufacturing hubs. Companies tendering for international contracts face growing scrutiny over their energy strategies. Furthermore, the rapid expansion of electricity infrastructure worldwide signals a long-term shift in how energy markets will operate, with consequences for procurement decisions and capital planning.

The outlook also highlights a critical divergence. While demand is rising steeply, carbon dioxide emissions from electricity generation are expected to plateau in 2025 and decline slightly in 2026. This marks a departure from historical trends, where electricity growth typically drove proportional emissions increases.

Emissions forecast to stabilise despite rising consumption

The IEA’s projections indicate that power-sector emissions will flatten in 2025 before edging downward in 2026. This stabilisation occurs even as global electricity consumption continues to climb. The gap between demand growth and emissions growth is being filled by renewable energy, nuclear power, and natural gas displacing coal in several major markets.

This trend reflects the changing composition of global electricity generation. Solar and wind capacity additions have accelerated in recent years. Nuclear output is recovering in some regions as reactors return to service or new plants come online. Gas-fired generation is replacing coal in markets where infrastructure allows the switch.

However, regional variation remains significant. Some economies will see emissions from electricity generation continue to rise, particularly where coal remains the dominant fuel source. Conversely, the European Union is projected to achieve further emissions reductions in its power sector, supported by renewable deployment and improved interconnection between national grids.

This divergence matters for businesses operating across multiple jurisdictions. A company with manufacturing sites in both Europe and Asia may face very different emissions intensities in the electricity it purchases. Consequently, Scope 2 emissions reporting can vary considerably depending on geographic footprint. Companies bidding for contracts governed by PPN 06/21 or similar standards need to account for these regional differences when calculating their carbon position.

The broader implication is that electricity is decoupling from emissions in some markets but not others. This creates both opportunities and risks for businesses seeking to reduce their carbon footprint through electrification strategies.

Industrial growth and cooling demand drive consumption higher

Industrial production remains the largest single contributor to electricity demand growth. Manufacturing output is rising in emerging economies, often powered by electricity rather than direct fuel use. This shift supports energy efficiency in many cases, but it also transfers emissions intensity to the power sector.

Air conditioning and cooling systems represent another major growth driver. Rising incomes in warmer climates are making cooling accessible to millions of households that previously lacked it. Commercial buildings are also installing larger cooling systems to meet occupant expectations. This trend is particularly pronounced in Asia, the Middle East, and parts of Africa.

Electric vehicles are adding new load to distribution networks, especially in Europe and China. While individual vehicle charging may seem modest, the cumulative effect on grid infrastructure is substantial. Businesses with vehicle fleets are increasingly encountering questions about charging capacity and timing to avoid peak tariffs.

Data centres and digital infrastructure are growing rapidly. Cloud computing, artificial intelligence, and data storage all require significant electricity input. These facilities often run continuously, creating baseload demand that differs from traditional commercial or industrial patterns. For businesses considering colocation or cloud migration, electricity costs and carbon intensity of data centres are becoming material factors in vendor selection.

Together, these drivers are reshaping electricity markets. Demand is becoming more diverse, less seasonal, and harder to predict using historical patterns. This complicates procurement strategies and makes long-term energy contracting more challenging for businesses that lack dedicated energy management resources.

Key facts about the IEA electricity outlook

• Global electricity demand is projected to grow by 3.3% in 2025 and 3.7% in 2026, significantly outpacing total energy demand growth over the same period.
• Total electricity consumption is expected to exceed 29,000 terawatt-hours by 2026, up from lower baselines in recent years.
• Carbon dioxide emissions from power generation are forecast to plateau in 2025 and decline slightly in 2026, despite rising electricity use.
• Industrial production, air conditioning, electric vehicles, and data centres are the primary drivers of electricity demand growth globally.
• Regional emissions outcomes vary considerably, with the European Union expected to achieve further reductions while some other regions see continued growth.
• Renewable energy, nuclear power, and gas-fired generation are collectively filling the gap between rising demand and stabilising emissions in many markets.

What stabilising emissions mean for UK business planning

The decoupling of electricity demand from emissions represents a structural shift in energy markets. For businesses, this changes the calculus around electrification. Switching from gas heating to electric heat pumps, or from diesel vehicles to electric fleets, no longer automatically increases carbon footprint. However, the emissions benefit depends entirely on the carbon intensity of the electricity being purchased.

This makes procurement decisions more complex. Businesses need to consider not just the price of electricity, but also its emissions factor. Companies reporting under the Streamlined Energy and Carbon Reporting framework must use grid average emissions factors unless they have verifiable renewable tariffs or power purchase agreements. As grid intensity improves, Scope 2 emissions will fall even for businesses that do not change their consumption patterns.

Conversely, businesses relying on fossil fuel heating or transport will see their relative emissions position worsen over time. As the electricity grid decarbonises, the carbon intensity of direct fuel use remains constant or declines more slowly. This creates a growing gap that becomes visible in emissions reporting and tender evaluations.

Supply chain implications are equally significant. If your suppliers operate in regions where electricity emissions are falling, their Scope 2 emissions will improve without any action on their part. However, suppliers in regions where coal generation remains dominant may struggle to demonstrate emissions reductions. For businesses managing Scope 3 emissions, this geographic variation introduces uncertainty into forward projections.

Capital planning also needs to reflect the changing electricity landscape. Investments in electric equipment or building electrification made today will deliver different emissions outcomes depending on how grid intensity evolves. Businesses should model scenarios based on projected grid decarbonisation, not just current emissions factors. Our compliance support services help companies assess these factors when developing emissions reduction strategies.

Regulatory pressure is likely to increase as electricity decarbonises. Governments and procuring authorities will expect businesses to take advantage of cleaner grids by switching from direct fuel use to electricity. Companies that delay electrification may find themselves at a competitive disadvantage in tenders or facing higher carbon prices under future policy regimes.

Data centres and vehicle charging create new infrastructure demands

The expansion of data centres is placing unprecedented demands on electricity networks. These facilities require constant, reliable power at scale. A single large data centre can consume as much electricity as a small town. Businesses considering cloud services or data hosting should evaluate the emissions intensity of their providers’ electricity supply.

Moreover, data centres often operate in locations chosen for tax, connectivity, or land availability rather than electricity cost or carbon intensity. This means the emissions associated with digital services can vary widely depending on where data is stored and processed. Companies with net-zero commitments need to include these considerations in their procurement criteria.

Electric vehicle charging is creating similar challenges at a distributed level. Businesses with vehicle fleets face decisions about charging infrastructure, timing, and tariff structures. Charging during peak hours attracts higher costs and may rely on fossil generation, while off-peak charging is cheaper and often cleaner. Fleet managers need to coordinate charging schedules with electricity procurement strategies.

Some businesses are exploring on-site generation to support vehicle charging. Solar panels combined with battery storage can provide daytime charging without drawing on grid capacity. However, this requires capital investment and may not be viable at all sites. The business case depends on electricity prices, available roof space, and fleet utilisation patterns.

Regional variation complicates multinational emissions reporting

Electricity grid carbon intensity varies enormously by region. In 2026, the European Union is expected to continue reducing emissions from power generation. However, other regions may see emissions rise as coal-fired capacity expands to meet demand growth. This creates reporting challenges for businesses operating across multiple countries.

A manufacturer with sites in Germany and Vietnam will report very different Scope 2 emissions per unit of electricity consumed, even if both sites have identical production processes and energy efficiency. This geographic variation affects overall carbon position and can influence decisions about where to locate new facilities or expand existing ones.

Businesses tendering for international contracts need to account for these differences. A supplier with a low-carbon footprint in one market may not have the same advantage in another. Similarly, companies evaluating suppliers should consider the emissions intensity of the grids they operate on, not just their reported consumption figures.

Carbon pricing adds another layer of complexity. Some jurisdictions impose carbon costs on electricity generation or consumption, while others do not. This affects both the direct cost of electricity and the financial incentive to reduce consumption. Businesses operating in multiple markets must navigate these varying policy environments when developing energy strategies.

For companies pursuing carbon neutrality or net-zero targets, regional grid intensity affects the cost and feasibility of offsetting. Emissions from electricity use in high-carbon grids require more offsetting than equivalent consumption in low-carbon grids. This can create significant cost differences between operational regions.

Policy implications for businesses pursuing electrification

The IEA’s outlook reinforces the case for electrification as a decarbonisation strategy, but only where electricity supply is decarbonising. Businesses switching from gas boilers to heat pumps, or from diesel vehicles to electric fleets, need to ensure that the electricity grid in their region is improving its carbon intensity. Otherwise, electrification may offer limited emissions benefit.

Government policy will increasingly favour electricity over direct fossil fuel use. Subsidies, grants, and regulatory incentives are shifting towards electric technologies. However, businesses should evaluate these policies carefully. A grant for electric heating may be attractive, but if the local grid remains coal-dependent, the emissions reduction may be minimal.

Planning timelines matter. Grid decarbonisation is projected to continue through 2026 and beyond, meaning electrification investments made today will deliver better emissions performance over time. Businesses should model the lifetime emissions impact of equipment, not just the first-year effect. Our net-zero program provides support for companies assessing the carbon impact of capital investments.

Supply chain expectations are also shifting. Large buyers are increasingly requiring suppliers to demonstrate progress on decarbonisation. Electrification, combined with renewable procurement, offers a clear pathway to lower Scope 2 emissions. Businesses that delay action may find themselves excluded from tenders or facing pressure from customers.

Further information from authoritative sources

The IEA publishes detailed electricity market updates and forecasts. You can access their latest analysis on the International Energy Agency website, which provides comprehensive data on global electricity trends, emissions projections, and regional variations.

For UK-specific electricity grid carbon intensity and decarbonisation plans, the Department for Energy Security and Net Zero provides policy updates and emissions data. This is particularly relevant for businesses assessing the UK grid’s future carbon intensity.

Businesses reporting emissions under UK regulations should refer to the government’s greenhouse gas reporting conversion factors, which are updated annually. These factors are used to calculate Scope 2 emissions from electricity consumption and must be applied correctly in compliance reporting.