Exploring Hydrocarbon Depletion
Page added on February 4, 2017
Energy companies are grossly underestimating low-carbon advances with a business-as-usual approach says a new report co-authored by the Grantham Institute at Imperial College London and the Carbon Tracker Initiative.
The report also points to the falling costs of electric vehicle and solar technology as having the potential to halt the growth in global demand for oil and coal from 2020, challenging the wisdom of backing fossil fuel expansion.
Growth in electric vehicles (EVs) alone could lead to 2 million barrels of oil per day (mbd) being displaced by 2025 — the same volume that caused the oil price collapse in 2014-15. This scenario sees 16mbd of oil demand displaced by 2040 and 25mbd by 2050, in stark contrast to the continuous growth in oil demand expected by industry.
“Electric vehicles and solar power are game-changers that the fossil fuel industry consistently underestimates,” said Lukas Sussams, senior researcher at Carbon Tracker. “Further innovation could make our scenarios look conservative in five years’ time, in which case the demand misread by companies will have been amplified even more.”
The power and road transport sectors account for approximately half of all fossil fuel consumption, so growth in solar photovoltaic (PV) and EVs can have a major impact on demand. The report argues that the use of business-as-usual scenarios should be retired. Scenarios should now apply, as a minimum, the latest cost reduction projections for solar PV and EVs, along with emissions commitments nations have made in their Nationally Determined Contributions (NDCs) under the Paris Climate Agreement, to reflect the current state of the low-carbon transition.
The new “starting point” scenario more accurately reflects the current state of play and finds that:
Expect the unexpected: The disruptive power of low-carbon technology, warns that fossil fuels may lose 10 percent of market share to PV and EVs within a single decade. While this might not sound like much, it could mark the beginning of the end once demand starts to decline. A 10 percent loss of power market share caused the collapse of the US coal mining industry and Europe’s five major utilities lost more than €100 billion in value from 2008 to 2013 because they were unprepared for an 8 percent growth in renewable power, of which solar PV was a big part.
“There is no more business as usual in the energy sector — so it is time that scenario was discarded. There are a number of low-carbon technologies about to achieve critical mass decades before some companies expect,” said James Leaton, head of research at Carbon Tracker.
The report provides full transparency on the assumptions and underlying its scenario analysis, as recommended by the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures. It calls for companies to start doing the same to enable the market to understand the basis for business as usual strategies.
The report explores how plausible advances in solar PV and EVs could impact on future fossil fuel demand alongside efforts to reach international climate targets. It models a range of scenarios using the latest data and market projections for future cost reductions in PV and EVs, with varying levels of global climate policy effort and energy demand.
“Most low-carbon pathways analysis considers what needs to be done to meet ambitious climate targets like 2°C. Here we’ve looked at what would happen to the global energy system and global temperature if the lowest-cost options are deployed, in light of the latest projections of PV and EV costs. It’s time we fully understood the implications of these technologies’ relentless ride down the cost curve,” said Ajay Gambhir, senior research fellow at Imperial.
The report can be read in full at CarbonTracker.org.