Global fossil fuel demand could be slashed by 2040 due to slowing population and economic growth coupled with a rapid expansion of renewable energy, warns an Oct. 22 Carbon Tracker Initiative report.
Typical industry scenarios see coal, oil and gas use growing by 30 – 50 per cent and still making up 75 per cent of the global energy supply mix in 2040, but none take into account the huge potential for reducing fossil fuel demand as ever-more countries seek to ‘decarbonize’ their economies, according to a new Carbon Tracker Initiative report titled Lost in transition: How the energy sector is missing potential demand destruction.
“The incumbents are taking the easy way out by exclusively looking at incremental changes to the energy mix, which they can adapt to slowly," said Luke Sussams, Carbon Tracker’s senior analyst and co-author. "The real threat lies in the potential for low-carbon technologies to combine and transform society’s relationship with energy. This is currently being overlooked by big oil, coal and gas.”
The report counters several fossil fuel-sector ‘business as usual’ (BAU) assumptions, key among them being countries’ intended nationally determined contributions (INDCs) in cutting greenhouse gas emissions and ramping up renewable power development.
This unfolding global green energy revolution is rapidly accelerating thanks to cost reductions of energy (battery) storage being seven years ahead of average forecasts made last year, meaning that the technology could be cost-competitive with power grids by 2025. Such synergy between energy storage and renewable energy technologies has the potential to transform energy markets, but is still not being factored into fossil fuel scenarios.
As renewables take off, global coal demand is facing structural decline, as exemplified by China shifting its energy system to such a degree that peak coal demand could occur in the very near-term, the country having announced a national carbon cap-and-trade system in the run-up to the Paris climate talks.
India has also announced a crash program for developing renewables ahead of Paris – 160 GW of solar and wind by 2022 – which could displace 158 million tonnes or the rough total weight of India’s coal imports in 2012.
Nonetheless, fossil fuel companies still expect demand to grow by 0.4 – 0.8 per cent annually to 2040, thanks to the road transport sector that forms the oil industry’s biggest consumer market.
However, efficiency regulations of combustion engine cars will impact oil demand in the short-term. In the longer-term, oil industry scenarios are projecting a negligible take-up of electric vehicles by 2040, but alternative forecasts suggest that they could be cost-competitive with combustion-engine vehicles as early as 2025.
“Investors need to challenge companies who are ignoring the demand destruction that the market sees coming through much sooner than the business-as-usual scenarios being cited by the industry," said James Leaton, Carbon Tracker’s head of research. "Otherwise they will be on the wrong side of the energy revolution.”
Other factors contributing to an accelerating collapse in global fossil fuel demand include global population climbing to only 8.3 billion according to climatic and socioeconomic projections, as opposed to the UN’s "median variant" forecast that fossil fuel companies use.
A slowdown in global population growth will be mirrored by lower GDP growth in major markets including economic powerhouses China and America.
In its report, Carbon Tracker cites Organization for Economic Co-operation and Development figures that projects global GDP growth at only 3.1 per cent to 2040 rather than the 3.4 per cent assumed by the International Energy Agency (IEA), the latter measurement being used by the fossil fuel sector. This difference equates to roughly a drop in demand equivalent to half a year’s global energy demand in 2012.
In addition, the world is increasing its ability to decouple energy demand from economic growth. If, for example, global energy intensity of GDP falls by 2.8 per cent annually— instead of 2.2 per cent as laid out in the IEA’s New Policy Scenario— energy demand will be drastically lower.
One potential ray of hope for fossil fuel companies is that all scenarios predict future growth in gas demand.
But gas demand will be lower if the fuel loses its base-load role and switches to being only a backup for renewables.
Even in this scenario, countries such as Germany that are already shifting to renewables are as likely to use hydro power as gas for backup, drawing upon Norway’s network of dams and turbines.
“We have seen in recent weeks how the fossil fuel sector has misled consumers and investors about emissions – the Volkswagen scandal being a case in point – and deliberately acted against climate science for decades, judging from the recent Exxon expose," said Leaton.
"Why should investors accept their claims about future coal and oil demand when they clearly don’t stack up with technology and policy developments?”