New analysis foreshadows a dwindling demand for fossil fuels, but what will the oil companies make of the future? Grantham Institute Director of Policy and Translation, Alyssa Gilbert, looked into her crystal ball to find out.
The future is looking cleaner
It was really exciting to see the findings of our latest report splashed all over the media last week. Together with the Carbon Tracker Initiative, we showed the disruptive power of low-carbon technology to help us markedly reduce the impact of human activities on the climate.
Our computer modelling for the report, Expect the Unexpected: the disruptive power of low carbon technology found that the plummeting costs of both solar cells and electric cars, will encourage more people to choose these ‘greener’ options in the coming years, and the resulting drop in demand for fossil fuels will have a significant effect on this sector. These are interesting results in themselves, but even more interesting is that they are actually not so radical.
The report attempts the tricky business of predicting the realistic price of extremely rapidly-developing technologies at a point quite far into the future – let’s say 2020 or 2030. For many technologies, such as electrical energy storage, it is hard to figure out how fast these costs will come down, in part because they are currently rather immature. Traditionally, the authors of projections have been very conservative about the future prices, erring on the side of caution but actually underestimating how fast costs can drop.
The Grantham Institute, however, is based in a world-leading university, among experts renowned for pioneering advancements in technology, and their expert opinions about what is needed to drive down costs quickly have influenced our model. Coupling these new cost estimates for solar and electric vehicles with a world committed to their National Determined Contributions to the Paris Agreement on climate change, we found that demand for coal peaks in 2020 and then takes a steep decline – almost entirely disappearing from the fuel mix in 2040. Growth in oil demand stabilises in 2020, then dropping almost 25 million barrels per day by 2050. Demand for gas will vary as in some cases it replaces a drop in the use of coal, but in others, renewables pick up the slack – which is good news if we want the whole of civilisation to meet agreed greenhouse gas emissions and limit global warming to only two degrees Celsius.
Following the findings of our report, I have immersed myself in a slew of projections from other authorities on the future of energy – and these estimates are all moving in the same direction as ours. BP’s 2017 Outlook, published a couple of weeks ago, predicts that renewables will see a much greater growth than any other energy sources, and includes a rapid uptake in electric vehicles. This trajectory stops short of halting the growth of oil demand, but it is interesting that BP’s prediction of how much energy fossil fuels provide in 2035 has dropped down by five per cent since their 2016 Outlook.
In parallel, this week, Shell’s Chief Executive reiterated his company’s commitment to playing a role in the transition to a cleaner future. Shell has made investments in gas, through its acquisition of BG Group and puts about one billion United States Dollars into renewables each year. According to Mr van Beurden, the transition to low-carbon energy has a momentum of its own. Shell reflected on this transition in its New Lens scenario, and in the further scenario that it published last year – in which they claim it is possible under very specific circumstances to limit global warming to two degrees Celsius.
This week we hosted a talk by Dr Fatih Birol, the Secretary General of the International Energy Agency (IEA) who ran us through their annual World Energy Outlook (WEO). Dr Birol puts renewables in ‘pole position’, set to fuel nearly half of the increase in energy use between now and 2040. Like BP, the IEA stops short of projecting peak oil demand any time soon, though.
But we need to make the future happen
Projections, of course, don’t happen in isolation, they must inform and drive action – as Dr Birol emphasised, the real impact of the Paris Agreement depends on the degree to which commitments are written into good policies around the world. Similarly, the drive for people to buy and use low-carbon technologies – and to some degree the drop in costs of these technologies – depends on the type of support that policymakers give to R&D, deployment and demonstration, the framework for start-up businesses, infrastructure – such as charging points – and the design of power markets.
And, going forward, these policies must be robust. As one of the speakers noted at our report launch, there is a fine line between providing confidence in the direction of travel and pulling the rug out from support strategies that are still needed to help get some nascent technologies to market – which is valid all around the world.
The final pieces in the puzzle are the decisions of individuals and businesses that make that connection between low costs technologies and their widespread use. Choices are rarely based on cost alone, but sometimes supporting the adoption of cleaner technologies – for example the desire for cleaner air in cities. The pathways are not straightforward in all situations, however. Discussions both at the launch of our report and at the WEO event also highlighted the challenge for some rapidly developing economies, where the need for development and the prevailing lack of clean alternatives available make it hard for those stakeholders to avoid a more polluting future.
So, it is incumbent upon a combination of policy makers, businesspeople and researchers to find, incentivise and deploy technologies that already exist as widely as possible, and everyone plays their part in reducing their personal carbon footprint.
Another of our speakers at the launch event noted that investors who continue to put their money in the “same old places”, without thinking about the impact on climate change, are actively contributing to global warming of four degrees Celsius. In this way, the decisions made by all savers, consumers and investors, as well as companies like BP and Shell, to support the transition to low-carbon will be important.
Inaction is a choice – we should all be choosing to be future makers, not future takers.