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Fossil Use Must Fall Dramatically, But Energy Transition is Accelerating

Fossil use must fall dramatically to meet global climate goals, electric vehicles are set to drive down that demand, and the price collapse dogging oil and gas companies is here to stay, according to a small flurry of recent reports by major fossil companies and industry analysts.

Earlier this week, a blue ribbon Energy Transitions Commission, formed in 2013 by a consortium that included multinational fossils Royal Dutch Shell and BHP Billiton, concluded that global coal consumption must fall by 70% and oil by 30% by 2040, and natural gas can only increase by 2%, to meet the carbon reduction goals in the Paris agreement. While the targets fell short of more aggressive carbon reduction scenarios, the report drew attention because of the composition of the commission itself.

The commission’s report sets out a pathway to keeping temperatures well-below 2°C above pre-industrial temperatures, in line with the less ambitious end of the Paris agreement,” Carbon Brief reports. “It says this path is hugely challenging, but that it is ‘technically and economically possible’, and that it would bring ‘important additional social benefits…and economic opportunities.’”

The report foresaw a “near-total variable renewable power system” in many countries by 2035, and priced that system at US$70 per megawatt-hour (MWh), plus another $30/MWh for system costs and backup. That would make the system “fully cost-competitive with fossil fuels, allowing for all necessary flexibility and back-up costs.”

The commission also acknowledged its allowance for backup costs was “likely to be conservative… [and] could be significantly reduced” with better demand management and grid integration.

“The net result of all these shifts is that fossil fuel investment needs would be cut ‘dramatically’ by $175 billion per year below business-as-usual levels, with low-carbon investment increased by $300 billion per year and investment in buildings and efficiency rising $900 billion per year,” Carbon Brief notes.

While the Transitions Commission was releasing its report in London, Total SA Chief Economist Joel Couse was at the Bloomberg New Energy Finance conference in New York, predicting that oil demand will peak by 2030,with electric cars accounting for 15 to 30% of vehicles sales.

“That’s big,” said Colin McKerracher, BNEF’s head of advanced transport analysis. “That’s by far the most aggressive we’ve seen by any of the [fossil] majors.”

Electric cars today account for about 1% of global vehicle sales, but Bloomberg notes that automakers are preparing for a boom. “By 2020 there will be over 120 different models of EV across the spectrum,” said BNEF founder Michael Liebreich. “These are great cars. They will make the internal combustion equivalent look old fashioned.”

Last February, BNEF cited 2022 as the year when the total cost of owning and operating an electric car could fall below the equivalent cost of an internal combustion vehicle, triggering a drop in demand that would bring on the next oil price crash. And last week, Oxford University economist and longtime industry advisor Dieter Helm warned that the current crash won’t be disappearing anytime soon.

If Helm is to be believed, the oil market downturn is only getting started,” the Calgary Herald reports. “The latest collapse is the harbinger of a global energy revolution which could spell the endgame for fossil fuels. These theories were laughable less than a decade ago when oil prices grazed highs of more than $140 a barrel. But the burnout of the oil industry is approaching quicker than was first thought, and the most senior leaders within the industry are beginning to take note.

Even the International Energy Agency, long criticized for overestimating future fossil demand and underplaying the rise of renewables, has changed its tone, the Herald notes. Last month, “the agency warned oil and gas companies that failing to adapt to the climate policy shift away from fossil fuels and towards cleaner energy would leave a total of $1 trillion in oil assets and $300 billion in natural gas assets stranded.”