With all signs pointing to a clean energy “juggernaut” that will leave slow adopters in the dust, Canada needs to plan for a drastic drop in oil demand, say experts from the International Institute for Sustainable Development (IISD).
Canada would do well to heed the story of how one-time telecommunications giant AT&T failed to anticipate the rapid pace at which cell phones would render landlines obsolete, write IISD senior associate Aaron Cosbey and energy transition specialist Angela Carter, who is also an associate professor at the University of Waterloo’s Balsillie School of International Affairs.
“In 1985, AT&T asked McKinsey Consulting how many cell phones there would be in the year 2000, and their prediction was 900,000,” Cosbey and Carter write in a recent op-d for The Hill Times, in a tale they describe as “foreboding for Canada’s oil patch”. McKinsey ended up being off by some 99 million, failing to recognize that while the technology adoption rate may start off low, momentum often builds until a tipping point pitches it into overdrive and “near-universal uptake.”
The phenomenon “is known as the ‘S-Curve’ and these dynamics—as applied to the end uses for oil—pose a major threat in Canada,” warn the IISD experts.
Citing recent IISD analysis into how such “dynamics” are beginning to play out, they predict that “demand will peak this decade, with a downward trend picking up speed throughout the 2030s.” The initial major driver will be the “exponential uptake of electric vehicles (EVs), which will eat into the 44% of global crude oil production dedicated to road transportation.”
Already, “governments covering 25% of the global market have announced 100% EV sales mandates for 2035, and EV-related subsidies doubled in 2021 to nearly US$30 billion,” they add. “These kinds of policies are low-hanging fruit for the many governments looking to act on climate change.”
And plunging demand in the transport sector is not the only driver of fossil decline. “13% of global oil used to heat buildings and generate electricity is effectively walking dead, eclipsed by cheaper technologies like heat pumps, solar panels, and wind turbines,” write Cosbey and Carter. IISD analysts further predict that “soon after 2030, falling demand for other major oil uses will compound the decline—the world is going to need les oil for plastics, aviation, and shipping, as environmental policy drives innovation in non-fossil alternatives.”
And as demand shrinks, Canadian producers will find themselves “going head-to-head with lower-cost Middle Eastern producers with huge reserves.”
But the oil patch doesn’t appear to be getting the message. “Flush with the highest levels of profit” ever, Cosbey and Carter say the industry could be investing in a very different future for itself, but is choosing instead to pay dividends, engage in share buybacks, and block climate policy.
This isn’t going to end well, warn Cosbey and Carter. Absent diversification and investment in green energy, “the Canadian economy—especially oil-dependent workers and their communities—will be left holding a landline in a world of cellphones.”
Other analysis shows the incentives and the urgency to act are growing. Even without more aggressive government intervention, wind turbines, solar panels, and batteries will account “for about two-thirds of global power generation by 2050,” but the remaining one-third will be sufficient to put the planet on a path to 2.6°C degrees of warming, writes BloombergNEF (BNEF).
“A more ambitious path would see wind and solar providing three-quarters of the world’s power by 2050, with nuclear, hydrogen, and fossil fuels paired with carbon capture providing most of the rest,” says BNEF. Such ambition “would keep temperatures within a 1.77°C increase.”
But this will “require a lot more work”. In Bloomberg’s modelling, that includes sufficient investment in carbon capture technology to increase its largely nascent capacity by 1,700%.
Yet there are serious economic and ethical incentives to shifting off oil. “Decarbonizing our energy system would save US$12-trillion globally by 2050,” writes Julie Segal, senior manager of climate finance at Environmental Defence Canada, in a recent Globe and Mail op-ed. “We can put these funds directly into achieving our 1.5°C goal.”
“Rich countries like Canada owe a climate debt to the most vulnerable and least industrialized countries,” Segal adds, pointing out that Canada is the world’s tenth-largest historical emitter. At 2% of global emissions to date, that’s “nearly the same contribution as the entire continent of Africa.”
But “if Canada and other wealthy countries transition our energy systems urgently and deliver money for vulnerable countries to do the same, we can keep the 1.5°C goal alive,” Segal says.