Global fossil fuel demand is set to peak in 2023, putting trillions of dollars in oil, gas, and coal investments at risk due to a surging renewable energy sector, according to a new Carbon Tracker analysis released on the eve of the Global Climate Action Summit in San Francisco.
“Explosive growth in wind and solar will combine with action on climate change and slowing growth in energy needs to ensure that fossil fuel demand peaks in the 2020s,” The Guardian reports, citing the Carbon Tracker report. The transition will pose “a significant risk to financial markets because trillions of dollars’ worth of oil, coal, and gas assets could be left worthless.”
“Fossil fuel demand has been growing for 200 years, but is about to enter structural decline,” said Carbon Tracker new energy analyst Kingsmill Bond. “Entire sectors will struggle to make this transition.”
While Bank of England (and former Bank of Canada) Governor Mark Carney has already warned of the “huge hit” financial markets could take as the fossil industries collapse, Carbon Tracker’s projection “is much more bullish than estimates by the global energy watchdog and oil and gas companies, which mostly expect demand to peak in the mid-2030s,” The Guardian notes. “BP said earlier this year that it pumps its entire hydrocarbon reserves about every 13 years. Others simply dismiss the idea that a peak is coming any time soon, with ExxonMobil, the world’s biggest international oil company, projecting growth to 2040 as the world continues to rely on oil for heavy vehicles, shipping, and aviation.”
But Carbon Tracker sees the demand peak cutting seriously enough into the value of fossil industry assets, currently worth US$25 trillion world-wide, to produce “systemic risk” for financial markets. Petro-states like Venezuela and Saudi Arabia that rely heavily on oil revenue will also see risks to public budgets.
“The Carbon Tracker report warned incumbency and size would be no protection, and compared the fate of fossil fuel firms to the horse and cart at the start of the 20th century,” The Guardian notes. It sees the first two decades of this century as a period of innovation for the renewables, with the “endgame” for fossils arriving in 2050 and beyond. The projected peak in 2023 “is due partly to bullish estimates of levels of electrification, such as transport switching from oil to batteries and electricity.”
While the study did not address the likelihood or impact of countries withdrawing from the Paris Agreement, Carbon Tracker energy analyst Sebastian Ljungwaldh conceded that “if more and more countries start to take Paris less seriously, that will have some effect on how quickly the energy transition happens.”