No More Business As Usual For Fossil Fuel Sector

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A new report by the Carbon Tracker Initiative has concluded that the fossil fuel industry’s business as usual scenarios will not last for much longer.

Specifically, according to the Carbon Tracker Initiative (CTI), “Rapid advances in technology, increasingly cheap renewable energy, slower economic growth, and lower than expected population rise could all dampen fossil fuel demand significantly by 2040.”

This is in direct contrast to a number of models and assumptions being made by the fossil fuel industry, which is relying on their product to continue growing in demand, as per business as usual. The new report, Lost in transition: How the energy sector is missing potential demand destruction, challenges nine business as usual assumptions that are currently being made by big energy companies when calculating the use of fossil fuels over the next few decades.

For example, according to CTI, relatively standard fossil fuel industry scenarios see coal, oil, and gas use all growing by between 30% and 50%, and making up 75% of the energy supply mix in 2040.

However, as CTI notes, there are any number of reasons — and a multitude of reports and analyses — to suggest that fossil fuel use is going to decline in the face of increased energy efficiency reducing the demand for electricity, and more affordable and widespread renewable energy drawing attention away from fossil fuels.

The business as usual scenarios perpetrated by the fossil fuel industry may be an intentional attempt to mislead the public, or an unintentional self-delusion, but either way, investors and policy-makers must be aware of the reality of fossil fuel use over the next three decades.

“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,” explained James Leaton, Carbon Tracker’s head of research. “Why should investors accept their claims about future coal and oil demand when they clearly don’t stack up with technology and policy developments?

“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. Otherwise they will be on the wrong side of the energy revolution.”

According to the study, fossil fuel companies often run off business models that are “woefully behind the curve.” This can happen because of “underestimating changes in emissions policy, technological advances, or energy efficiency gains, that can cause dramatic changes in demand trends.”

“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.”

Specifically, the key findings from the report include:

  • The fact that global population growth may not rise to 9 billion by 2040, with climatic and socioeconomic modelling suggesting that the global population may only grow to 8.3 billion.
  • Global gross domestic product (GDP) in major markets could be lower than expected as well, including two of the world’s most dominant energy intensive countries — China and the United States.
  • Recent research has shown that energy demand is slowly decoupling itself from economic growth — something that many experts had, for years, believed could not happen.

Furthermore, and most importantly, the assumptions being made by many fossil fuel companies are not taking into account the decarbonization plans set out by nearly three-quarters of the planet’s countries. Specifically, based on the more than 150 Intended Nationally Determined Contributions (INDCs) currently submitted to the UN in advance of next month’s UN climate summit in Paris, Carbon Tracker determined that fossil fuel companies’ current scenarios see global cumulative CO2 emissions by 2030 being up to 100GtCO2 higher than in an INDC scenario. This in and of itself represents a whole host of assumptions being made about the energy sector over the next few decades, namely,

  • The speed and scale of advancements in the competitiveness of renewable energy technologies is exceeding expectations
  • The cost of energy (battery) storage is falling rapidly and is seven years ahead of average forecasts
  • Global coal demand is structurally declining
  • Electric vehicles could be cost-competitive with combustion engines by 2025
  • Gas demand will be lower if it loses its base-load role

All in all, and especially in the lead up to next month’s climate negotiations in Paris, real facts are going to be absolutely vital for policy-makers and investors the world over in the next two and a half decades, regardless of the success of either renewable energy or fossil fuels.

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29 thoughts on “No More Business As Usual For Fossil Fuel Sector

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  • all good news and the transition is coming sooner with every new article 🙂

    • As a Canadian who now has a PM that understands the economic potential of switching our economy to one geared towards renewables, I’m anxious and wondering if there will finally be a global carbon tax.
      I once read (J.P. Romm’s) “Hell and High Water, the Politics Of and Solutions to Global Warming” back about 8 years ago.
      At that time, he suggested (with a compelling argument) that the price on CO2 should be $US 200 per metric tonne.

      • I have been wondering what the new PM up north will mean. I know he is pro KeyStone pipeline. I look forward to hearing him up the RE bar in Canada.

        • I think once his new cabinet is formed on 02 Nov, the choice for Environment Minister will set the expectation bar for sure. Very hopeful here now……

    • Yes. What you hear is the icepack breaking up.

  • BAU scenarios like those of the oil companies are merely wishful thinking. Much of the INDCs are solid current policy: Obama’s CPP, and the EU and Chinese targets. Some developing country plans are conditional on finance and can’t be put in the same basket, but these grey areas are not huge in the global context.

  • What is the basis for the claim that electric cars will be cost-competitive with ice cars by 2025? They are competitive now. Taking into account reduced maintenance, they are more than competitive. Admittedly, affordable EVs don’t have the same range as ice cars, but this will be a moot point by 2016 or 2017, especially if Tesla’s supercharger network gets licensed by other car companies. What magical barrier do we have to wait for 2025 to cross?

    • I guess cost competitive means lower cost to buy, without subsidies, and then it will be game over ICE models.

    • Purchase price parity. When it costs the same for the EV and ICEV version of the same car (model, features, etc.)

      I think we could get there before 2025, perhaps by 2020. But it depends on how aggressively car companies price their EV. And whether we have an adequate number being manufactured to create price competition.

      60 million new car sales by year. By 2020 Tesla expects to be manufacturing half a million. Part of those will be luxury models. GM may be making a few hundred thousand. VW? Anyone else? Nissan making a longer range EV?

      Demand might be 2x or far greater that the 1 million produced in 2020. No need to sell them at ICEV levels even though manufacturing cost might be at ICEV levels.

      All we’re waiting on is battery price when it comes to manufacturing cost. Panasonic and LG Chem should be there in 2017.

      • That’s exactly my forcast… I don’t think EVS and solar will drop as fast as expected because, even though manufacturing costs are likely to, the long lead time of new manufacturing delay suggests we’ll have a supply shortfall…

        • There’s a wild card.

          Suppose Tesla and GM start selling really good 200 mile range EVs in 2017, which is what they have said they will do.

          2019 and it is obvious that the nut has been cracked. Warren Buffett, Bill Gates and several other billionaires pump billions into Tesla so that lots of assembly lines are set up and lots of Gigafactories built. Tesla immediately becomes a second tier manufacturer. And threatens, by its existence, to become one of the Big Three in a few years if left to run free without competition. Ford, Toyota, and everyone else that wants to survive will have to jump in. Hard.

          We’ve got a unique player in the game. A company whose main goal is not to get large and wealthy, but whose main goal is to change the industry.

          • The problem isn’t the will, it’s the lead time on building the battery factories and the necessary pipeline to supply these new said factories with the required raw materials. I fully believe we are heading straight for a HUGE spike in EV demand, but every 200 mile EV we will build will be 2 100 mile EVS we can’t because of battery supply constraints. It will be fixed… but it will take a few years. (I seriously pray i’m wrong, but that’s what the trends are telling me right now…

          • Panasonic/Tesla is building for 500,000 EV battery packs per year. LG Chem in building for 450,000.

            I would imagine both have well advanced plans for the next 500,000. Or next 1,000,000. No reason why multiple Gigafactories can’t be built at the same time. I would guess that most ICEV manufacturers have been in discussion with battery manufacturers for a while. I would imagine that the triggering events are well known for when Ford, Mazda, Honda, etc. jump in. They will have prearranged battery availability.

            Battery companies will take those timelines and make sure they will have factory space, machinery, and supply streams ready to go when demand starts.

            If Tesla shows their Mod3 in March and it looks like people would expect from Tesla that should be one of the triggering events. Companies in waiting would move preparations up a notch.

          • I understand. But I still think pretty soon the limiting factor won’t be demand, but rather supply (particularly because of the batteries) so process won’t fall as quickly as some predict (even though manufacturing costs might fall very quickly).

            We’ll have to wait and see…

          • Tesla Model 3 isn’t supposed to go into production till 2 years from early next year when rsvps will open. That puts it at early 2018 release at best if it doesn’t suffer the kinds of delays Tesla is famous for.

            Bolt is supposed to be out late next year but I suspect they’ll drag their feet on making it in significant volume until Tesla forces them to. Plus even if Bolt is ready for large scale production, the charger infrastructure isn’t there to support long trips and that will slow adoption. Same problem with 200+ mile Leaf whenever it comes out. If Tesla model 3 is priced at its predicted $35k and the government doesn’t extend the federal tax credit (the credit currently runs out when 200,000 Teslas are sold, which will likely happen by 2018), hitting ICE price parity by 2020 seems rather unlikely… but I certainly hope it can happen.

          • Here’s what I find online -​​

            Musk tweeted this on 2 Sep 2015
            “Model 3, our smaller and lower cost sedan will start production in about 2 years. Fully operational Gigafactory needed.”

            Two years from Sep 2015 would be Sep 2017. (Not saying that the “two years” is baked in.) But the Mod3 is supposed to be shown in March. Last I heard the Gigafactory is ahead of schedule so that should not be a hold up.

            ” Musk relayed that Tesla’s electric car for the masses will be formally unveiled in March of 2016, whereupon the company will begin taking pre-orders.”


            We now have Nissan talking about a totally redesigned Leaf and a 200 mile range EV starting sales in 2017.

            I don’t think it will take shipment of large numbers of 200 mile range, mid $30k EVs to shake up other manufacturers. With three companies now announcing for 2017 I suspect they’re somewhat stirred up. If the Bolt/Mod3/Leaf are well received in their early reviews then I think shaking will be accomplished.

        • It would be fantastic to have way more demand for EVs than the supply. ICE cars languishing on dealer lots while the equivalent EVs are sold the first day will send a clear signal to the automakers. Unfortunately you are right with the lead time issue…

          • Well, I see prices to manufacture EVS to drop dramatically, but because supply won’t meet demand in the near term, prices will stay high enough (though obviously lower thn current levels) that some people will opt for ICEs until battery supply catches up to demand.

      • Disagree. Cost parity is when the total expected cost of ownership is equal, ignoring tax breaks but including the lower costs of fuel and maintenance. Fleet buyers think this way, but individuals are less rational and may be up off by higher upfront prices.

        • Some people, as you can see by Tesla sales, might simply want them, because they are clean cool quiet, instant torque, don’t liken going to the gas station. Who knows? And as the price gets closer, making that decision gets easier. I have a prius, but I would rather have an EV. Thing is, on those days I drive, it’s 100 miles round trip, and we have winters. I might risk 150 mile range, but not 87.

          • I might do 150 with a good supercharger network. Otherwise 200 is my minimum. I can’t wait to trade in my 15mpg car and say goodbye to gas forever.

          • Used Teslas occasionally appear on the Certified Pre Owned site for under $50k. Keep an eye on it if that’s in your price range. Double check the listing says “Supercharging enabled” before you buy.

          • I can’t bring myself to spend that much on a car. No I’m holding out for that model 3. If they can hit their target price of 35 before subsidy (if subsidies are still around in 2/3 years) I’ll get it.

          • Get a used Volt if you need the range. It will pay for itself through the fuel and maintenance savings over what you have now if you drive that much. You can “fill up” the battery for the equivalent of $.50 to $1 a gallon depending on what you pay for electricity.

        • That’s my point. When EVs reach, or at least, get close to purchase price parity the market takes off. Some buyers are going to be able to do the math and realize that while paying some more for the EV their extra payments will be covered by fuel savings. For many, that’s too much of a stretch for their powers of reasoning.

          When buyers walk into a showroom and see an EV with very low operating costs selling for ICEV prices – that’s when I think the rocket launches.

  • They knew AGW was real 35 years ago but continued to deny it. The unrealistic projections are a continuation of their attempts to delay change.

  • When total cost of ownership is taken into account, there are EVs today that are cost competitive with ICE cars. We don’t have to wait until 2025.

  • I was surprised and pleased to find this article on the BBC – published 22 Oct:-

    First few lines:-

    Low-carbon electricity, not gas, is the cheapest way to keep lights on and meet carbon targets, says the government’s climate advisory panel.

    The Committee on Climate Change says onshore wind and solar are already price-competitive if you factor in the cost imposed on society by carbon emissions from gas.

    Someone is finally telling the UK government what we’ve known for ages!

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