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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