The rapid growth of clean technologies is expected to cause fossil fuel demand to peak in the 2020s, according to a new report from Carbon Tracker, serving to put at risk trillions for investors ignorant of or unwilling to participate in the transition to a low-carbon economy.
The new report from independent financial think tank Carbon Tracker contends that demand for coal, gas, and oil is stalling “because of the cost of renewables and battery storage is falling fast, emerging economies are pursuing clean energy, and governmental policy is being driven by the need to slash emissions, control climate change and reduce air pollution.” Specifically, according to the report, “Digitisation allied to technology learning curves in solar PV, wind and batteries are creating disruption in energy, the world’s largest sector.”
As such, Carbon Tracker forecasts that solar and wind will displace all growth in fossil fuel energy technologies — with global energy demand expected to grow at 1 to 1.5% per year while solar and wind will grow at 15% to 20% — causing fossil fuel demand to peak between 2020 and 2027, most likely in 2023.
“The 2020s will be the decade of fossil fuel demand peaks, as one bastion after another is stormed and overwhelmed by the rising renewable tide,” explained Kingsmill Bond, Carbon Tracker New Energy Strategist and author of the report. “This will inevitably lead to trillions of dollars of stranded assets across the corporate sector and hit petro-states that fail to reinvent themselves.”
According to Carbon Tracker, one of the key aspects of this energy transition is the fact that emerging markets will account for the majority of energy demand growth over the coming decades, and they won’t choose the same path that developed nations chose. Renewables provide not only local energy security without the need to import and create long-term environmental concerns, but create innumerable opportunities for job, economic, and technology growth at home.
As such, when viewed through the lens of this large-scale energy transition, the 20th Century can be divvied up into four separate and identifiable phases: 2000-2020 was the innovation phase; 2020-30 will be the peaking phase; 2030-50 will be a phase of rapid change; while 2050 and onward will be the endgame for fossil fuels.
“Fossil fuel demand has been growing for 200 years, but is about to enter structural decline,” said Kingsmill Bond. “Entire sectors will struggle to make this transition. They can expect price declines, greater competition, restructuring, stranded assets and market derating.”
The natural outworking of these predictions, therefore, is the impact it will have on investors unwilling to participate in the transition to a low-carbon energy sector, or those investors and institutions simply unaware of the transition. According to Carbon Tracker, “Much of the fossil fuel industry appears blind to this risk,” with British Petroleum (BP), Organization of the Petroleum Exporting Countries (OPEC), and the International Energy Agency all expecting that fossil fuel demand won’t peak for another generation, or even more.
- The fossil fuel sector has invested an estimated $25 trillion in infrastructure and there will be systemic risk to financial markets as they seek to digest vast amounts of stranded assets.
- The transition will directly affect companies that compose up to a quarter of equity indexes and debt markets, hitting banking, capital goods, transport and automotive sectors.
- Fossil fuel exporting countries will suffer. Russia is one of 12 countries where fossil fuel rents account for 10% or more of GDP.
“Investors anticipate, so they will typically react even before companies see peak demand,” said Kingsmill Bond. “This is what happened recently in the coal and European electricity sector transitions. We believe that investors will start to react faster as the energy transition works its way through the world’s capital markets. As each sector is impacted, it becomes easier for the market to anticipate something similar happening to the next sector.”