Carbon Tracker is an independent financial research organization that focuses on quantifying the looming financial risks for fossil fuel companies as the renewable energy revolution moves forward. On its website, it describes its mission as follows: “Carbon Tracker is an independent financial think tank that carries out in-depth analysis on the impact of the energy transition on capital markets and the potential investment in high-cost, carbon-intensive fossil fuels. Its team of financial market, energy and legal experts apply groundbreaking research using leading industry databases to map both risk and opportunity for investors on the path to a low-carbon future.”
A Carbon Tracker report dated November 20, 2020, says the shift to electric vehicles in emerging markets will “end oil era.” In particular, it suggests the transition away from gasoline and diesel powered vehicles in emerging markets “may slash growth in global oil demand by 70%.” How is that number calculated?
According to the International Energy Agency Stated Policies Energy Scenario, which is based on policies announced by governments, emerging markets — defined as China, India, Southeast Asia, and most of Africa — are expected to increase oil imports for road transport by 4.4 millions barrels a day (bpd) by 2030. That increase represents more than 80% of the total growth in oil demand the IEA expects over the next decade.
The Carbon Tracker report is based on the IEA’s Sustainable Development Scenario, which predicts EVs will account for 40% of car sales in China, 30% in India and 20% in the rest of the emerging markets by 2030. Those expectations may be entirely too conservative, given the recent announcements from world governments such as the United Kingdom that sales of gas and diesel powered vehicles could be banned altogether by 2030 or shortly thereafter.
If that scenario is accurate, demand for oil by emerging markets would rise by just 0.6 million bpd by 2030, a 70% reduction. Under the IEA’s Sustainable Development Scenario, oil prices would be a quarter lower than under the STEP scenario. Reduced imports and lower prices would cut emerging markets’ collective oil bill by 38%, saving them $250 billion a year.
China leads the world in the deployment of EVs and India is close behind. In 2019, 59% of all new buses in China were electric and electric bicycles and scooters accounted for 61% of sales. “This is a simple choice between growing dependency on what has been expensive oil produced by a foreign cartel or domestic electricity produced by renewable sources whose prices fall over time. Emerging market importers will bring the oil era to an end,” says Kingsmill Bond, a Carbon Tracker energy strategist and lead author of the new report.
Building New Fossil Fuel Infrastructure Is A Waste Of Money
Carbon Tracker suggests the switch to EVs would pay for itself. At present, China spends 1.5% its GDP oil imports. For India, it’s 2.6% GDP. If emerging nations continue to pursue transportation policies that rely on fossil fuels, they will need to invest in building new refineries, pipelines, and filling stations, all of which could become stranded assets as battery prices continue to fall, driving the EV revolution forward. Countries can finance the shift to EVs using the savings — up to $250 billion a year for all emerging nations — from lower oil imports. Carbon Tracker calculates that the cost of importing oil for the average car is ten times higher than the cost of the solar equipment needed to power an equivalent EV.
Not everything can be reduced to dollars and cents, however. There are strong public health grounds to cut oil use. Pollution linked to road transport causes 285,000 deaths a year in oil importing emerging markets, including 114,000 in China and 74,000 in India, reports the International Council on Clean Transportation.
Challenging “Business As Usual” Model
Carbon Tracker uses expert financial analysis to challenge “business as usual” scenarios it deems unrealistic. “We believe that companies have not sufficiently factored in the possibility that future demand could be significantly reduced by technological advances and changing policy. Our role is to help markets understand and quantify these implied risks.
“Emissions of greenhouse gases will need to fall severely if we are to avoid catastrophic levels of warming. Such constraints will have profound effects on the supply of and demand for fossil fuels, which account for the largest human source of greenhouse emissions. We carry out scenario analysis to examine and understand how potential changes to supply and demand will impact the future of fossil fuel-exposed companies and projects. This analysis helps the investment community better understand the financial implications of tackling climate change. Our analytical research identifies the highest cost, riskiest investments enabling greater scrutiny by analysts, asset owners, investors, policy makers and financial regulators.”
If its analysis is correct, the costs of transitioning to electric vehicles in emerging nations can be paid for with the savings created by importing less oil. As an extra benefit, a significant number of human lives will be saved by living and working in a less polluted environment. The only downside in the scenario is for those who continue to invest in fossil fuels. For them, Carbon Tracker suggests there are some hard times ahead.
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