February 3, 2017
Challenging BP/ExxonMobil/Shell and IEA scenarios
February 3, 2017
Carbon Tracker Initiative (CTI) have done it again. The NGO that a few years ago invented the concept of “the carbon bubble” – which set the whole world talking about “peak oil demand” and the risks of “stranded fossil fuel assets” – has come out with a new report that once again challenges the comfortable energy outlooks of the major oil companies and institutions like the IEA.
The report – Expect the Unexpected: the Disruptive Power of Low-Carbon Technology – “explores how plausible advances in solar PV and EVs alongside efforts to reach international climate targets could impact on future fossil fuel demand. It models a range of scenarios using the latest data and market projections for future cost reductions in PV and EVs, with varying levels of global climate policy effort and energy demand”.
The report includes a number of different scenarios, based on a least-cost model. If it is assumed that costs of solar PV and EVs (electric vehicles) continue to decline sharply (the assumptions behind the model can be found here: www.carbontracker.org/expect-the-unexpected-technical-report), then they will of course be widely adopted, with quite radical results for the prospects of fossil fuels.
In a nutshell:
- “Solar PV could supply 23% of global power generation in 2040 and 29% by 2050, entirely phasing out coal and leaving natural gas with just a 1% market share. By contrast, ExxonMobil sees all renewables supplying just 11% of global power generation by 2040.
- EVs could make up a third of the road transport market by 2035, more than half the market by 2040 and more than two thirds of market share by 2050. BP’s 2017 outlook expects EVs to make up just 6% of the market in 2035.
- Coal demand could peak in 2020 and fall to half 2012 levels by 2050. Oil demand could be flat from 2020 to 2030 then fall steadily to 2050. Most major oil and gas companies do not expect coal to peak before 2030 and none see peak oil demand occurring before 2040.”
If this scenario plays out, our energy future will look very different from the present – and very different from the futures envisioned by the likes of BP, ExxonMobil, Shell and even the IEA in their various “energy outlooks”, all discussed in the report.
CTI warns investors that “fossil fuels may lose 10% of market share to PV and EVs within a single decade — this may not sound much but it can be the beginning of the end once demand starts to decline. A 10% loss of power market share caused the collapse of the US coal mining industry and Europe’s five major utilities lost more than €100 billion in value from 2008 to 2013 because they were unprepared for an 8% growth in renewable power, of which solar PV was a big part.”
Obviously, it’s impossible to say how things will play out, although it should be noted that the oil companies’ scenarios, comfortable though they look to their bottom line, lead to roughly 4 degrees C temperature rise over the century, if climate scientists are correct. That doesn’t sound very comfortable. Interestingly, even the CTI scenario, radical though it may appear, gets us to 2.4-2.7 degrees temperature rise by 2100.
Challenging BP’s Energy Outlook
February 3, 2017
Veteran energy author Greg Muttitt, who works for NGO Oil Change International, takes specific aim at BP’s Energy Outlook, an authoritative annual publication that presents BP’s scenario of our energy future. It is one of the three major annual outlooks published by oil companies (the other two are from ExxonMobil and Statoil; Shell’s scenarios are published irregularly). BP’s Energy Outlook may be regarded as the oil establishment’s standard view of what is ahead for the world in the energy sector.
The first problem with the BP Energy Outlook is that it has not predicted the future very well in the past, notes Muttitt. To give credit where it’s due: BP is very transparent about this. The Outlook includes a chart that shows, as Muttitt puts it, “Every year BP has predicted that renewable energy growth would slow down from an exponential to a linear phase; every year BP has been wrong. As the … graph shows, each time it has had to lift the baseline to reflect what actually happened, but then still predicted a levelling-out, and did so again this year.”
The shape of BP’s prediction can be seen in this graph:
The annual increase in renewable power generation, which to date has been climbing steeply, immediately flattens out in BP’s forecast, notes Muttitt. “This means BP sees the renewable energy industry – from manufacturing to installation – pretty much ceasing to grow, as of today.”
As to “peak oil demand”, unlike Shell’s Chief Financial Officer, Wood Mackenzie and even OPEC, “BP does not consider this a possibility in any of its scenarios. The key reason is that, in contrast to the other forecasters, BP does not see a significant switch to electric vehicles: it forecasts just 5% of the world’s cars being electric in 2035.”
In part, “this is because BP believes that as late as 2050, electric cars will still be more expensive than petrol or diesel, including vehicle cost, fuel, maintenance and carbon price. That view is not shared by anyone outside the oil industry”, notes Muttitt.
According to Muttitt, BP’s outlook lists four factors that could influence the uptake of electric cars: battery costs, government subsidies, conventional engines’ competitive cost, and consumer preference. But it omits another important factor: regulation. With many governments and major cities taking measures to support EVs and discourage polluting cars, this could be a serious omission indeed.
And it may not be accidental writes Muttitt: BP is strongly against regulation. Wherein “lies the fundamental problem with BP’s Energy Outlook”, concludes Muttitt: “its role is muddled between forecasting and advocacy.”
In the end what Muttitt regards as the fundamental weakness of BP’s Energy Outlook is the “narrow range” of scenarios that it considers. Clearly no one knows how the growth of EVs or renewable energy will pan out, but BP does not consider any other “plausible” outcomes different from its own scenario. That may be a very risky approach.
Full article: BP’s Energy Outlook: between forecasting and advocacy
Why the EV revolution may come from an unexpected place
February 3, 2017
Sometimes you come across small facts that change your entire perspective on things. Facts that make you think: why didn’t I realise this before?
Thus, US-based energy entrepreneur Chris Denny Brown points out in an article about electrification of transport that “while medium and heavy trucks account for only 4% of America’s 250+ million vehicles, they represent 26% of American fuel use and 29% of vehicle CO2 emissions. If you are looking for a way to address more problem (foreign oil dependence, climate change, air quality, you name it) with less solution, big vehicles are it. If you want to have outsized impact, don’t convince a Prius driver to go electric, electrify a garbage truck.”
It seems hard to argue with this.
So why is everyone talking about Tesla and the Chevy Bolt, and no one about electric buses, trucks and garbage trucks?
In fact, there are many reasons why electrification of big vehicles makes a lot of sense. As Brown notes, “If the two most immediate financial benefits of electric vehicles are lower maintenance costs and fuel savings, then it makes sense the more maintenance a vehicle requires, and the more fuel a vehicle consumes, the greater the economic incentive to electrify it. Lumbering fleets of conventional trucks and buses require a lot more maintenance and consume a lot more fuel than passenger cars. Conventional garbage trucks can require brake replacements as often as every 3 months, while the regenerative braking enabled by an electric battery can significantly decrease such wear and tear while saving fuel.”
And there is another aspect that Brown does not even discuss: “range anxiety” does not play a role for buses and (garbage) trucks that ride along fixed routes!
Of course these facts have not escaped companies that own and operate buses and other vehicles. This big market has now started to take note – and, as Brown points out, “once this market begins to move, and those technologies are accepted as proven, institutions and fleet operators will follow the economic imperative, which can bring about a rapid wave of change.”
In other words, institutions may move more slowly than individual consumers – once they start moving, the effect will be much larger.
Perhaps we are looking for the EV revolution in the wrong place – in the passenger car market – when the real transformation will take place in the market for BIG vehicles. An intriguing thought. Have BP and the other oil companies noticed?
Full article: The next EV revolution – think trucks and buses
Emissions trading: do it right – or don’t do it
February 3, 2017
Perhaps the most significant statistic, when it comes to carbon emission trading, is this: after the December 2015 Paris Agreement, in 2016, the average CO2-price in the EU Emission Trading System (EU ETS) fell 31% compared to the year before the Agreement, 2015. It dropped to just over €5 per ton – far below the level needed to trigger any kind of investment into low-carbon technologies (e.g. coal to gas switching). If even Paris couldn’t stimulate emission trading in Europe, what could?
Outside of Europe things aren’t much better. This chart from the World Bank shows carbon prices across the world in 2016 – both in the form of emission trading systems and carbon taxes:
It is clear that carbon taxes do “better” than most carbon trading schemes. South Korea has the one but highest price of any system – but ironically, the South Korean government has just announced that it will increase the allocation of CO2 credits to its industry in 2017.
This is exactly the basic problem with emission trading today, writes Stig Schjolset, who until this week was head of carbon analysis at Thomson Reuters Point Carbon and will now become special advisor on climate policy and green growth to the Norwegian government. There is nothing wrong with the system as such – the problem is that governments are simply “afraid to set ambitious reduction targets and/or to implement policies to achieve them”.
He believes that is a pity, because “carbon markets can be an effective way to cut emissions of greenhouse gases. From a regulatory perspective, the hard cap on emissions gives a high degree of certainty that a specific emission reduction target can be met. From the industry perspective, flexibility and efficiency is provided by the market that will help realize the abatement options with the lowest cost first and that there is a carbon price signal to guide the longer term investments.”
But Schjolset has not given up on emissions trading yet. With the EU ETS possibly facing another “lost decade”, he believes the next real test for carbon trading will come in China this year.
Energy expert Adam Whitmore agrees with Schjolset that emission trading is worth saving. In a new article, he draws three practical lessons from the failure of emission trading systems so far. First, he says, governments should put in price floors within emissions trading systems.
Second, he writes, “it is even less appropriate than would anyway be the case to expect the carbon price alone to drive the transition to a low carbon economy. Measures so support low carbon investment, which would in any case be desirable, are all the more important if the carbon price is weak.”
Third, he notes that governments should “learn over time. Some low prices may reflect the early stage of development of systems, starting slowly with the intention of generating higher prices over time.”
Unlike Schjolset, Whitmore does not want to give up on the EU ETS just yet as a worldwide “flagship project”. Since the EU ETS has been around for so long (since 2005), it is up to the EU, he argues, to demonstrate that the system can work. If the EU can’t do it, then worldwide climate efforts “will suffer as a result”.