In the Year 2020

London based Carbon Tracker is forecasting that global demand for both coal and oil are set to peak just a few years from now, in the year 2020. The new report uses a model, in partnership with Grantham Institute, that combines policy and economic factors to arrive at the surprising convergence. Indeed it would be unusual, given the fast decarbonization taking place in global powergrids–and the slow pace of similar change in global transport–that demand for both fuels would crest in the same year. Does it matter?

Not really. There is little doubt that global coal demand growth has already peaked. Coal, a 19th century fuel that made a heroic comeback at the tail end of the 20th C due to China, now faces irreparable, structural decline as power plant fleets retire and solar costs rapidly fall. Coal’s last hope for growth was India. But now that massive utility scale solar can be built in India cheaply, and quickly, there is little prospect for further market share gains for coal. One way to see the termination of coal growth is its decline on a relative basis, in China’s energy mix. China is a sudden hero, frankly, in the buildout of wind and solar. Again, with coal in decline everywhere, the fuel needs some large domain–anywhere–to produce new gains.

The peak in coal demand therefore will undoubtedly come true, if it hasn’t already. The more uncertain question is the global demand growth for oil. While China and India absolutely cannot, and will not, replicate America’s 20thC adoption path of oil-based transport, they can at least follow a shorter version of that story. This risk is real, even as developed countries pivot more forcefully towards electric vehicles. So Carbon Tracker’s forecast for oil, meanwhile, is unlikely to come true by 2020. Why? The sensitivity to economic growth for oil demand in the Non-OECD remains too high.

The more useful insight, however, is that the rate of global demand growth for oil has slowed meaningfully. We used to live in a world where growth more regularly hit 2% per year. Now we live in a world where growth hits more regularly 1% per year. Carbon Tracker has been consistently out in front in explaining the imminent financial risk to fossil fuel investment as demand slows. And that’s still the case. In the same way the global utility industry failed to anticipate ferocious cost declines in wind and solar, the oil and gas industry is underestimating the coming electrification of global transport.

–Gregor Macdonald

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