In a world where technologies are evolving at a blistering pace, many are struggling to make smart choices, especially in the area of transport, writes Pete Harrison.
Pete Harrison is the transport programme director at the European Climate Foundation (ECF).
In the area of mobility, the pitfalls of making oil demand projections were illustrated in a recent EURACTIV interview titled: “Think tanker: E-mobility push won’t affect EU oil demand significantly until 2040s”.
The interview highlights the challenge decision-makers face with understanding the implications of rapid advances towards e-mobility. That change cannot be rapid enough, given that transport CO2 emissions have just eclipsed those from the power sector to become the biggest threat to Europe’s goal of tackling climate change.
And the European Environmental Agency estimates that over 85% of the population has been exposed to air pollutant concentrations above the World Health Organisation guidelines for fine particulate matter, much of it coming from transport.
Many recent articles have played down the significance of e-mobility. The one area where these articles are all correct is about the time needed to renew Europe’s fleet of cars, vans and trucks. Cars and vans have an average lifetime of 15 years before they are scrapped; trucks, ships and planes even longer.
This means the diffusion of clean technologies and the resulting reduction in emissions and oil demand will take much longer than one might assume from looking at the shiny electric prototypes at motor shows. But the direction of travel is beyond dispute.
When people try to predict the future of oil demand, one common failure is to claim any level of certainty. This is because demand itself is subject to a myriad of factors, many of them highly uncertain and beyond our control.
On the supply-side, think of the impact on oil prices of events that have emerged from the Arab Spring, itself triggered by the Tunisian Revolution, in which years of repressed resentment were unleashed by the self-immolation of market trader Mohamed Bouazizi. What analyst or think-tanker could have predicted that?
And on the demand side, think of the Dieselgate scandal. That was brought to light by investigations by the International Council on Clean Transportation (ICCT), which was actually trying to demonstrate not cheating by VW, but its ability to comply with tough US air pollution limits. What policymaker or car company CEO could have predicted that?
A better approach to assessing technology and energy pathways during these uncertain times is to think about risks and inflexion points. Let’s take the most conservative case first.
From the current state of uncertainty and instability, one can imagine a future in which investments in both mobility and energy return to a stable equilibrium that looks similar to business-as-usual. This is undoubtedly the goal of Germany’s Diesel Summits which seek to restore public faith in diesel technology before its decline becomes rapid and irreversible.
Politicians seeking to maintain the status quo are betting that a few minor legislative changes will restore public confidence. That outcome is not impossible.
But look at the decline in resale value of diesel cars, between 2% and 20% after the Dieselgate scandal; look at the rapid decline in sales of new diesel cars – down 30% year-on-year last month in the UK – and one can quickly conclude that those clinging to business-as-usual are kidding themselves.
At the other extreme, one can imagine a truly disruptive pathway driven by new technologies such as autonomous driving. Autonomous taxis could significantly reduce the cost of mobility for city inhabitants and remove the hassle of parking a privately-owned car, making this option irresistible by the 2030s.
Current cars sit unused 95% of their lives, but autonomous cars would be much more heavily utilised, travelling about 100,000 km per year. At such distances, electricity would be a much cheaper option than using gasoline or diesel.
It is difficult to imagine a world where hi-tech companies offering autonomous taxi services would choose to inflate their operating costs by sticking to fossil fuels. At the same time, electrified autonomous taxis would help meet limits on CO2 and air pollutants and they would achieve other important societal goals such as improved mobility for the elderly and the disabled.
True, there will be many hurdles along the pathway to such a world, but it is a possible outcome that cannot be discounted with certainty, and might well emerge more rapidly than seems plausible today.
A central pathway?
Another approach is to envisage a central pathway, where policymakers drive the change with the aim of delivering shared societal goals. My organisation has tried to measure the impact on oil demand from such a policy-driven approach in collaboration with the ICCT, the same organisation that uncovered the VW scandal.
In the report Oil Market Futures, we show how vehicle efficiency standards implemented globally between 2000-2015 have already prevented the consumption of around 5 billion barrels of oil.
Looking to the future, such policies to further push vehicle efficiency and electric-drive technologies into the market and reduce fuel consumption by aircraft and ships could lead to an inflexion point in 2025, after which oil consumption would steadily decline.
Cumulatively, these policies could cut oil demand by 260 billion barrels between 2015 and 2050. This reduction in demand removes the need to invest in extracting increasingly expensive oil from non-conventional sources, such as from tar sands and deep water, and the long-term market price of oil would settle around a stable band between $83 and $87 per barrel from 2030 to 2050.
In other words, the global deployment of technologies to mitigate CO2 emissions would cause oil prices to be lower than they would otherwise be in a business-as-usual scenario: Around 8.5% lower in 2030; 24% lower in 2040; and 33% lower in 2050, according to the results of this analysis.
Such reductions in both oil consumption, and in oil prices if the transition were implemented globally, would deliver enormous benefits for Europe’s economy, which is more than 90% dependent on imports to meet its mobility needs. Shifting from a world of imported energy for mobility to domestic energy sources, such as electricity or hydrogen, would lead to significant indirect economic benefits, our analysis shows.
Despite these arguments, investors and policymakers are still left with uncertainty. However, by getting to grips with the fundamentals described above, one can make some very clear decisions about what choices to avoid.
The picture might be murky overall, but it’s pretty black and white for some sectors: For example, avoid investing in the highest-cost oil sources, such as deep-water and tar sands, which are uneconomical to exploit in the vast majority of scenarios described above.
Two lessons for policymakers
There are also two lessons for policymakers that I would like to highlight here.
The first is that society won’t make sensible decisions if we continue to be distracted by false choices or by failing to recognise the significance of the disruptive forces currently at play in mobility. E-mobility is the most important of these.
Costs of batteries have come down almost sevenfold since 2011, and some time during the 2020s car buyers can expect the cost of driving an electric car to draw level with combustion cars. China requires that 3-5% of new car sales are zero emissions as soon as 2019, with a target of 20% by 2025.
Even if only because of China’s plans, EU policymakers should stop worrying about “technology neutrality”, accept that e-mobility is the major part of the solution, and start focusing on the real issues.
There are genuine challenges to address: We need to build an EU charging network fit for purpose; taxation of mobility needs to be revised; and we need to make sure workers who are currently producing legacy technologies are retrained for quality jobs in producing technologies with a more promising future.
Policymakers should also have learned by now that trying to slow the transition is not a recipe for a competitive European economy.
Not long ago, EU politicians were busy making concessions to the US to protect tar sands as part of a transatlantic trade agreement.
Not long ago, regulators were turning a blind eye to enforcement of limits to air pollutants and CO2, seeking to protect companies that had invested in diesel.
Right now, in the RED II discussions, EU politicians are ignoring evidence that shows palm oil biodiesel is worse for the climate than the fossil diesel it replaces. Protecting legacy investments is a sure way to create stranded assets and to undermine investment certainty for those technologies that will matter in the future.
As European politicians prepare for the upcoming debate on mobility choices, they need to keep a careful eye on China and move at a similar pace. Europe needs to be among the makers of environmental standards; not a taker.
Above all, politicians need to be bold and forward-looking, so our companies remain at the cutting edge of innovation; remain competitive, and can continue to provide quality jobs during this transition.