A new report shows that by driving investment in low-carbon technologies (in transport in particular) we would not only work towards saving the environment, but would be savings billions of pounds in the process.
The report, titled Oil Market Futures, was published by the European Climate Foundation, with research conducted by the International Council on Clean Transportation, Cambridge Econometrics and Pöyry Management Consulting.
It argues that a large-scale take-up of low-carbon forms of transportation and a phasing out of carbon-emitting forms would work to reduce demand for oil, keeping prices for the commodity at a reasonable level, and helping countries like the UK (as well as the EU more generally) who import relatively large amounts of the fossil fuel.
The need to make the transition to lower-carbon transportation is first borne of the need to adhere to terms of the Paris Agreement, with the environmental factors forming the main drive and the economic benefits following on.
The lead author of the report, Cambridge Econometric’s director Phil Summerton, said: “In a world where climate policies are being implemented to drive investment in low-carbon technologies – as they have too and as governments agreed in Paris – we’ll simply need less oil for transport.
Through policy support and technological disruption, we can expect the global economy to be using 11 million fewer barrels of oil per day by 2030. This rises to 60 million in 2050. This will have profound impacts, but the advantages are clear and by moving early the benefit can be maximized.”
The report makes it clear that the era of particularly low oil prices will soon end and that without the aforementioned changes, prices would continue to rise long into the future.
‘Unchecked Growth in Demand’
According to the report’s key findings, “lower oil prices will prevail in this lower-demand scenario, compared to a business-as-usual scenario where oil demand would rise unchecked and in line with economic growth and expanding mobility changes”.
Current estimates place oil demand for 2015 at 94 million barrels per day and the report argues that without the necessary changes to climate policy, this could go up by 19% to reach 112 million barrels per day in 2020. This would then increase by a further 35% by 2050, reaching 151 million barrels per day, with the growth “primarily driven by economic growth in Asia and higher demand for aviation”.
Indeed by current estimates, those two factors alone are expected to boost global demand for oil by just under 20%.
The report argues that while currently, supply is exceeding demand “due to rapid increases in US production and OPEC’s strategic response to maintain market share”, unchecked increases in demand through to 2020 should “absorb this over-supply”.
Current low prices and underinvestment would further fuel what would become an under-supply, and then in order to boost supply levels, investment in non-OPEC oil production would be needed. For this to happen, oil prices would need to increase to “around $80 per barrel”.
Following this, and bar any ground-breaking developments in production techniques, continued growth in demand would push prices up to $90 and above in 2030, and then up to 2014 prices of $130 by 2050.
On the other hand, if the requisite climate policy changes are pursued, driving further investment in low-carbon technologies (with a focus on transport), demand would quite naturally be lower – at the levels Summerton mentions above.
The proposed changes are focused on “further push[ing] vehicle efficiency and electric-drive technologies onto the market and reduc[ing] fuel consumption by aircraft and ships.” This is based on analysis that found that between 2000 and 2015, improving vehicle efficiency standards have “already prevented the consumption of around 5 billion barrels of oil” worldwide.
If this continues and improves, the research suggests, then while consumption and demand may continue to grow in the shorter term, by 2025, an “inflexion point” would be reached and consumption would start to decline.
This reduced demand would eradicate the need for increased investment in non-OPEC and otherwise unconventional sources of oil, causing prices to plateau at around $85 per barrel from 2030-2050.
This would represent a reduction in demand of 33% by 2050, compared to what it would be under the ‘business-as-usual scenario’.
The findings in the Oil Market Futures report are more or less in line with a study conducted by the International Energy Agency last year, which found that working to reduce global emissions to stay under the established 2C carbon target would reduce demand for oil and keep prices at around $90 per barrel from 2030, whereas under their business-as-usual scenario, prices would reach $150 per barrel in 2050.
The EU currently imports 88% of its oil and as such, reduced demand and reduced prices would have a significant effect on the European economy, with positive effects on inflation, income and spending power.
Under the Technology Potential scenario established in the Oil Market Futures report (the lower-carbon scenario), the EU’s oil bill would reduce by almost €30 billion by 2030.
The report says: “As a result of the lower oil prices modeled in this analysis, EU average incomes would be 0.3% higher by 2030 and 0.9% higher by 2050, relative to business-as-usual. EU GDP would be 0.2% higher by 2030 and 0.5% higher by 2050.”
A combination of increased economic strength and growth in low-carbon industries would lead to the creation of hundreds of thousands of jobs across Europe alone.
Summerton said: “Lower oil prices would benefit oil-importing regions such as Europe by reducing inflationary pressures on customers, increasing real incomes, and shifting spending towards other goods and services that deliver more value for Europe.”
‘The World is Changing’
This report comes not long after a pivotal announcement was made by Saudi Arabia’s deputy crown prince Mohammad bin Salman that the nation is currently putting in effect plans to divest from oil into other industrial and financial assets overseas.
The plans involve selling shares in Saudi Aramco, the state-owned oil company, by Initial Public Offering (IPO), creating one of the world’s largest sovereign wealth funds.
“IPOing Aramco and transferring its shares to a PIF (Public Investment Fund) will technically make investments the source of Saudi government revenue, not oil” bin Salman said.
“What is left now is to diversify investments, so within 20 years we will be an economy or state that doesn’t depend mainly on oil”.
This hugely important move is arguably a sign of the times, as investment in oil and fossil fuels generally worldwide falls.
“The world is changing” as the director of Climate Action Network said recently.
Current estimates place worldwide investment in clean energy sources at roughly double that in gas and coal, and with companies like Tesla working on offering affordable, fully electric cars to the general population, it seems that the global trend towards de-carbonisation is starting to gain traction, with environmental and economic benefits nestling tantalisingly on the horizon.