By - Jim Vess

Carbon Tracker says fossil fuel demand peaks in 2020, spurred by rapid market transformation

Energize Weekly, September 19, 2018

Demand for fossil fuels will peak in the 2020s, as market competition, technological innovation and shifts in energy transform the market and create financial risk, according to a Carbon Tracker analysis.

The projections by the London-based energy think tank are aggressively predicting a peak at least a decade ahead of other forecasts.

“We have seen a similar pattern in many energy transitions, from electricity, coal and cars in recent years to horses and gaslights in the past,” Carbon Tracker said in its analysis. “Demand for incumbents peaks early, and investors in incumbents lose money early.”

On the generation side, fossil fuels are being displaced by three technologies: photovoltaic solar, wind and lithium-ion batteries. The three have seen continued innovation with capacity doubling and costs falling by 20 percent. “A phenomenon we expect to continue,” Carbon Tracker said.

The digitization of the grid has allowed for the better management of dispersed and variable sources of generation and consumption.

The other trend in the shift away from fossil fuels is the increased use of electricity in all sectors of the economy.

“Electricity is key to the transition,” Carbon Tracker said. “In 2017 energy to make electricity was 43 percent of total energy supply. Because other sectors have been electrifying, the share of electricity is growing at around 3.6 percentage points per decade. The net result of this is that energy required for electricity has made up 71 percent of global energy demand growth over the last 5 years.”

Coal-fired power generation already peaked globally in 2014, according to Carbon Brief, the web-based publication focusing on climate issues. Among the Organization for Economic Cooperation and Development countries, accounting for 36 of the world’s most developed economies, 198 gigawatts of coal-fired generation is set to be retired by 2030.

Energy and marketing consultant Wood Mackenzie has projected oil consumption peaking by 2036 as electric vehicles gain a bigger share of the automotive market.

The biggest impact, however, will be in emerging market countries, such as China and India, where demand is growing and new technologies are being adopted, Kingsmill Bond, Carbon Tracker’s new energy strategist, said in a video interview.

At the point when total fossil fuel demand peaks, wind and solar will still make up just 6 percent of total energy supply and 14 percent of electricity supply, Carbon Tracker said.

“Investors face three types of risk from the energy transition—systemic, country, and stock specific,” according to the analysis.

The systemic risk to investors comes from the fact that the fossil fuel sector has $25 trillion in fixed infrastructure. This will increasingly end up becoming stranded assets, Bond said.

Countries with more than 10 percent of their gross domestic product dependent on fossil fuel exports will be at risk. These include eight Middle East and North African countries, such as Saudi Arabia and Iran, as well as Russia, Kazakhstan and Turkmenistan.

Beside coal, oil and gas, the transition will also touch other sectors such as manufactures of gas turbines, railroads, which haul coal and the automotive industry.

“Directly impacted sectors compose up to a quarter of equity indices,” Carbon Tracker said. “In debt markets, fossil fuel and related sectors make up nearly a quarter of the total corporate bonds followed by Fitch and a little more of the bonds covered by Bloomberg.”

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