Fossil fuel demand is likely to peak in the 2020s due to the rapid global energy transition to renewables and battery storage, a new report from Carbon Tracker Found. The results will be “colossal,” according to the London-based not-for-profit financial think tank.
Called 2020 Vision: Why You Should See Peak Fossil Fuels Coming, the report says that the global energy system is transitioning from a one based mainly on fossil fuels to one based mainly on renewable energy sources. “The shift will involve near-term peaking of fossil fuel demand, an S curve of renewable growth, and a long-term decline in demand for fossil fuels.”
Report author Kingsmill Bond, Carbon Tracker’s new energy strategist, identifies three factors driving the energy transition. One is that solar PV, wind, and battery storage costs are falling fast enough to compete with fossil fuels without requiring subsidies. Another is that emerging markets are driving growth in energy demand, and they are keen on seizing the opportunities that renewables can offer.
Government policies are also supporting these trends, Bond points out. “The global direction of policy is clear, notwithstanding recent retrenchment in the US,” he wrote. “Policymakers, especially in the large majority of countries that import fossil fuels, have every incentive to keep raising the regulatory pressure on fossil fuels, and will continue to do so.”
Bond predicts that solar and wind will displace all growth in fossil fuels. “With global energy demand expected to grow at 1 – 1.5% and solar and wind at 15 – 20% a year, fossil fuel demand will peak between 2020 and 2027, most likely 2023,” according to Carbon Tracker.
The think tank predicts far-reaching effects of the energy transition:
- The fossil fuel sector has invested an estimated $25 trillion in infrastructure and there will be systemic risk to financial markets as they seek to digest vast amounts of stranded assets
- The transition will directly affect companies that compose up to a quarter of equity indexes and debt markets, hitting banking, capital goods, transport and automotive sectors
- Fossil fuel exporting countries will suffer — Russia is one of 12 countries where fossil fuel rents account for 10% or more of GDP
“Investors anticipate, so they will typically react even before companies see peak demand,” Bond says. “This is what happened recently in the coal and European electricity sector transitions. We believe that investors will start to react faster as the energy transition works its way through the world’s capital markets.”