Happy Thursday friends! Here’s my weekly take on the five most interesting developments in LCFV trends over the last week.
IRENA released a report late last week on the global technology outlook for advanced biofuels between 2015-2045, focusing on fuels for road transport, shipping and aviation. The agency reviewed technical and non-technical barriers to commercial deployment, the role of innovation in overcoming these barriers, strategies to support advanced biofuels in all stages of the chain. IRENA notes that:
“Biofuels have a vital role to play in the global transition to sustainable, renewable energy. Together with electric vehicles and the increase of renewables in the power mix, they can help us move away from petroleum use in passenger transport. They also provide the only practical alternative to fossil fuel for planes, ships and heavy freight trucks…
… Transport accounts for about a third the world’s energy use, half its oil consumption and a fifth of its GHG emissions. There will be around two billion vehicles on the road by 2020. Aviation alone causes nearly 3% of global carbon emissions, a share that is likely to grow. Against this background, further development of sustainable, renewable biofuel options is essential. IRENA’s REmap analysis to double the global share of renewable energy by 2030 shows that advanced biofuels production has the potential to grow more than hundredfold over a 15-year period (IRENA, 2016).”
The figure below compares gasoline/diesel demand scenarios to biofuels demand from different organizations (BP, Exxon, EIA, IEA, IRENA). The fuel scenarios all point to increased fuel demand over the next 30 years with the bulk of the growth coming from Asia (lead by India and China).
According to IRENA (and the estimates above), global biofuel demand is expected to at least increase steadily in 2015-2045 according to most scenarios but these differ very broadly. In 2030, the estimates range from 257 to 500 billion liters per year. For comparison, global production of liquid biofuels was 128 billion liters in 2014 (REN21, 2015).The projected demand depends on assumptions about policies and biofuel availability and cost.
The idea is that if the challenges in attendant to commercializing advanced biofuels can be overcome, there is potential to capture a larger share of that fuel demand. But right now, and as shown in the figure below, only bioethanol (via fermented feedstock) and biomethanol (via gasification) are both ready for commercialization. Other production pathways are at early stages of development, according to IRENA.
According to IRENA (and others in the space, see my recent post on the Biofrontiers project), more targeted policies will be needed to help support the development of the industry and regulatory certainty is a must. A key driver for advanced biofuels is the Paris Agreement and meeting both 1.5°C and 2°C commitments. The underlying assumption of the analysis in my view is that the internal combustion engine (ICE) is going to be around for some time and therefore will need the cleanest, least GHG emitting non-fossil liquid fuels possible.
Other key findings include the following:
The investor death spiral could happen as early as 2023, according to two studies cited in this article. One comes from Fitch Ratings, which released a report last week noting that the leap forward in technology development for electric vehicles, especially for batteries, may precipitate a rapid decline in oil demand – sooner than expected. Fitch noted:
“A leap forward in technology could transform the viability of electric vehicles (EVs) as an alternative to the internal combustion engine. This would be resoundingly credit negative for the oil sector, as transport accounts for 55% of oil consumption. Electric utilities and automotive companies could become polarised between winners and losers. But renewables companies could significantly increase their market share as batteries help solve the problem of intermittent supply.”
But Fitch also cautioned:
“Assessing the chances of a rapid decline in oil demand due to EV growth is key to understanding the oil sector’s prospects. Even if there were swift advances in battery technology, barriers to rapid shifts in demand would remain high. The transition to EVs will be slow due to the need for infrastructure investment and the fact that new vehicles can have a 20-year lifespan. We calculate that with a 32.5% compound annual growth rate in EV sales it would be nearly 20 years before EVs comprised a quarter of the global car fleet. Overall growth in the global fleet due to rising emerging-market sales would also limit the impact on oil demand.
But reduced transport fuel demand could tip the oil market from growth to contraction earlier than anticipated. A market with structurally falling demand will be a lot more risky for all oil companies, with long periods of low prices and investment uncertainty, as demonstrated by the current slump in oil prices.”
Fitch advised oil companies to “react early” and to consider diversifying, noting that some companies are already doing just that. “Many are already taking initial steps such as diversifying into batteries or renewables or focusing more on natural gas, and many are actively participating in the debate around future energy sources.” Fitch added:
“If nothing else, this diversification will help guard against the risk that the markets turn against them. The narrative of oil’s decline is well rehearsed – and if it starts to play out there is a risk that capital will act long before any transition occurs. This could reduce oil companies’ access to equity and debt capital, increasing funding costs during a crucial period.”
Bloomberg New Energy Finance (BNEF) earlier this year predicted the “oil demand tipping point” would be as early as 2023, which the ThinkProgress article points out. Then, BNEF pointed out that a global glut of 2 million barrels a day is what triggered the 2014 oil price collapse. Their analysis concluded that if electric vehicles continued their recent growth rate, EVs could displace that much oil demand as early as 2023, shown in the figure below.
Statoil CEO Eldar Saetre said much the same last week at a conference in London, stating that oil demand will peak in the 2020s and then start to shrink.
Last week thousands of people converged in Quito, Ecuador for the United Nations’ Habitat III conference, known as the UN’s Conference on Housing and Sustainable Urban Development, held every 20 years since 1976. The conference is dedicated to finding solutions to encourage the sustainable development of cities, including transport. Read more about it here.
As the global demand for freight transport continues to grow, improving the efficiency of on-road freight vehicles is an increasingly important step to mitigate the resulting climate impacts, according to GFEI. Read more about it here.
Heavy-duty vehicles (HDVs) are a significant source of local air pollution and global warming emissions in California, however, the deployment of electric HDVs and buses have been slow. (Reference the post I wrote last week highlighting a survey of fleet managers who stated they were not likely to choose options such as electric vehicles because of their cost and availability.) UCS and the Greenlining Institute examined the state of technology for electric HDVs and buses finding that:
The report makes the following policy recommendations: