The U.S. Must Get Ahead Of The Curve On Electric Vehicles And Climate Change

When Dan Yergin sat sit-down virtually with reporters, the vice-chair of IHS Markit explained how a Middle Eastern oil executive was stunned at how many Tesla
TSLA
s he saw on the road in California. It was a foretelling sign — one that spoke volumes not just about oil’s future but also about climate security. 

The big question is whether oil will soon hit its peak, all in the context of whether electric vehicles will continue to gain traction in auto markets. Ironically, the biggest customers for oil and gas will come from Asia, which also has a simultaneous long-range goal of going green and curbing its greenhouse gas emissions. 

“We are seeing the impact of climate change with the various extreme events: the Australian fires, the cyclones and the droughts,” says Dr. Thani Ahmed Al Zeyoudi, Minister of the Ministry of Climate Change and the Environment for the United Arab Emirates, in an earlier interview with this reporter. “We can no longer pass this to future generations to deal with.” 

The UAE, which just discovered 22 billion barrels of unconventional oil reserves, says that it is planning on a world with no oil — that it is investing in green energy projects domestically and in new technologies all over the world. The country is home to several solar plants, hosting one of the world’s largest: the Noor Abu Dhabi. It generates more than 1,100 megawatts of power. 

Yes, “peak oil” and climate change are interrelated. Enter electric vehicles, which according to Bloomberg New Energy Finance will gain speed: it says that EVs are now 10% of the global passenger market. But that number will grow to 28% in 2030 and 40% in 2040. Why? National policies will favor decarbonization while the cost of batteries that power the cars will keep falling. The cost of EVs and cars with an internal combustion engine will even out in the mid-2020s, it says. 

And China and Europe are where the growth will occur: 72% of all such cars by 2030. That’s because their governments are taking bold action to curb CO2 and to get folks to decarbonize their transportation. The United States, it adds, will fall a bit behind but it will catch up by 2030. UAE’s Abu Dhabi National Oil Company proudly proclaims that the country has to be ready to celebrate the sale of its last barrel of oil. Right now, renewables make up 10% of its generation portfolio.

Slippery Slope for Oil

Consider Tesla’s sales, especially in China: according to Investor’s Business Daily, Tesla sold 21,604 cars there in November — up from 12,000-plus a month earlier. Expect even better results in 2021, which is when the carmaker will begin making EVs in Shanghai. Globally, Tesla has exceeded its 2019 sales — remarkable, give that most other automakers have seen their sales fall this year. As a result, the company’s stock jumped 7% on Monday to more than $641 a share. 

Will oil use decline because of this trend — a commodity now out of favor because the coronavirus has weakened the demand for it? Bloomberg New Energy Finance, Wood MacKenzie and BP have predicted that oil’s relevance in the transport sector will wane as EV interest picks up. In the most extreme case, BP says that global oil demand will decline by 80% by 2050. In its “business-as-usual,” it falls by 10% during this time. Otherwise, expect a 50% drop. 

To that end, China’s President Xi told the UN General Assembly that his country would hit peak CO2 releases by 2030 and that it would be carbon neutral by 2060. The goal is to wean itself from fossil fuel dependence and from having to rely on the United States and Russia for oil. Even then, the country says that it wants to reduce CO2 releases from oil and gas right now. How?

“We want to help assure that the petroleum sector is doing its share to address its contribution to climate change,” says Mitchell F. Stanley, the chair of the National Center for Sustainable Development in Washington, DC.

His group help set up the Greater Bay Area International Energy Transaction Center in China — an exchange that connects myriad buyers and sellers of energy products. “The Energy Transaction Center’s leadership can help to quickly push for the use of existing global product solutions that can materially reduce the environmental impact of petroleum shipment, storage and use,” Mitchell adds.

Read the Signs

To be sure, predicting oil’s fate is a fool’s game. After selling at record lows in April, the price increased 20% in November: a barrel of Brent oil from northwest Europe has a January future’s price of nearly $46. Inventories are falling as well, all on top of the fact that OPEC producers say that they will limit the amount of production. 

To boot, the U.S. Energy Information Administration expects Brent crude oil to sell for $79 a barrel in 2025. By 2040, the agency says that those prices will be $146. 

But the underlying fundamentals suggest something different. Start with the assumption that oil prices will rise: if they rise high enough, people conserve and prices fall. Meantime, over the next decade, EVs will get better and cheaper while new technologies will come to market to make the internal combustion engine more efficient. At the same time, national governments will likely increase their efforts to curb CO2 emissions. 

“Oil and gas – while remaining needed for decades – will be increasingly challenged as society shifts away from its reliance on fossil fuels,” says Bernard Looney, chief executive officer of BP. 

If the onrush of Teslas on California’s roads are a precursor of things to come, then Dan Yergin says that countries will jockey for position in this new world economy: China’s zero-carbon pledge coupled with its advanced research into car batteries gives it a head start while Russia’s economic dependence on oil and gas put it at a disadvantage. The transition to decarbonization may be longer than what the experts are predicting, Yergin notes. But it will happen — and the United States has to catch up and then get ahead of the curve.