Investing in low carbon mobility would save $330 billion a year

Author:
Ilario D'Amato
Reading time: 2 minutes
19 April 2016

LONDON: Investing in low carbon mobility technologies such as hybrid and electric vehicles would cut global spending on oil by £232 billion (US$330 billion) each year between 2020 and 2030, a new study finds.

The Oil Market Futures report, authored by economic analysts Cambridge Econometrics and other experts, analyzes how focusing on already existing low carbon technologies, such as hybrid and electric vehicles, would significantly lower oil prices when compared to the business as usual scenario – dropping them as much as 15% in 2020 and 29% in 2040.

Governments are committed to cut their emissions through the Paris Agreement, and transportation already accounts for 14% of global greenhouse gas (GHG) emissions based on 2010 data, and 23% of the world’s energy-related CO2 emissions.

“Until now we haven't really see the major presence of transport issues on the climate change agenda,” Pierre GuislainSenior Director for the Transport and ICT Global PracticeWorld Bank, said in a Climate TV interview during COP21. “If no aggressive measures are taken”, the Director underlines, GHG emissions from the sector would account for a third of the global total by 2050.

A CLEAN PATHWAY

Oil prices have plummeted in recent years, sparking uncertainty about the long-term consequences in the global energy market. Many businesses are protecting themselves from this insecurity by heavily investing in renewable energy, which is a stable – and often cheaper – source of energy.

 

Global oil demand from transport in 2015 and under two scenarios for 2050. From the Oil Market Futures report, courtesy of Cambridge Econometrics.

To help the most forward-thinking companies achieve 100% renewables, The Climate Group (in collaboration with CDP) launched the RE100 campaign, which showcases the economic benefits and public recognition of switching to renewables.

But if governments do not also concentrate efforts toward existing low carbon technologies, global demand for oil would grow 19% from 94 million barrels per day (mbpd) in 2015 to 112 mbpd in 2030, the ‘Oil Market Futures’ report finds. By 2050, such demand would grow by a further 35% to 151 mbpd thanks to fast economic growth in Asia and a higher demand for aviation.

Such continuous growth of oil demand will soon drive oil prices to rise to around US$80 per barrel, the report indicates, with prices above US$90 per barrel by 2030 and over US$130 per barrel by 2050 – based on 2014 prices.

TECHNOLOGY AND POLICIES

However, investing in low carbon transport and greater efficiency would dramatically cut down such prices. In such a scenario, global oil demand would be cut by around 11 mbpd in 2030, 33 mbpd in 2040 and by 60 mbpd in 2050.

These savings are already starting to happen, the analysis finds. Vehicle efficiency standards implemented globally between 2000 and 2015 have already prevented the consumption of around 5 billion barrels of oil.

But the ‘tipping point’ in this scenario would be 2025, when policies for increasing the adoption of electric vehicles while reducing fuel consumption in the aviation and maritime transport sector would lead to a steady, irreversible decline of oil demand.

Such policies could cut oil demand by 260 billion barrels between 2015 and 2050, the report states, leading to prices that will vary from US$87-83 per barrel from 2030 to 2050.

This reduction in oil demand will drive down CO2 emissions, which will be 8.5% lower than the business-as-usual scenario in 2030, 24% lower in 2040, and 33% lower in 2050.

ECONOMIC BENEFITS

The European Union, which to date imports 88% of its oil needs, will greatly benefit from investing in policies pushing low carbon transport. In fact, under this scenario it would save €29 billion (US$33 billion) in 2030 because of its reduced oil consumption, while the consequent drop in oil prices would shave a further €12 billion (US$13.6 billion).

In turn, this would increase EU average incomes by 0.3% by 2030 and by 0.9% by 2050, the study finds – and the decrease of oil prices alone will lead to 416,000 extra jobs.

Image: Sources of future oil production under two scenarios. From the ‘Oil Market Futures’ report, courtesy of Cambridge Econometrics.

The study further reinforces the economic case to shift to a low carbon economy – a core message that The Climate Group has widely demonstrated through its many initiatives.

Low carbon is the “growth story of the future”, affirmed Lord Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment, in an exclusive Climate TV interview.

In fact, in his paper ‘Economic development, climate and values: making policy’ he demonstrates how the cost of inaction on climate change greatly exceeds the cost of action. To achieve this goal, the economist calls for strong policies, underlining how “the rate at which some clean energy technologies have been developing is much quicker than the Stern Review expected,” as demonstrated by the rise of solar photovoltaic energy installations.

By Ilario D'Amato

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