The trend in electric vehicle (EV) uptake is heading upwards. But are we really seeing the explosion in global ownership that is being predicted by the media? Are EVs seriously beginning to threaten the transport fuel markets? Here, Stephen George and Mark Routt, KBC’s chief economists, discuss the current state of the industry, and explain why the impact of EVs will be evolutionary, not revolutionary.
Alternatively-fueled vehicles (AFVs*) are getting plenty of press these days, but their market penetration is still a long way from critical mass. Currently, increasing private passenger car ownership and globally strong transport fuel demand growth overshadow any savings from the relatively few markets adopting AFVs at scale.
The end of internal combustion engine (ICE) technology is overstated, with the global automotive market still at least a decade away from seeing a meaningful installed base of AFVs. Even after three decades, AFVs are likely only to represent perhaps 20 per cent of the total private vehicle and public transport fleet, with far less progress on heavy goods vehicles. Generally, the costs of these vehicles are still high, infrastructure is lacking, and consumer acceptance is only growing where government mandates and subsidies help to price them into the market.
The IEA reported in its 2018 Global Electric Vehicle Outlook that the total global electric vehicle fleet hit 3 million in 2017. Adding in some subsequent EV sales, and the fleet size is still likely to be less than 5 million at the start of 2019. That is one-third of one percent of the 1.4 billion global road vehicle fleet – a fleet that is expected to reach around 2 billion units (cars and trucks) by 2040.
The political narrative suggests that transport-generated carbon emissions can be displaced by transitioning from liquid hydrocarbon fuels to EVs that are powered by renewable energy. But we are far from generating enough renewable energy even to meet today’s base load electrical demand. Even with renewables approaching cost parity with conventional sources, renewables will only supply a fraction of demand growth for electricity—never mind new demand to support a massive increase in electrified transport.
Displacing oil demand with demand for electric power is like squeezing a balloon – the increased power demand winds up increasing demand for coal to make more power somewhere else. Trying to reduce the GHG impact of oil simply creates more demand for coal.
The scale of this issue is daunting. Global road transport fuel demand is on the order of 41 million bpd. Global oil demand is growing at a rate of more than 1 million bpd per year. Even as early-adopter markets start to use EVs, oil demand will continue to grow where EVs are not feasible. Natural gas supply is rising, but nowhere near fast enough to displace base oil demand, or even to slow demand growth for coal.
Thus, the market is left looking for more power, and shifting transport to electricity is – directly or indirectly – contributing to coal demand growth – exactly the opposite of the green energy transition envisioned in the Paris agreement. ICEs, which burn lower-carbon fuels, will therefore remain a viable route to lower greenhouse gas (GHG) emissions for decades to come.
EV penetration can only start to escalate when there is enough economically clean power to justify the transition from oil to electric. It can’t all come from renewables and it will still have to compete economically in most countries.
The scale and rate of growth of the EV market means that its impact on transport fuel markets is likely to be small and only limited to a handful of regions over the next decade. Despite what media headlines suggest, investments in the oil industry are far from being threatened by the rise of AFVs and, ironically, the demand for these vehicles is set to drive further growth of coal energy demand in the foreseeable future.
*In this Alternatively Fueled Vehicles (AEV), broadly include all sub-categories such as Hybrid Electric (HEV), Plug-In Hybrid (PHEV), All Electric (AEV), and Battery Electric (BEV) vehicles.