The growth in global demand for oil will end within the next decade, according to the International Energy Agency, as the world reaches a critical window where it must accelerate toward net-zero emissions goals to meet climate-change targets.
The findings form part of the agency’s World Energy Outlook 2020, released Tuesday. The IEA, a Paris-based organization that advises industrialized countries on energy issues, found that no matter how the world economy recovers from the COVID-19 pandemic, it must hasten transitions to clean energy to put greenhouse gas emissions into decline.
Agency executive director Fatih Birol told The Globe and Mail from Paris that the way governments, companies and individuals rise to that challenge will determine the success – or failure – of global efforts to tackle climate change.
Canada is in the IEA’s good books when it comes to emissions reduction, because of its carbon tax, its target of reaching net-zero by 2050 and various policies boosting green energy investments. But governments – be they national, provincial, state or local – cannot afford to be complacent, Dr. Birol said.
“There are no short-cuts” to reducing emissions, he said, and governments must facilitate clean energy investments through establishing the right market framework or directly funding green infrastructure.
“Only profound changes guided by good policies can deliver a better energy future,” he said.
“It will not happen by itself if everything is left to the markets.”
Canada is the fourth-largest producer and exporter of oil in the world, the vast majority of which comes from Alberta.
If COVID-19 is brought under control in 2021 and the global economy returns to precrisis levels by 2023, and governments follow their announced policy intentions and targets, the IEA projects that demand for oil will flatten out in the 2030s. In this business-as-usual scenario, demand will stabilize at about 104 million barrels a day (b/d).
If, on the other hand, there is a surge in clean energy policies and investment, the IEA found that oil demand will move into a downward trajectory by the early 2020s. After that, gains in energy efficiency and increased use of biofuels and electrification will reduce demand by one million b/d each year through to 2030, and by two million b/d each year in the 2030s. In this scenario, demand falls by a third to 66 million b/d in 2040.
The IEA forecast isn’t far from that of OPEC, which said in its 2020 World Oil Outlook last week that demand will plateau in the late 2030s. Energy giant BP also said last month there’s a good chance peak oil demand is now likely in the world’s rear-view mirror.
Dr. Birol is more circumspect about peak oil, and argues the world will only reach maximum production if there is a dramatic government policy shift toward green energy. He cites China – the largest source of greenhouse gas emissions in the world – as proof that government policies are important. The country’s economy has already started to recuperate from its initial coronavirus hit, and its emissions have followed suit, bounding back to 2019 levels.
Oil and gas companies around the world have already reduced their assets by more than US$50-billion in 2020, the IEA found. Investment in oil and gas supply, meanwhile, has fallen by one-third compared with 2019, with no clear hint as to when spending will pick back up.
Unlike the past decade when transportation drove the bulk of demand for crude, Dr. Birol said the oil sector will increasingly depend on its use as a raw material in the petrochemical sector. That switch could be welcome news in Alberta, which last week outlined its plan to become a global top 10 producer of petrochemicals and a plastics recycling hub.
While Dr. Birol applauded oil producers that have pledged to reach net-zero by 2050, he added that those companies make up less than 10 per cent of global oil production and 5 per cent of emissions. He urged more producers to set emissions-reduction goals, for which they must be held accountable by investors and the public.
Alongside changes in the energy sector, the IEA called for a wholesale overhaul reduction of emissions across industry, including coal plants, steel mills and cement factories. Otherwise, Dr. Birol said, international climate goals will be pushed out of reach.
Individual actions must also change, he said. For example, replacing all flights under an hour with low-carbon alternatives, switching out cars with walking or cycling for trips shorter than three kilometres, and eating less meat.
Other changes crucial to meeting climate change goals include increasing sales of electric vehicles from 2.5 million to 50 million by 2030, boosting hydrogen production “by a factor of hundreds” and increasing clean energy investment from about US$380-billion today to US$1.6-trillion in the next 10 years.
Still, he is seeing signs that clean energy transitions are gaining momentum.
“We will be tracking those developments very closely, including those in Canada,” he said.
“But I am optimistic that governments are now looking at the climate change issue around the world much more seriously compared to a few years ago.”
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