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Electric vehicles are coming, but their impact will be evolutionary 
not revolutionary

Alternatively-fueled vehicles (AFVs)1 are getting plenty of press these days, but their market penetration is still a long way from critical mass.

Stephen George and Mark Routt
KBC (A Yokogawa Company)
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Article Summary
Their impact on transport fuel markets is likely to be small over the next decade as 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 replacement of the internal combustion engine (ICE) with AFVs makes for compelling political sound bites, but reality is quite different. The end of 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% of the total private vehicle and public transport fleet, with far less progress on heavy goods vehicles. ICEs burning lower-carbon fuels will remain a viable route to lower greenhouse gas (GHG) emissions for decades to come.

Hybrid vehicles – both consuming gasoline and using batteries – are a transition technology at best,  only easing hydrocarbon demand slightly when driven on gasoline. Longer term, automakers are looking to fully electric vehicles (EVs). The technology here is improving, but costs are still high, infrastructure lacking and EVs are only gaining consumer acceptance where government mandates and subsidies help to price them into the market. There is a case to be made for EVs, but it is less to do with carbon emissions reduction and more to do with reducing air pollution in urban areas. The real problem with EVs is coal.

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 and cannot be wished away. 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 becomes increasingly dependent on coal to deliver it. According to BP’s 2018 Statistical Review of World Energy, global coal demand grew by 25 million tons of oil equivalent in 2017, reversing a year-on-year declining trend that started in 2013.  Most of this growth took place in Asia. 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.

1. In this document, 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.
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