Future fossil fuel demand assumptions ‘questionable’

Rapid advances in technology, combined with increasingly cheap renewable energy, slower economic growth and a lower-than-expected population rise could all act to dampen fossil fuel demand significantly by 2040. This is at odds with business-as-usual assumptions from large energy companies that fossil fuel use will continue to grow for the next few decades.

The suggestion that energy incumbents are ‘talking up’ future demand comes from carbon investment risk specialists the Carbon Tracker Initiative.

The organisation’s analysis indicates that the fossil fuel industry relies too heavily on high-demand assumptions to justify new and costly capital investments to shareholders. It criticises projections from the industry, the International Energy Agency and the US Energy Information Administration as being too conservative on expectations for renewables growth – raising questions on accuracy of future projections.

Typical industry scenarios see coal, oil and gas use growing by 30–50% and still making up 75% of the energy supply mix in 2040. These scenarios do not reflect the huge potential for reducing fossil fuel demand in accordance with decarbonisation pathways, says Carbon Tracker. They are also incompatible with worldwide climate pledges submitted to the UN in advance of the COP21 climate summit, adds the organisation.

The organisation’s report, Lost in transition: How the energy sector is missing potential demand destruction, looks at alternative trajectories to mainstream energy industry modelling, produced by financial houses such as Bernstein and CitiGroup, that signal a more concerted drive to a low carbon energy transition and so reducing fossil fuel demand.

Carbon Tracker Initiative calls the analysis the first time a wide range of fossil fuel industry demand scenarios has been compared with alternative and credible financial market views.

‘Investors need to challenge companies who are ignoring the demand destruction that the market sees coming through much sooner than the business-as-usual scenarios being cited by the industry,’ said Carbon Tracker’s Head of Research James Leaton. ‘Otherwise they will be on the wrong side of the energy revolution.’