10 April 2015 | Tobias Engelmeier
The global energy system is in a period of rapid transformation: electricity plays an ever more important role, as do renewables, distributed generation and electric vehicles. Energy efficiency is improving. Emissions are a large and growing concern. New technologies and business models are disrupting and challenging a traditionally risk-averse and slow-moving industry. The International Energy Agency (IEA) has just published its new “Energy Technology Perspectives” outlining the global trends until 2050 (refer). Here are some of the key findings and the implications they might have for India.
- A substantial reduction of oil consumption is needed to achieve climate goals
- Oil consumption can be reduced through higher efficiency and fuel switching to gas or electricity
- In India, a desire to reduce air pollution in cities can be a significant additional driver
The Global Context
In order to keep global warming to less then 2 degrees, there needs to be “radical action” with respect to our use of oil. Under a business as usual (6 degrees) trajectory, oil consumption will increase by 45% by 2050. In a 2 degree scenario, it can decrease (!) by 30%. This is possible through efficiency gains and fuel switching.
Drivers for such a change are the cost and volatility of oil prices, concerns about supply security and future carbon prices, pollution and climate change. New business models also play an interesting role. For instance, the new car-sharing businesses have around 10% share of electric vehicles (EVs) in their fleet as compared to less than 1% EVs in the overall market. Also, new companies thinking about entering the automotive market often try to be technologically disruptive to have a better chance of success. They typically prefer new electric motorization concepts to the petrol engines that existing car companies have already spent decades perfecting. Just look at Tesla, India’s Reva or the efforts of Google or (perhaps) Apple.
A challenge in moving away from oil is the required energy density of vehicle fuels (i.e. how much energy can be concentrated in a limited amount of space). Electric battery storage will be a viable route in grid-connected, urban areas. However, fuel switching will be more challenging for off-grid, long-distance and heavy-duty vehicles such as trucks, air planes or ships. Amongst current technologies biofuels and fuel cells seem to be the best options.
Interestingly, IEA projects that fuel switching and new vehicle technologies can reduce oil demand in the transport sector without considerably increasing our consumption of power. In their modeling, even with an aggressive rate of electrification, transport’s share of electricity demand will not exceed 15%.
Implications for India
Oil consumption will rise in India as the economy and the population grows. This is a major headache for the government, since India imports almost all of this fuel. Currently oil prices are fairly low, but if they rise again, they will drive inflation and open up a large trade deficit. If the government decides to step in to subsidize oil again, it could quickly become a major cost position in the budget.
In addition, the terrible air pollution in India’s cities will increase demands for cleaner vehicles. In addition to stricter regulations on vehicle efficiency and pollution, the main lever is fuel switching to gas (CNG) and electric vehicles. China, for example, whose cities also suffer heavily from air pollution, already has some 150 million electric two wheelers on the road. Thus, moving away from oil as much and as quickly as possible is in India’s core interest. Like China, it should be a frontrunner of that transition.
Tobias Engelmeier is the Founder and Director of BRIDGE TO INDIA