Over the last three weeks I have been working my way from Chicago to Santa Monica on Route 66, some 2,400 miles of lost highway which for decades were the lifeblood of American motoring. Route 66 had its beginnings in 1926 as the US started building a national highway system.
As the automobile became more affordable, Route 66 boomed and the towns along the way became thriving stopovers, with motels, gas stations and diners popping up throughout the country. It was a defining era for the US. The era was also a defining period for the oil industry. Towns like Ash Fork, Arizona, which has never had a population of more than 1000, housed a dozen gas stations, several motels and numerous places to eat. The gasoline stations reflected not only the demand for fuel but also the intense competition that was created to supply it.
But with the decision to build the Interstate system, Route 66 slowly vanished and the towns along the highway were increasingly bypassed. The gas stations closed and the motels slowly vanished. Today, a drive along Route 66 is a treasure hunt for what remains, some of it in ruins and some beautifully restored by motoring enthusiasts for the new tourist trade.
But Route 66 isn’t just about the demand for gasoline, it’s also about the supply. The highway cuts through Oklahoma, an important oil producing region of the US and home to one of the major global oil pipeline hubs. Just north of Route 66 between Tulsa and Oklahoma City sits the town of Cushing. It’s perhaps not a place many people have heard of, but it is the delivery point for a West Texas Intermediate (WTI) oil futures contract purchased on the New York Mercantile Exchange. What happens in Cushing can impact the world as was seen in 2020 with the COVID-19 pandemic underway. WTI prices briefly went negative, reflecting the fact that storage in Cushing was effectively full.
But change is underway. Throughout Route 66 in Texas and New Mexico, wind turbines can be seen in their hundreds, and electric vehicle charging stations are beginning to appear in some of the towns along the route, reflecting the new demand from American motorists.
How Route 66 is shaped by the future remains to be seen, but today it still represents a fascinating historical portrait of motoring and the oil industry in the USA.
In June the Shell Scenarios team launched our Brazil Scenarios Sketch, a deep dive into how the energy transition might unfold in Brazil and how the country can become a world leader in better managing carbon. Since then, the team has been busy sharing the scenarios with many groups, both inside and outside Brazil.
The scenario storyline for Brazil features two scenarios, Sky 2050 and Archipelagos. Both start with the realities of the 2020s, including the struggle to end deforestation in Brazil. As time moves on into the 2030s Sky 2050 takes a normative approach that starts with the desired outcome of global net-zero emissions in 2050 and works backwards in time to explore how that outcome could be achieved. By focusing on security through mutual interest, the world achieves the goal and a global temperature rise of less than 1.5°C by 2100. Archipelagos follows a possible path in a world focusing on security through self-interest. Even so, change is still rapid, and the world is nearing net-zero emissions by the end of the century but the temperature outcome in 2100 is a plateau at 2.2°C.
The scenarios stories and findings have been very well received, but one element of the scenarios has led to quite fierce (albeit friendly) debate. Of course, the whole purpose of scenarios is to challenge the status quo and the linear trend thinking that can emerge from it, so this debate was always welcome.
The contentious scenario issue is the speed at which electric vehicles will enter the Brazil market. In both the Sky 2050 and Archipelagos scenarios Brazil is not insulated from a powerful global trend towards electric vehicles (EV), as shown below. By 2050 in Sky 2050 the fleet is nearly 90% electric and in Archipelagos the trend is strongly upward, although by 2050 the fleet is approaching 70% electric. Today, EVs can certainly be seen in Brazil, and I rode in an electric Uber in Sao Paulo, but the numbers are currently small.
In almost every presentation of the scenarios, but particularly those in Brazil, this idea of rapid EV penetration into the Brazil market was challenged, usually in the first audience question. The challenge emerged from the reality of Brazil already having a low carbon footprint vehicle fleet, with sugar cane ethanol dominating the fuel mix today. Typically, the audience was split, with half believing that ethanol was here to stay and the other half agreeing that EVs were the future. However, in one presentation, nobody believed that EVs would make a dent in the market status quo.
So, what’s the story behind our thinking and is Brazil insulated from a global trend towards EVs?
Firstly, it’s important to give some context to the two scenarios, but particularly Sky 2050. That scenario is designed to get to net-zero CO2 emissions globally by 2050 and to do that, all the possible energy transition levers need to be pulled. This includes rapid electrification of the global passenger vehicle fleet, not just to eliminate emissions from fossil fuel use, but also to make biofuels and biofuel feedstocks used for these vehicles available for other purposes, such as sustainable aviation fuels (SAF). Brazil is an important producer of ethanol, so electrification of road transport in the country frees up a considerable amount of biofuel.
However, in Archipelagos, which is a fully exploratory scenario, the same trend of electrification emerges, albeit at a slightly slower pace. The rationale behind this in Archipelagos, but also to attach a plausible narrative to Sky 2050, is one of market forces. There is no indication in Brazil that the government is applying pressure to electrify the vehicle fleet, unlike places such as the EU and UK, so why would it change?
In both scenarios the premise put forward is that the global trend towards EVs is now unstoppable. There will doubtless be hiccups along the way, and we appear to be in a dip now in some markets as purchasing of such vehicles has slowed, but that was equally true for commercial transactions in the dot.com boom in the late 1990s, with the second coming in the 2000s bringing with it a tsunami of change. The EV market has brought with it a number of new entrants, something that the incumbents in the conventional vehicle market were perhaps not expecting. These companies are entering markets such as Brazil; for example, BYD is now establishing electric vehicle manufacturing in Brazil, with production of 150,000 vehicles per year by early 2025. In both scenarios this starts a fierce competition with the incumbents, companies such as VW who has already announced it will be adding $1.83 billion to its existing $1.4 billion investment (totalling $3.2 billion) in its Brazilian business and will be launching 16 new hybrid and electric models over the next five years.
This competitive trend in Brazil takes hold and change accelerates. At the same time, big companies active in Brazil are slowly phasing out their global combustion engine businesses and the flex-fuel combustion engine business in Brazil, while maybe having a bit more staying power, eventually suffers the same fate and comes to an end. For a global player, it becomes too expensive to maintain as a standalone business for one country.
As well as the competitive push, there is a pull from the ethanol producers. Initially there is concern as their market starts to shift, but this spurs the deployment of ethanol to jet fuel conversion technology in Brazil and the Brazilian ethanol producers find themselves making a high value product in strong demand around the world. The airlines need SAF and there isn’t enough global production, hence the pull. The bioenergy business in Brazil shifts as a result. The illustrations below show the shift from 2023 to 2050 in Sky 2050. The same shift happens in Archipelagos, but it isn’t as pronounced.
The change in Brazil is so rapid that the country becomes among the earliest to eliminate oil-based fuels from aviation and move entirely to alternatives, mainly bio-based SAF. In both Sky 2050 and Archipelagos oil-based Jet-A1 is phased out completely during the 2060s. This could mean that as well as the country exporting bio-based SAF, airlines in Brazil could transfer some of the lead they will have in SAF uptake through book-and-claim systems to other airlines around the world.
So that is the passenger vehicle story behind the Brazil scenarios. It’s not a prediction or a forecast, but a plausible outcome for the country given the very visible trends and pressures we can see today.
To complete the story, here’s an AI rendition (thanks to Bing and Copilot) of Ipanema beachfront in 2050, with electric cars traversing Av. Vieira Souto.
Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.
COP28 has come and gone, with the UAE Consensus adopted and now potentially steering the world to a more rapid transition with its ambitious goals for deployment of low-carbon energy technologies. Three key goals of the UAE Consensus are:
Tripling renewable energy capacity globally and doubling the global average annual rate of energy efficiency improvements by 2030;
Accelerating zero- and low-emission technologies, including, inter alia, renewables, nuclear, abatement and removal technologies such as carbon capture and utilization and storage, particularly in hard-to-abate sectors, and low-carbon hydrogen production;
Accelerating the reduction of emissions from road transport on a range of pathways, including through development of infrastructure and rapid deployment of zero and low-emission vehicles;
All of these goals drive the world towards rapid electrification of the energy system, through the direct production of electricity via solar PV and wind, the use of electricity in transport via electric vehicles and the use of electricity to make fuels such as hydrogen. In the Shell Energy Security Scenarios released earlier in the year, both scenarios, namely Sky 2050 and Archipelagos, showed a steep rise in the rate of electrification within the final energy system. Starting from the current annual gain in electricity in final energy of just 0.2% points per year, a rate that has been with us for the best part of a century, it leaps to 0.5% or even 1% point per year. The inflection point in the trend is in the near term, as shown in the chart below.
An electric world is also a world of much higher copper demand, driven by the role that copper plays as such an excellent conductor of electricity. Electric motors have copper winding, transmission lines use copper (although very long-distance transmission can also use aluminium), the infrastructure for building a solar PV farm relies on copper and recharging of electric vehicles requires connections made of copper.
In the Sky 2050 scenario, which sees deployment of renewable energy and electric vehicles on a scale equivalent to the goals set out in the UAE Consensus (see a recent posting by me on this), the scenario team have estimated the impact on global copper production. This is shown in the chart below, along with the trend required for Archipelagos.
Over the last forty years, the mining industry has been adding about 0.3 million tonnes per year, every year, to global copper production, but this isn’t fast enough for either of our scenarios to support their respective transitions. The current rate of production increase would barely support the EV transition in Sky 2050.
An electric car has 70 kgs more copper than a gasoline car, a 200 kW recharger needs 8 kg of copper and solar PV needs 5000 kg copper per MW. So in an accelerated EV 2040 case (Sky 2050) with 1.2 billion EVs on the road, 100 million charging points and 1200 GW of solar PV to supply the new electricity, global copper production would need to increase by 9 Mt p.a. in 17 years. But this takes up all the increase if the future production trend follows history, allowing nothing for the broader use of electricity or all the other applications that already demand copper.
The conclusion is that copper production needs to accelerate and reach a point where more than 1.5 million tonnes of production is added each year, or five times the current annual increase. So we come to a recent story in the Financial Times (FT) where the plight of a copper mine in Panama is discussed. I am not going to discuss the merits or otherwise of this particular mine, but the problems it is facing, and the similar problems faced by companies attempting to open new mines are not uncommon. Copper mining does have an environmental impact, like any extraction industry. Although the industry is well practiced in managing and minimizing the environmental impact, that impact will never be zero and like any industry there may be poorer performers who are singled out by environmentalists and local communities. Such singling out also contributes to the difficulty in establishing a new mine when local communities are concerned that the activity may have a similar impact on them.
Local mining issues also attract global activists, and in this case the FT notes that two prominent global environmental activists used their own networks and leverage to back the local protesters and seek the closure of the mine. Not surprisingly, both these people are strident climate activists as well, seeking a rapid energy transition, which requires abundant supplies of copper.
As noted above, it is not for me to discuss the merits or otherwise of this particular mine, but going forward our society is going to need every tonne of copper it can get its hands on. That shouldn’t mean miners get a free pass, but it does mean that constructive dialogue is essential in order to facilitate existing mining and open new mines. Outright rejection as both the global activists called for in this case isn’t going to help.
Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.
A guest post by my scenario team colleagues Thomas Akkerhuis and Georgios Bonias
In a few days, leaders from the world’s largest economies will gather in India for the 2023 G20 summit. The G20 Presidency has included Green Development as one of the main themes of the summit with a specific mention on ‘ensuring just energy transitions for developing countries’. At the same time, given the volatility and uncertainty in energy markets, many countries are looking to secure their own energy sources, with fossil fuel extraction as part of plan. Looking forwards, how might the emerging and least developed parts of the global economy respond to the call for green development, net-zero emissions and much lower use of fossil fuels? Looking back, it’s important not to forget that today’s developed economies largely sprang to life on the back of coal, then oil, and later naturl gas, with no CO2 emission constraints to consider.
A few months ago, Shell published The Energy Security Scenarios, which explore two different pathways for the energy transition, driven by the global shift towards a security mindset.
Sky 2050 – a very rapid transition where global climate security overcomes shorter-term national concerns.
Archipelagos – where national security concerns create ongoing headwinds in an otherwise rapid transition.
To help explore how different countries might navigate through the transition, four different archetypes were identified, with nations behaving in similar ways when they share similar vulnerabilities to energy supply disruption and energy price volatility. In both scenarios, the security mindset leads to aggressively competitive, rather than co-operative, decarbonisation.
The archetypes are:
Green Dream – which can be observed in the European Union. The EU’s wealth enables it to deal with energy price volatility, but its advanced economies and depleted oil and gas resources make it highly vulnerable to energy supply failures. These countries seek security by driving hard to end the use of fossil fuels.
Innovation Wins – which can be seen in countries like the USA and major energy resource holders like the United Arab Emirates. These countries are often self-sufficient in energy so are not vulnerable to supply failures, but their political systems are exposed to swings in the energy price. These countries do not feel so threatened in the short term, but invest heavily in innovation and infrastructure as longer-term solutions to their energy needs and the needs of their energy customers.
Great Wall of Change – which is mainly relevant to China. China is insulated from both supply and price concerns by several factors: the size of its economy, its large coal reserves, and the scale of the investments it is making in its own energy supply and infrastructure. China takes a cautious approach, aware of the need to move away from coal – by far the most emissions-intensive fossil fuel – and carefully monitoring global energy market developments. It looks to use its manufacturing strength to grow its position as a global low-carbon energy powerhouse.
Surfers – which subdivides into Emergent Surfers, like India and Brazil, and Rising Surfers being the world’s least developed economies. The latter includes most countries from the African continent, and they are more focused on establishing the basic foundations for development, such as infrastructure. Surfers countries do not produce significant amounts of energy and so they are vulnerable to both energy supply disruption and price swings. Emergent Surfers quickly adopt new technologies while Rising Surfers focus more on access to energy. Surfers seek out partnerships and try to ride the waves of opportunity created by other archetype groups.
We have used the archetypes to explore how people, wealth and energy are distributed. The Green Dream and Innovation Wins archetypes currently account for 23% of the global population but almost 60% of global energy demand and 63% of the global GDP. On the other hand, Surfers countries make up more than half of the world population but only about a third of the global energy demand and GDP.
The skewness of GDP distribution, favouring Innovation Wins and Green Dream, comes at a cost, being the large contribution to global anthropogenic CO2 emissions that these countries have made. Based on our analysis of data from 1850 onwards, the cumulative CO2 emissions for countries in these archetypes are more than 600 tonnes per current inhabitant, while for the Great Wall of Change archetype they are about 140 tonnes. For Emergent Surfers countries the number is just above 100 tonnes of CO2 and for Rising Surfers around 30 tonnes.
The share of the different archetypes in annual CO2 emissions has been going through significant changes in recent decades, reflecting the changing dynamics in the global economy. In practice, CO2 shares are even more skewed. For example, China’s emissions are partially due to product demand in Innovation Wins and Green Dream. The same is true for land use change emissions, where Brazilian deforestation is partially a result of global food demand.
Given that countries in the Great Wall of Change and particularly in the Surfers archetypes are expected to have strong economic growth in the coming years and decades, we looked at the CO2 profiles that these countries will need to have, according to the Sky 2050 scenario, in order for the world to be at NZE by 2050. Historical data for all archetypes are shown in grey lines and the possible future pathways, based on the Sky 2050 scenario analysis, are shown in colour.
The key message coming from this analysis is that developing countries will need to achieve their projected economic growth following pathways of much lower CO2 emissions than today’s developed countries did over the last 100 years. If countries in the Great Wall of Change and Surfers archetypes were to follow similar CO2 emissions pathways as the Green Dream and Innovation Wins countries when reaching similar levels of GDP/capita, then global CO2 emissions at 2050 would be close to 80 Gt per year, which is double of today’s levels, instead of NZE as is required to stop global warming. Much lower CO2 pathways can be achieved in three ways:
Use fewer energy services compared to developed economies at a similar level of income.
Use energy services that consume less energy (higher efficiency).
Use energy services that make use of cleaner energy (lower fossil fuel share)
The first is not a viable option and therefore we do not make use of it. However, some economies may appear to follow this pathway, but in reality a modal shift is taking place. For example, shared ownership of vehicles has never been established at scale in the USA or EU, but it could emerge in parts of Africa. However, this doesn’t mean that people travel less. Clean electricity will address both the second and third points: electrified energy services are often much more energy efficient, and when the electricity is clean, that brings the additional benefit of emissions reduction. For the non-electrified parts of the energy system, low life-cycle emission hydrocarbons (such as biofuels) and hydrogen can still address the third point.
So what happens in the two scenarios?
Sky 2050 must, by necessity, embrace an energy system leapfrog for developing counties simply to reach net-zero globally by 2050. But despite national security interests prevailing in Archipelagos, broadly the same trend is followed. For the Rising Surfers group in Archipelagos, per capita fossil fuel use never gets to the levels seen in any of the other archetypes due to the growing availability and falling cost of alternative energy technologies. For example, as Rising Surfers develop in Archipelagos:
Coal never dominates the electricity sector as it has in most other developed regions. This is further supported by the high potential for solar energy production that many countries in the Rising Surfers group have.
The use of hydrocarbon fuels for mobility in Rising Surfers will peak far below the Green Dream / Innovation Wins levels.
The buildings sector in Rising Surfers will switch directly from traditional biomass to clean electricity – skipping phases of coal-fired power and gas-fired boilers.
In theory, the transition is possible given the progress in technology and the lower carbon energy options which are becoming available nowadays. Rising Surfers are well positioned in some important ways. For example, Africa, having less than 30% of the global land area, has an estimated 58% of the global resource potential for solar energy. This is a useful contrast with Innovations Wins and Green Dream who have built their wealth on traditional sources of energy. In Sky 2050, by 2100, almost 30% of global direct air capture capacity is located in these countries, potentially generating huge revenue through removals trade under Article 6 of the Paris Agreement. From an energy demand perspective, their climate will eliminate an important portion of heating demand in buildings sectors which is often provided by direct combustion of natural gas. By contrast, air cooling is already an electricity based energy service. Efficiency will grow due to urbanization trends, with over 80% of the Rising Surfers’ population living in cities in the second half of the century (vs. less than half today).
But here will also be barriers. Although some green technologies are cheaper than their fossil fuel counterparts, many are not, or require significant upfront investment. Building an electricity grid that can handle increasing electrification and the intermittency of solar will be a challenge. It will be critical and fair to have mechanisms through which developing countries can be supported in this alternative pathway and the new energy technologies made widely available as quickly as possible. This will be one of the many challenges faced by the G20 when they meet in India. The world’s ambition to reach net zero emissions by 2050 will depend on it.
Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.
Over the last 10 days I have been travelling by ship up and down the west coast of Greenland, enjoying the spectacular sights this country has to offer and getting a taste of the long history of human settlement in the region from the excellent museums that have been established in various towns. Perhaps more than any other place I have visited, the human presence in Greenland appears to have been shaped by climate change; not the anthropogenic changes currently underway, but the natural changes that have occurred over the last 10,000 years.
The original spread of humans form Africa was some 200,000 years ago, but it wasn’t until 15,000 – 20,000 years ago that they crossed the land bridge that existed between what is now Russia and Alaska (lower sea levels) and headed south through the Americas. This was presumably because the Arctic and sub-Arctic regions of North America were still largely covered in glacial ice as the world emerged from the most recent glacial era and into the current Holocene period. As the glaciers receded and North America became what we see today, settlers moved north and eventually into Greenland, arriving there some 4,000 years ago.
From what I saw, Greenland sits on the edge of habitability, with limited areas for any form of agriculture and a hardy population who engage in hunting and fishing to maintain their livelihoods. This has been the case for 4,000 years, but with small variations in climate the population has waxed and waned, sometimes vanishing completely (the Dorset people) and at other times expanding as new settlers arrived (the Vikings) to make the most of slightly warmer periods. There are almost certainly other contributing factors to the changes, but climate appears to be an important one. Living on the edge can be perilous as small changes in conditions can mean that settlements must be abandoned rather than attempting to adapt to the change. This is a story playing out today in some parts of the world as anthropogenic climate change takes hold.
Today Greenland appears as a growing economy, with towns and villages expanding to become small cities, such as in the capital Nuuk. Below are some of the images I captured during my trip.
But there are also signs of a warming climate, such as the recognition that glaciers are visibly retreating and previously sold permafrost becoming unstable and leading to landslides. These are signs that can’t always be captured in a single image, but come from observations by locals and regular visitors over a long period of time. However, one glacier we visited showed real signs of retreat. A debris field of rocks (moraine) sat well in front of the glacier face, implying that these rocks had been deposited as the glacier retreated.
On a day at sea we had perfect weather and were fooled by a Fata Morgana mirage, which appeared to show icebergs floating in the air or appearing highly distorted relative to the actual berg (which we couldn’t see as it was over the horizon).
The energy transition is also making progress in Greenland with EVs starting to appear on the roads and recharging facilities available, at least in Nuuk, the capital.
But the transition may also impact Greenland in another way; the country has perhaps the largest available deposits of rare earth minerals outside China. Metals such as Neodymium are essential for wind turbines. How might a warming climate and a world hungry for rare earth metals impact the development of Greenland?
On the flight back to London we were treated to spectacular views of the ice cap and surrounding glaciers feeding from it.
As the EU grapples with the challenge of displacing Russian oil and gas and meeting immediate needs as Russian supplies are cut, the question of the scale and speed of the energy transition emerges. How fast can Russian supplies be displaced by the transition itself?
The two charts below show the current situation. Prior to the Russian invasion of Ukraine, oil and gas supplies from Russia and into Europe contributed to about 40% of overall European demand, with local production making up much of the balance in the case of gas, but just about half the balance in the case of oil. In the case of gas, the flow to Europe is about a quarter of Russian supply, but for crude oil and oil products it’s nearly half.
Both charts show that European production has declined over twenty years and in the case of oil reached an apparent plateau around 2012. It’s unlikely that local production increases could make up for the cut in Russian supplies, so that leaves three immediate options;
Immediately cut overall energy demand, which in turn could translate to a reduced need for Russian supply.
Find supplies elsewhere.
Accelerate the energy transition to reduce the overall need for oil and gas in the energy mix.
While it’s clear from recent announcements that the EU strategy will embrace all three options in the short term, the longer term strategy will almost certainly rest with the transition itself. But such a transition could well take all of this decade, and probably longer, to complete.
Gas supply is perhaps the more problematic issue, as supply is less flexible globally than oil due to pipeline constraints, LNG capacity (the availability of shipping, liquefaction and regassification facilities) and long term storage. While gas has become a flexible commodity in the 21st century, it still remains easier to reorganise, redirect and store oil. However, gas may be faster to displace than oil from an energy transition perspective.
The gas chart above also shows how the rapid deployment of wind energy across Europe could be used to offset Russian gas requirements, but it’s a journey that takes the best part of a decade. This assumes a compounding growth rate in wind deployment of 10% per year, slightly above current levels of 8%, but equivalent to the growth rate from 2010 to 2017. However, with a much larger installed base, 10% growth in 2029-2030 means installing some 50 GW of wind in that year versus the 15 GW installed in 2017 and again in 2021. So the annual installation rate has to at least triple. Of course wind isn’t the only technology, there is solar PV as well, at least for the southern latitudes of Europe.
Further to the above, if rapid growth in renewables is focussed entirely on displacing Russian gas or filling the void left by the absence of Russian gas, less progress will be made in displacing the current use of coal in the EU. This could make meeting the EU 55% by 2030 emissions reduction goal more challenging, as eliminating coal for a given electricity production can deliver twice the emissions reduction versus the same shift for gas.
By contrast, displacement of Russian oil through the energy transition looks to be a slower process, although it may turn out to be less necessary. Oil is a more flexible commodity in terms of source and destination, although there could still be pinch points in the system, for example inland east European refineries tied to Russian crude via pipelines. The largest portion of EU oil demand is for transport and within that the capacity for replacement in the 2020s sits with electrification of passenger vehicles, vans and city buses. Alternatives for larger trucks, ships, barges and planes are not yet mature enough for fast large scale deployment.
If we assume a very rapid deployment of electric vehicles (EV), to the extent that all new sales are electric by late in the 2020s (a rate faster than the current goal of 2035 for all EV sales), only about 50 million tonnes per year of oil is displaced by 2030, or about a fifth of the oil that comes from Russia. This is because of the time it takes to turnover the exiting stock of vehicles. Within Europe there are some 250 million passenger cars (Source: Eurostat), but new car sales are in the range 12-16 million vehicles per year, so in eight years only about half the total stock will be replaced anyway. With EVs currently comprising about 10% of new sales, albeit that share growing rapidly, replacing even half the total vehicle stock with EVs will take longer.
In the end, a rapid energy transition can contribute significantly to the EU weaning itself off Russian oil and gas, but this won’t happen in the next few years. By the end of the decade significant progress can be made, especially for gas, but it will likely be well into the 2030s before the same is achieved for oil.
One question that comes up quite regularly about the energy transition is the amount of energy, and therefore emissions, required for the transition itself. This is the energy required for making solar PV modules, wind turbines, batteries and so on. Further up the supply chain there is also the energy required for the additional minerals, such as the lithium, nickel, cobalt and copper found in an electric vehicle (EV). These not only have to be mined, but also go through extensive industrial transformation and refining processes to make the actual materials required for the end use. Today, most of these processes use oil, coal and gas for energy, giving rise to carbon dioxide emissions.
Perhaps the most energy intensive part of the energy transition is the manufacture of lithium-ion batteries, now being widely deployed in EVs. Some commentators have even questioned the effectiveness of the EV as a mitigation route, particularly when the battery is made in China (currently a heavy reliance on coal for energy) and the vehicle is driven in a country with a high electricity emissions intensity (e.g. a country like Poland still largely dependent on coal fired power stations). The problem with this argument is that transitioning in a series of steps (e.g. first decarbonise the electricity supply, then start deploying electric cars) would take decades longer than transitioning in parallel steps (i.e. decarbonising the electricity supply at the same time EVs are deployed). Nevertheless, the parallel approach could drive up emissions in the short term, the question is by how much?
The manufacture of batteries for EVs provides a good example of the problem. In a recent article, MIT report that the Tesla Model 3 holds an 80 kWh lithium-ion battery and the CO2 emissions for manufacturing that battery would range between 3120 kg (about 3 tons) and 15,680 kg (about 16 tons), depending on the manufacturing location. The article notes that the vast majority of lithium-ion batteries—about 77% of the world’s supply—are manufactured in China, where coal is the primary energy source. That means most batteries are currently made with CO2 emissions at the higher end of the range, although as battery factories spring up across the world and particularly in the EU and US, that picture will change.
Bringing together a few assumptions about battery manufacture, EV deployment and embedded CO2 in both manufacture of EV batteries and driving EV cars, it is possible to get a back-of-the-envelope view of the scale of the issue. I will assume the following;
EV production rises from current levels (some 7 million vehicles per year) to all EV production globally by the mid-2030s (i.e. no more internal combustion engine cars are built after that time). This is an aggressive transition, but probably the minimum that is required for a 1.5°C goal.
Higher CO2 emission battery manufacture is currently at 77%, but the share declines to 40% by 2060 and the higher CO2 emissions also fall by 75% over the same timeframe as the manufacturing system decarbonises.
Lower CO2 emissions manufacture is therefore 23% now, but rises to 60% by 2060 and the manufacturing CO2 emissions fall to zero by 2050. Decarbonising industry to such an extent will require a variety of technologies, with carbon capture and storage playing a critical role.
The 80 kWh battery delivers 300 miles of range and the average vehicle travels 10,000 miles per year.
The electricity supply which EVs use is on average 0.4 tonnes CO2 per MWh now, falling to zero by 2060. The actual global average grid intensity is higher than 0.4 today, but EVs tend to be driven in lower intensity regions at the moment, e.g. the EU, California etc.
An EV produced today has a 15 year life.
The EV mitigates emissions from internal combustion engine vehicles at a rate of 120 gms/km. As a simplification, this doesn’t change throughout the calculation. It assumes that smaller cars are replaced earlier and that the average fleet efficiency of internal combustion vehicles improves over time.
The battery represents a net increase in car manufacturing emissions with other emissions in the manufacturing process about the same for both EVs and internal combustion vehicles.
The calculation is for net-emissions, which is;
[Battery manufacturing emissions] + [Indirect EV emissions during driving] – [Gasoline / Diesel emissions backed out by EVs] = Net Emissions
What we see from the charts below is that global passenger car emissions rise before they start falling when net-emissions cross the zero line. This happens in 2035. Clearly the year in which this happens depends on the assumptions made, with the CO2 from internal combustion vehicles not being used being a key determinant. For example, if this is raised to 180 gm CO2/km, the crossover point is around 2030.
The outcome certainly points to the longer term benefit of the EV transition, with global cumulative emissions over 25 Gt lower in 2060 than they would otherwise be. This is a material reduction when thinking about a 500 Gt carbon budget for 1.5°C. However, it also highlights an issue with the current global goal to reduce emissions by 45% by 2030 relative to 2010, as set out in the Glasgow Climate Pact; the EV revolution that we are currently in the midst of is unlikely to contribute to that reduction. If anything, it could make the task even more difficult.
In a post some time back I noted that the only real opportunities for change which could make a material difference to global CO2 emissions by 2030 are where replacement technologies are already being manufactured at scale or where governments are prepared to create social change. This quickly reduces the options to only three major opportunities:
Significantly curtailing coal-fired power generation through replacement with renewables;
Replacing internal combustion engine vehicles with electric vehicles; and
Ending deforestation.
Passenger vehicle emissions account for 4 Gt, or 10%, of global CO2 emissions today. If change in this sector can’t deliver any net reductions by 2030 and potentially adds to global emissions, then it calls into question any possibility of a 45% reduction in 8 years. Almost perversely, if EV production could be ramped up in the short term, the problem for 2030 gets worse while the longer term net global cumulative emissions picture gets better.
None of the above is to meant to argue against an EV transition, it is clearly the right way to go. But like many other aspects of the energy transition, it is more complex than it looks.
Two key advantages of fossil fuels are the energy density of the fuel itself and the ease of storing energy that a molecule based fuel offers. Most homes have a huge energy store sitting in the car gasoline tank in the garage, or perhaps in an LPG / propane tank in another part of the house. The ease of storage makes transport relatively simple, with everything from passenger cars to A380 planes dependent on the need to carry fuel with them. But as the shift away from fossil fuels gathers pace and electricity grows in importance as the energy carrier of choice, one critical technology emerges that we all already use but will grow in size and scale – battery storage. We need batteries to store electricity for portable use and to store electricity at city level scale to manage the power grid, particularly as intermittent renewable sources become prevalent.
Battery technology dates back to around 1800, but domestic batteries were made popular over 100 years ago with the introduction of the AA battery in 1907 by the American Ever Ready Company, following on from their successful D cell flashlights. Today, we use batteries for a variety of household devices, but battery use across society is set to expand rapidly as the energy transition gathers pace. Further, as battery technology improves, these handy energy stores are making their way into more and more devices and applications.
In 2010, global battery production was less than 5 GWh, but with the arrival of the electric car and the growth in grid storage, production in 2020 was nearly 400 GWh (Source: Wood Mackenzie). There is also a significant and growing pipeline of Gigafactory projects, with manufacturing capacity around 1.3 TWh by 2030 based on known and expected projects. But what about the demand potential?
Numerous auto manufacturers have signalled their intent to bring internal combustion engine (ICE) passenger car manufacturing to an end, with dates between 2030 and 2040 often cited for the full switch to electric vehicles (EV). As a stretch, let’s assume that all passenger ICE production ends by 2035, which by then might mean 70 million EVs produced globally per year. If each car requires an 80 kWh battery, then that’s 5.6 TWh of new capacity required each year. Although recycling of batteries and battery components will eventually change the manufacturing landscape, that won’t be the case in the first half of the 2030s. At that time the availability of material for recycling will be the result of production today, which is a tiny fraction of our assumed production in 2035.
Grid storage requirements are a significant unknown. In a report published earlier this year by the research firm Frost & Sullivan, they predict additional global grid battery storage capacity additions will likely reach 135 GWh (0.14 TWh) in the next nine years from the 8.5GWh annual capacity additions that were recorded last year. But capacity additions are scaling rapidly, with the much talked about Tesla installed 100 MWh facility in South Australia in 2016 now easily eclipsed by multiple 300-400 MWh projects. In a 2020 study released by RethinkX, they estimated that for areas of the United States, a shift to 100% wind and solar would require some 40-90 average demand hours of battery storage. In 2020 US electricity demand was 4300 TWh, which would imply around 30 TWh of battery storage. However, it is possible that there is overlap between grid storage and EV storage, which by 2035 might have reached 12 TWh sitting in US garages and at charging points (assuming at least 50% EV penetration by then).
Assuming a rapid transition, the US alone might need 20-25 TWh of installed storage capacity by 2035, with global installed capacity perhaps reaching 100 TWh by that time. That would require a 35% year-on-year expansion of battery production capacity for the next 15 years as shown in the chart. That means in 2035 global battery production is close to 100 times current levels. It also requires manufacturing capacity in 2030 of 8 TWh, six times that of the current project pipeline for new facilities.
Batteries require particular minerals and chemistry, which today consist of lithium, nickel and cobalt in the current generation of Li-Ion batteries. The chemistry of batteries is the subject of extensive research, which points to much lower requirements for these minerals per kWh of storage. A recent analysis by the European Federation for Transport and Environment (Transport & Environment (2021), From dirty oil to clean batteries) states that over the period 2020 to 2030 the average amount of lithium required for a kWh of EV battery drops by half (from 0.10 kg/kWh to 0.05 kg/kWh), the amount of cobalt drops by more than three quarters, with battery chemistries moving towards a lower cobalt content (from 0.13 kg/kWh to 0.03 kg/kWh). For nickel the decrease is less pronounced – around a fifth – with new battery chemistry moving towards a higher nickel content as a fraction of the total, but still a decline per kWh (from 0.48 kg/kWh to 0.39 kg/kWh).
On the basis of the 2030 numbers above, production of 20 TWh (20,000 GWh in the chart above) battery storage per year in the early 2030s would need;
Metal
Early 2030s additional annual demand, million tonnes
Current global production, million tonnes
Required increase in global production
Lithium
1.0
0.09
10 times
Cobalt
0.6
0.15
4-5 times
Nickel
7.8
2.7
4 times
This is a significant step-up in metals production, with history pointing against achieving it.
Data Sources: BP and statista.com
Metals supply could well become a limiting factor in the energy transition given the potential demand for electricity storage. These levels of production increase are feasible over time, but in the space of 10-15 years they represent double to triple the historical trend, although that is true for almost everything in attempting to reduce emissions by 40+% in a decade. The above analysis also doesn’t account for other demands on batteries; from vans and trucks, small ships, barges, small planes, household and commercial devices and so on.
Equally, we shouldn’t discount innovation and different directions of travel. Apart from a slower energy transition, other factors that might influence the outcome are a more rapid evolution of battery chemistry towards more widely available minerals and/or a shift away from chemical batteries to other storage and balancing solutions in the electricity grid. However, don’t expect to see a truly novel solution scale sufficiently in just a decade. The first commercial Li-Ion battery was marketed in 1991 and has taken 30 years to scale to current levels. it was based on research and development over the previous 20 years.
In any case, the decade ahead could well be a period of rapid change and expansion for the global mining industry.
Last week the German government announced a step-up in their ambition to reduce emissions, with a new target date for net-zero emissions of 2045. This will bring with it an even faster transition in the coming decade to 2030, which the government outlined by sector as follows;
Sector
2019 reductions from 1990
2030 reduction goal relative to 1990
Electricity generation
45.5%
62.5%
Buildings
41.9%
66.7%
Transport
0.6%
42.1%
Industry
33.8%
50.7%
Agriculture
24.4%
35.6%
Other
76.3%
86.6%
Overall ambition
35.7%
56.5%
While most sectors have made significant progress to date, transport stands out as having not changed since 1990. The reality here is that the same basic energy service technologies are still in place for planes, trucks, ships and automobiles and that efficiency improvements have been broadly offset by demand growth, meaning no change in thirty years. In 1990 personal transport demand in the Eastern part of Germany would have been quite low, albeit rather inefficient, so the demand increase over the years would have been a factor. This is illustrated in the figure below (Source: Car ownership and usage trends in Germany – Response to the Commission on Travel Demand’s Call for Evidence: Understanding Travel Demand, Tobias Kuhnimhof, Institute of Transport Research at the German Aerospace Center (DLR), May 2017).
Key car stock and vehicle kilometres traveled trends in Germany since the early 1990
The goal for 2030 represents a very sudden and fast paced deployment of battery electric vehicles (BEV) or hydrogen fuel cell vehicles (FCEV), although the auto industry in Germany is not approaching this from a standing start. Over the past few years the likes of VW, Audi, BMW, Daimler and Porsche have been developing a new range of electric vehicles and releasing them into the market. In a recent statement by the CEO of Volkswagen Passenger Cars, he noted that 2020 was a turning point for Volkswagen and marked a breakthrough in electric mobility. Last year, the brand delivered nearly 134,000 battery electric vehicles (+197 percent versus 2019). However, despite a challenging market environment, Volkswagen delivered around 5.328 million vehicles across all drive systems to customers around the world, so this represents 2.5% of their production.
In Germany, transport emissions are 95% road based, with internal aviation, barges, coastal ships and trains making up the rest. Within the road sector, this breaks down to about 65% passenger vehicles, 25% heavy freight and 10% light commercial (N.B. this breakdown is approximate based on a variety of articles and EU data sources). As noted, many models of passenger BEV are now available to purchase and this is also becoming a reality for light commercial vans and small trucks, although the range isn’t as extensive at the moment. However, it is not the case for heavy freight trucks, where some BEVs and FCEVs have been demonstrated, but commercial availability is very limited.
So if we assume little change in the 5% non-road transport emissions and large scale rollout of heavy freight BEVs and FCEVs from 2025, the heavy lifting for the transport goal will have to be done by rapid uptake of passenger EVs and light commercial EVs. The overall picture from 2020 (pre-COVID) to 2030 could look like the table below;
Mode of transport
2019 total emissions (scaled to 100)
2030 emissions relative to 2020 scale
Passenger vehicles
62
30
Light commercial
9
5
Heavy freight
24
18
Non-road transport
5
5
Total
100
58
(or 42% reduction)
Based on the above, the deployment calculation is relatively straight forward. In 2019 the sale of passenger BEVs in Germany was 65,000 units in a total market of 3.6 million units. However, in 2020 this number tripled to 194,000 units, so we enter the decade with BEV sales at around 5%. There are some 47 million vehicles on the road in Germany with, at best, 1% being electric (470,000 vehicles) at the start of 2021. Although sales of cars at between 3 and 4 million and a 47 million car fleet points to an average age greater than 10 years, assume nevertheless that 10% of the fleet is turned over each year – perhaps the German government will introduce policies to accelerate the retirement of older less efficient vehicles. The calculation will also assume, as a starting point, that 10% of the sales in 2021 are battery electric, or double the 2020 number.
The chart below shows how the fleet emissions change as sales change. As indicated in the table above, passenger vehicle emissions need to halve by 2030 such that Germany reaches its transport sector goal. That doesn’t happen until the deployment annual growth rate of BEVs reaches nearly 50%, or a doubling of sales every two years until 2027 when all passenger vehicle sales are BEV from then on.
A deployment rate that requires doubling production every two years is a formidable task. Although EV sales tripled in 2020 vs. 2019, this was from a very small base. Such a rate won’t be maintained as numbers climb. For rapid BEV growth it isn’t just about retooling the existing auto plants but also building new battery plants, sourcing the necessary minerals for the batteries (e.g. lithium, nickel, cobalt), ensuring sufficient infrastructure is available for battery recharging and most importantly, building customer confidence in the product. Should Germany fall behind this rate of deployment, the only remaining option will be much higher turnover rates for vehicles later in the decade, but that will mean temporarily producing new cars at a rate that is unsustainable in later years.
By 2025 Germany will need to produce nearly two million electric cars per year for domestic use, which will also mean battery production capacity of some 160 GWh (assuming an 80 KWh battery for each car). At the moment the battery ‘gigafactory’ pipeline for Germany has several projects, with the total approaching this sort of scale and there are plans for future production increases. The Fraunhofer Institute for Systems and Innovation Research ISI, even suggests that EU production capacities of 300 to 400 GWh could be achieved by 2025. The website Battery-News.de anticipates that the German market alone will account for more than 170 GWh of production capacity. By way of comparison, Europe currently has around 30 GWh of production capacity.This ambitious German plan for e-mobility is getting underway!
Over a decade ago in one of my very first posts in this blog, I responded to what appeared to be a working assumption in government that there would be between 1 and 2 million electric cars on the road in the UK by 2020. It was hard to imagine that this would be the case and harder to calculate a pathway that would deliver such an outcome. I noted at the time that after a dozen years and some significant stimulus, the number of hybrid vehicles on UK roads had risen to 300,000. So here we are in late 2020 and the number of battery electric vehicles on the road in the UK is around 200,000. There are plug-in hybrids in addition to this, roughly doubling the total population of plug-in vehicles to just under 400,000.
In recent weeks the UK government has significantly stepped up its ambition regarding passenger electric vehicle deployment, with a decision to ban the sale of internal combustion engine vehicles in 2030, albeit with some relaxation to 2035 for plug-in hybrid vehicles. The announcement prompted me to look back at the decade old post and to look at how the numbers stack up this time around.
With a population of some 67 million people, the UK has about 33 million cars or just under one car for every two people. This ratio has been rising slowly over the past few years, even as new car sales have edged downwards so we might expect something like 37 million cars in the UK fleet by 2030 for a population of 70 million. Assuming there isn’t a mad rush for internal combustion engine vehicles (ICE) in the years just prior to 2030, then in 2030 we could see some 2.6 million cars sold; more than in 2019 but only reaching the levels seen in 2015 and 2016 despite having 15-20% more cars on the road in total.
This means that in 2030, 2.6 million cars with a battery must be available for UK buyers. They could be pure battery electric (BEV) or plug-in hybrid (PHEV). While the PHEVs are popular today, will that still be the case in 2030? It could be that manufacturers are already abandoning that class of vehicle to simplify production lines, with a focus on ICE production for legacy markets and BEV production for the future. After all, there would be no place for the PHEV in the UK after 2035.
The UK buys about 3.5 – 4.0 % of global passenger vehicle production, so the purchase of 2.6 million vehicles would notionally require 70 million BEVs in production globally, or all passenger vehicle production. However, with a leading policy position on BEV uptake and local vehicle production of some 1.3 million vehicles per annum, the UK could be commanding a relatively higher percentage of the BEV market. This has been the case in Norway in recent years. Of course, other jurisdictions are also declaring earlier dates for the BEV transition, so there could be competition for the available vehicles. But let’s assume the UK can command 8% of BEV production in 2030, which would imply the need for global BEV production of 35 million vehicles in 2030.
Current global BEV production is 2-2.5 million per year, or 3.2% of total passenger vehicle production. That will need to grow by a factor of at least fifteen in ten years for the UK to meet its goal. If there is a limitation in the supply chain for BEVs it is most likely to be the battery. It won’t be the car body, wheels, suspension, electronics, steering system or even the motor (but it is a very different component to ICE) as the capacity for these exists today in one form or another. But large scale Li-Ion battery production is a new and growing industry that requires new supply chains, new sources of critical minerals like cobalt and new processing facilities to make compounds such as lithium hexafluorophosphate.
Cobalt supply might be challenging as most global production comes from one country, the Democratic Republic of the Congo. It is an important component of Li-Ion battery chemistry although battery manufacturers are taking steps to minimize the requirement. Early battery cathodes contained nickel, manganese and cobalt in equal proportions, but companies such as LG Chem are close to producing cathodes with 80% nickel and only 10% cobalt. Tesla’s first Model S, launched in 2012, was built with an average of 11 kg of cobalt per vehicle, but according to Benchmark Minerals that was down to about 4.5 kg in its successor car, the Model 3, which launched in 2018. Nevertheless, if production were to hit 35 million vehicles in 2030 and each vehicle required 5 kg of cobalt, that still amounts to 175,000 tonnes of cobalt. Current global cobalt production capacity is 150,000 tonnes but it is a widely used mineral.
BEVs aren’t the only products competing for Li-Ion batteries. By 2030 we should be seeing a variety of haulage trucks in the market, more electric buses, a continued escalation of consumer devices running on batteries and a surge in demand for grid scale battery packs to help manage renewable intermittency. While battery recycling will be a large industry in the decades ahead, this won’t be the case in 2030 as society will only just be starting the recycle the batteries being produced today, which represent a tiny fraction of 2030s demand.
Other factors will also come into play, but the size of the battery in every car will be important. Early BEV models were relatively small with limited range and had battery storage of around 25 kWh – the Nissan Leaf is a good example. That’s because batteries were very expensive. Today with battery prices falling rapidly, one Nissan variant known as the Leaf e+ has a 62 kWh battery pack. A review of multiple models from several manufacturers shows battery sizes heading towards 75-100 kWh. So let’s assume the average 2030 car has an 80 kWh battery with a range of around 500 kms.
Global Li-Ion battery manufacturing capacity today is around 400 GWh, or enough to make 6 million BEVs with a 62 kWh battery onboard. However, half that capacity is being split between consumer electronics, larger vehicles such as electric buses and home or grid energy storage. In the 2030 world of 80 kWh battery packs and production of at least 35 million vehicles, nearly 3 TWh of battery manufacturing capacity will be needed just for the BEVs. That might mean 5 TWh in total to cater for all the other applications. And therein lies the potential issue.
There is no doubt that battery manufacturing capacity is ramping up rapidly, but where might we be in 2030? A recent analysis by Wood Mackenzie looks at the current project pipeline for new manufacturing facilities and expects a quadrupling to 1.3 TWh by 2030. The same article that discusses the analysis also notes that this is not the most bullish forecast. Bloomberg New Energy Finance expects 1 TWh of battery production capacity by 2025, while Benchmark Minerals expects 1 TWh of capacity by 2022/2023, 1.35 TWh by 2025, and 2.5 TWh by 2030, with China’s CATL accounting for 332 GWh and Tesla, the fourth-largest producer, with 148 GWh of capacity in 2030. Based on current forecasts, nobody is expecting 5 TWh of capacity by 2030, although it is also fair to say that few in 2010 expected solar PV manufacturing capacity to be 160 GW per year by 2020.
So the bottom line for the UK government and its ambitious plans means that not only must the UK command an outsize proportion of the BEV market, but that Li-Ion battery production is at least double the most ambitious current estimates for 2030.
Finally, assuming the needed rapid growth in BEV sales takes place and the UK reaches 100% sales by 2030, the number of vehicles on the road in that year would still be less than 10 million, out of a total of perhaps 37 million. It will take another decade or more beyond 2030 to turn over the whole fleet, which makes the recently announced 2030 goal of a 68% reduction against 1990 all the more difficult.
