Category Archives: power generation

Europe’s phase out of coal

Europe is progressing with phasing out hard coal and lignite in power generation, but needs to move further faster, especially in Germany and Poland

Reducing coal use in power generation and replacing it with renewables (and in the short run with natural gas) remains one of the best ways of reducing emissions simply, cheaply and quickly at large scale.  Indeed, it is essential to meet the targets of the Paris Agreement that the world’s limited remaining cumulative emissions budget is not squandered on burning coal and lignite in power generation.

Europe is now making progress in phasing out coal.  The UK experience has already illustrated what can be done with incentives from carbon pricing to reduce coal generation.  Emissions from coal have reduced by more than 80% in the last few years, even though coal plant remains on the system[i].  However, many countries, including the UK, are now going further and committing to end coal use in power generation completely in the next few years.  The map below shows these commitments as they now stand.  Most countries in western Europe now have commitments in place. (Spain is an exception.  The government is expecting coal plant to be phased out by 2030, but currently does not mandate this.)

Map: Current coal phase-out commitments in Europe[ii]

Source: Adapted from material by Sandbag (see endnotes).

In some countries there is little or no coal generation anyway.  In other countries plants are old and coming to the end of their life on commercial grounds, or are unable to comply with limits on other pollutants.  In each case phase-out is expected to go smoothly.

However, the largest emitters are mainly in Germany and Poland and here progress is more limited.  Germany has now committed to coal phase-out.  But full phase-out might be as late as 2038.  Taking another 20 years or so to phase out such a major source of emissions is simply too long.  And Poland currently looks unlikely to make any commitment to complete phase out.

This means the Europe is still doing less than it could and should be doing to reduce emissions from coal and lignite.  As a result, EU emissions are too high, and the EU loses moral authority when urging other nations, especially in Asia and the USA, to reduce their emissions further, including by cutting coal use.

Several things are needed to improve this situation, including the following.

  • Further strengthening the carbon price under the EUETS by reducing the cap. I looked at the problem of continuing surpluses of allowances in another recent post, and accelerated coal closure would make the surplus even greater.  Although the rise in the EUA price in the last 18 months or so is welcome, further strengthening of the EUETS is necessary to reduce the risk of future price falls, and preferably to keep prices on a rising track so they more effectively signal the need for decarbonisation.
  • Continuing tightening of regulations on other pollutants, which can improve public health, while increasing polluters’ costs and therefore adding to commercial pressure to close plant.
  • Strengthening existing phase out commitments, including be specifying an earlier completion date in Germany.
  • Further enabling renewables, for example by continuing to improve grid integration, so that it is clear that continuing coal generation is unnecessary.

As I noted in my last post, making deep emissions cuts to avoid overshooting the world’s limited remaining carbon budget will require many difficulties to be overcome.  There is no excuse for failing to make the relatively cheap and easy reductions now.   Reducing hard coal and lignite use in power generation in Europe (and elsewhere) continues to require further attention.

Adam Whitmore – 18th June 2019

[i] See https://onclimatechangepolicydotorg.wordpress.com/2018/01/17/emissions-reductions-due-to-carbon-pricing-can-be-big-quick-and-cheap/

With and updated chart at:

https://onclimatechangepolicydotorg.wordpress.com/carbon-pricing/price-floors-and-ceilings/

[ii] Map adapted from Sandbag:

https://sandbag.org.uk/wp-content/uploads/2018/11/Last-Gasp-2018-slim-version.pdf

and data in:

https://beyond-coal.eu/wp-content/uploads/2018/11/Overview-of-national-coal-phase-out-announcements-Europe-Beyond-Coal-November-2018.pdf

and https://www.eia.gov/todayinenergy/detail.php?id=39652

How well is the UK on track for zero emissions by 2050?

By 2020 the UK will have very nearly halved its emissions over 30 years.  Reducing emissions by the same amount over the next 30 years will get the UK very close to zero.  However this will be very much more difficult.

A robust net zero target has been recommended for the UK …

A recent report by the UK’s Committee on Climate Change (CCC), the Government’s official advisory body, recommends that the UK adopts a legally binding target of net zero emissions of greenhouse gases by 2050[i], that is remaining emissions must be balanced by removal from the atmosphere.  If the Government agrees, this will be implemented by amending the reduction mandated by the Climate Change Act, from an 80% reduction from 1990 to a 100% reduction.

The target has several features that make it particularly ambitious.  It:

  • sets a target of net zero emissions covering all greenhouse gases;
  • includes international aviation and shipping;
  • allows no use of international offsets; and
  • is legally binding.

This is intended to end the UK’s contribution global warming.  It has no precedents elsewhere, although in France a bill with comparable provisions is under consideration[ii].

Progress to date has been good …

The UK has made good progress so far in reducing emissions since 1990.  Emissions in 2018 were around 45% below 1990 levels, having reduced at an average rate of about 12.5 million tonnes p.a. over the period.  On current trends, over the thirty years from 1990 to 2020 emissions will be reduced to about 420 million tonnes p.a., 47% below their 1990 levels.  Emissions will thus have nearly halved over the 30 years 1990 to 2020, half the period from 1990 to the target date of 2050.

Chart 1 shows how the UK’s progress compares with a linear track to the current target of an 80% reduction, to a 95% reduction and to a 100% reduction.  (For simplicity I’m ignoring international aviation and shipping).  The UK is currently on a linear track towards a 95% reduction by 2050.

Chart 1: Actual UK emissions compared with straight line progress towards different 2050 targets

 

Source: My analysis based on data from the Committee on Climate Change and UK Government.  Data for 2018 is provisional[iii]

The largest contributor to the total reduction so far has been the power sector.  Analysis by Carbon Brief[iv] showed that the fall in power sector emissions has been due to a combination deploying renewables, which made up about of third of generation in 2018, reducing coal use by switching to natural gas, and limiting electricity demand growth.

Industrial emissions have also fallen significantly.  However some of this likely represents heavy industry now being concentrated elsewhere in the world, so likely does not represent a fall in global emissions.  Emissions from waste have also fallen, due to better management.

Reducing emissions will be relatively easy in some sectors …

There are also reasons for optimism about continuing emissions reductions.  Many technologies are now there at scale and at competitive prices, which they were not in previous decades.  For example, falling renewables costs and better grid management, including cheaper storage, will help further decarbonisation of the power sector.  Electrification of surface transport now appears not only feasible, but likely to be strongly driven (at least for cars and vans) by economic factors alone as the cost of batteries continues to fall.

But huge challenges remain …

Nevertheless important difficulties remain for complete decarbonisation.

CCS is identified by the report as an essential technology.  However, as I have noted previously, it has made very little progress in recent years in the UK or elsewhere[v].  CCS is especially important for decarbonising industry.  This includes a major role for low carbon hydrogen, which is assumed to be produced from natural gas using CCS – although another possibility is that it comes from electrolysis using very cheap renewables power, e.g. at times of surplus.  CCS also looks to be necessary because of its use with bioenergy (BECCS), to give some negative emissions, though the lifecycle emissions from this will require careful attention

Decarbonising building heating, especially in the residential sector, continues to be a challenge.  The report envisages a mix of heat pumps and hydrogen, perhaps in the form of hybrid designs, with heat pumps providing the baseload being topped-up up by burning of hydrogen in winter.  I have previously written about the difficulties of widespread use of heat pumps[vi], and low carbon hydrogen from natural gas with CCS is also capital intensive to produce and therefore expensive to run for the winter only.  The scale of any programme and consumer acceptance remain major challenges, and the difficulties encountered by the UK’s smart meter installation programme – by comparison a very simple change – are not an encouraging precedent.

Emissions from agriculture are difficult to eliminate completely, and no technologies are likely to be available by 2050 that enable aviation emissions to be completely eliminated.  This will require some negative emissions to balance remaining emissions from these sectors.

Policy needs to be greatly strengthened …

Crucially several of the necessary transformations are very large scale, and need long lead times, and investment over decades.  There is an urgent need to make progress on these, and policy needs to recognise this.  This includes plans for significant absorption from reforestation, as trees need to be planted early enough that they can grow to be absorbing substantial amounts by 2050.

The UK’s progress on emissions reduction so far has been good, having made greater reductions than any other major economy[vii].  And technological advances in some areas are likely to enable substantial further progress.  However much more is needed.  In particular policy needs to look now at some of the difficult areas where substantial long-term investment will be needed

Adam Whitmore – 22nd May 2019

 

 

[i] https://www.theccc.org.uk/2019/05/02/phase-out-greenhouse-gas-emissions-by-2050-to-end-uk-contribution-to-global-warming/

 

[ii] The CCC report notes that Norway, Sweden and Denmark have net zero targets, but they allow use of international offsets (up to 15% in the case of Sweden).  France has published a target similar to the UK’s in a bill.  The European Commission has proposed something similar for the EU as a whole, but this is a long way from being adopted. California has non-legally binding targets to achieve net zero by 2045.  Two smaller jurisdictions (Costa Rica, Bhutan) have established net zero targets but these are expected to be achieved mainly by land use changes.  New Zealand has a draft bill to establish a target, but eliminating all GHGs will be difficult because of the role of agriculture in the New Zealand economy.

 

[iii] https://www.gov.uk/government/statistics/provisional-uk-greenhouse-gas-emissions-national-statistics-2018  The change from 2017 to 2018 is applied to the data series from 1990 produced by the CCC (the two data series differ very slightly in their absolute levels).

 

[iv] https://www.carbonbrief.org/analysis-uk-electricity-generation-2018-falls-to-lowest-since-1994

 

[v] https://onclimatechangepolicydotorg.wordpress.com/2018/04/25/a-limited-but-important-medium-term-future-for-ccs/

 

[vi] https://onclimatechangepolicydotorg.wordpress.com/2015/05/18/reducing-the-costs-of-decarbonising-winter-heating-needs-to-be-a-priority/

 

[vii] https://onclimatechangepolicydotorg.wordpress.com/2017/05/09/uk-emissions-reductions-offer-lessons-for-others/

 

The IEA’s solar PV projections are more misleading than ever

The IEA is still grossly underestimating solar PV in its modelling

This post is a quick update of previous analysis.

Back in 2013 I pointed out how far from reality the IEA’s projections of renewables deployment were.  They persistently showed the rates of installation of renewables staying roughly constant over the following 20 years at whatever level they had reached at the time of the projection being made.  In reality, rates of installation were growing strongly, and have continued to do so (see chart).  Rates of installation are now a factor of nearly four times greater than the IEA was projecting back in 2013 – they were projecting installation rates of about 28GW for 2018, where in fact around 100 GW were installed in 2017[1] and an estimated 110GW in 2018.

I have returned to the topic since 2013 (see links at the bottom of this post), as have many others, each time pointing out how divorced from reality the IEA’s projections are.

Unfortunately, the IEA is continuing with its approach, and continuing to grossly understate the prospects for renewables.  Auke Hoestra has recently updated his analysis of the IEA’s solar PV projections to take account of the latest (2018) World Energy Outlook New Policies Scenario (see link below chart – in addition to chart data his post also contains a valuable commentary on the issue).  The analysis continues to show the same pattern of obviously misleading projections, with the IEA showing the rate of solar PV installation declining from today’s rate until 2040.  Of course eventually the market will mature, and rates of installation will stabilise, but this seems a long way off yet.

IEA projections for solar PV in successive World Energy Outlooks compared with outturn

http://zenmo.com/photovoltaic-growth-reality-versus-projections-of-the-international-energy-agency-with-2018-update/

In 2013 I was inclined to give the IEA the benefit of the doubt, suggesting organisational conservatism led to the IEA missing a trend.  This no longer seems tenable – the disconnect between projections and reality has been too stark for too long.  Instead, continuing to present such projections is clearly a deliberate choice.

As Hoekstra notes, explanations for the disconnect have been advanced by the IEA, but they are unsatisfactory.  And as renewables become an ever-larger part of the energy mix the distortions introduced by this persistence in misleading analysis become ever greater.

There is no excuse for the IEA persisting with such projections, and none for policy makers taking them seriously.  This is disappointing when meaningful analysis of the energy transition is ever more necessary.

Adam Whitmore -21st January 2019

https://onclimatechangepolicydotorg.wordpress.com/2013/10/08/why-have-the-ieas-projections-of-renewables-growth-been-so-much-lower-than-the-out-turn/

https://onclimatechangepolicydotorg.wordpress.com/2015/02/27/the-ieas-central-projections-for-renewables-continue-to-look-way-too-low/

https://onclimatechangepolicydotorg.wordpress.com/2015/06/27/the-ieas-bridge-scenario-to-a-low-carbon-world-again-underestimates-the-role-of-renewables/

https://onclimatechangepolicydotorg.wordpress.com/2017/09/26/underestimating-the-contribution-of-solar-pv-risks-damaging-policy-making/

[1] The BP Statistical Review of World Energy shows a total of 87GW installed in 2017 https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2018-renewable-energy.pdf

Economic growth and emissions cuts can go together

There is often said to be a trade-off between growth and decarbonisation, but the evidence shows that advanced economies can combine large emissions cuts with continuing economic growth.

Policy on greenhouse gas emissions reductions is often framed as a trade-off between greater emissions reductions and greater economic growth.  However, while emissions clearly can’t be reduced to zero immediately, faster emissions reductions can be accompanied by robust economic performance.  The clearest example of this is the UK.  Since 1990 the UK has cut its total greenhouse gas emissions much more rapidly than other G7 countries, while growing its economic output per capita more than the average.  This is illustrated in Chart 1.

Chart 1: UK per capita GDP growth and greenhouse gas emissions compared with the G7 average[i]

The extent by which the UK has cut its per capita emissions relative to other countries is emphasised in the following charts, which show that the UK has achieved by far the largest reductions in per capita CO2 emissions.

Chart 2: CO2 emissions per capita in 2016 and 1990 for G7 countries[ii]

Note: Japanese emissions rose by 0.4 tonnes per capita over the period (not shown)

Chart 3: Change in per capita and total CO2 emissions 1990 to 2016 for G7 countries

Note: Data in these charts is for CO2 only, excluding other greenhouse gases.

Of course, some of the relative changes reflect circumstances.  The UK started with relatively high emissions, including extensive use of coal in power generation.  In contrast, France already had a low carbon power sector in 1990, and in 2016 France’s per capita emissions remained about 8% below those of the UK, even though UK emissions had fallen much more from their 1990 levels.

Germany has also achieved significant reductions, having benefitted from reductions in emissions in the former East Germany and installing large amounts of renewables.  However it has been hampered by continuing extensive use of coal and lignite for power generation.  The USA has accommodated significant population growth with only a small rise in emissions, but this is clearly nowhere near enough if it is to make an appropriate contribution to global reductions.  Emissions remain at almost three times UK levels.  Canadian emissions are also high and have increased in absolute terms.  Japan’s emissions have grown slightly over the period.

Some falls in emissions in G7 economies may reflect a shift in the global pattern of emissions, with reduced emissions from industry in the G7 economies balanced by increases in China and elsewhere.  However this can’t account for all of the reductions that have been achieved, or the vast differences in reductions between countries.

Policy has certainly also played its part.  UK policy has successfully targeted relatively low cost emissions reduction, notably reducing coal use in the power sector.  Above all the Climate Change Act (2008) has provided a consistent and rigorous policy framework.

And whatever the reason, one thing is clear.  Cutting emissions more can accompany growing the economy more.

Adam Whitmore – 8th March 2018

 

 

[i]https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/651916/BEIS_The_Clean_Growth_online_12.10.17.pdf

[ii] http://www.pbl.nl/en/publications/trends-in-global-co2-and-total-greenhouse-gas-emissions-2017-report

Emissions reductions from carbon pricing can be big, quick and cheap

The UK carbon tax on fuel for power generation provides the most clear-cut example anywhere in the world of large scale emissions reductions from carbon pricing.   These reductions have been achieved by a price that, while higher than in the EU ETS, remains moderate or low against a range of other markers, including other carbon taxes.

The carbon price for fuels used in power generation in the UK consists of two components.  The first is the price of allowances (EUAs) under the EUETS.  The second is the UK’s own carbon tax for the power sector, known as Carbon Price Support (CPS).  The Chart below shows how the level CPS (green bars on the chart) increased over the period 2013 to 2017[i].  These increases led to a total price – CPS plus the price of EUAs under the EUETS (grey bars on the chart) – increasing, despite the price of EUAs remaining weak.

This increase in the carbon price has been accompanied by about a 90% reduction in emissions from coal generation, which fell by over 100 million tonnes over the period (black line on chart).   Various factors contributed to this reduction in the use of coal in power generation, including the planned closure of some plant and the effect of regulation of other pollutants.  Nevertheless the increase in the carbon price since 2014 has played a crucial role in stimulating this reduction in emissions by making coal generation more expensive than gas[ii].  According to a report by analysts Aurora, the increase in carbon price support accounted for three quarters of the total reduction in generation from coal achieved by 2016[iii].

The net fall in emissions over the period (shown as the dashed blue line on chart) was smaller, at around 70 million tonnes p.a. [iv] This is because generation from coal was largely displaced by generation from gas. The attribution of three quarters of this 70 million tonnes to carbon price support implies a little over 50 million tonnes p.a. of net emission reductions due to carbon price support.   This is equivalent to a reduction of more than 10% of total UK greenhouse gas emissions.  The financial value of the reduced environmental damage from avoiding these emissions was approximately £1.6 billion in 2016 and £1.8 billion in 2017[v].

Chart:  Carbon Prices and Emissions in the UK power sector

The UK tax has thus proved highly effective in reducing emissions, producing a substantial environmental benefit[vi].  As such it has provided a useful illustration both of the value of a floor price and more broadly of the effectiveness of carbon pricing.

This has been achieved by a price that, while set at a more adequate level than in the EU ETS, remains moderate or low against a range of other markers, including other carbon taxes.  CPS plus the EUA price was around €26/tCO2 in 2017 (US$30/tCO2).  The French the carbon tax rose from €22/tCO2 to €31/tCO2 over 2016-2017. In Canada for provinces electing to adopt a fixed price the carbon price needs to reach CAN$50/tCO2 (€34/tCO2) by 2022[vii].  These levels remain below US EPA 2015 estimates of the Social Cost of Carbon of around €40/tCO2 [viii].

This type of low cost emissions reduction is exactly the sort of behaviour that a carbon price should be stimulating, but which is failing to happen as a result of the EU ETS because the EUA price is too low.  More such successes are needed if temperature rises are to be limited to those set out in the Paris Agreement.  This means more carbon pricing should follow the UK’s example of establishing an adequate floor price.  This should include an EU wide auction reserve for the EUETS.  The reserve price should be set at somewhere between €30 and €40/t, increasing over time.  This would likely lead to substantial further emissions reductions across the EU.

Adam Whitmore – 17th January 2018

Notes:

[i] Emissions date for 2017 remains preliminary.  UK carbon price support reached at £18/tCO2 (€20/tCO2) in the fiscal year 2015/6 and was retained at this level in 2016/7.  In 2013/4 and 2014/5 levels were £4.94 and £9.55 respectively.  This reflected defined escalation rates and lags in incorporating changes in EUA prices. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293849/TIIN_6002_7047_carbon_price_floor_and_other_technical_amendments.pdf and www.parliament.uk/briefing-papers/sn05927.pdf

[ii] http://www.theenergycollective.com/onclimatechangepolicy/2392892/when-carbon-pricing-works-2

[iii] https://www.edie.net/news/6/Higher-carbon-price-needed-to-phase-out-UK-coal-generation-by-2025/

[iv] Based on UK coal generation estimated weighted average emissions intensity of 880gCO2/kWh, and 350gCO2/kWh for gas generation.

[v] 50 million tonnes p.a. at a social cost of carbon based on US EPA estimates of $47/tonne (€40/tonne).

[vi] There is a standard objection to a floor in one country under the EUETS is that it does not change of the overall cap at an EU level so, it is said, does not decrease emissions.  However this does not hold under the present conditions of the EUETS, and is unlikely to do so in any case.  A review of how emissions reductions from national measures, such as the UK carbon price floor, do in fact reduce total cumulative emissions over time is provided was provided in my recent post here.

[vii] The tax has now set at a fixed level of £18/tonne.  It was previously set around two years in advance, targeting a total price comprising the tax plus the EUA price.  There was no guarantee that it would set a true floor price, as EUA prices could and did change a good deal in the interim.  Indeed, in 2013 support was set at £4.94/tCO2, reflecting previous expectations of higher EUA prices, leading to prices well below the original target for the year of £16/tCO2 in 2009 prices (around £17.70 in 2013 prices). See https://openknowledge.worldbank.org/handle/10986/28510?locale-attribute=en.  The price is also below the levels expected to be needed to meet international goals (see section 1.2), and below the social cost of carbon as estimated by the US EPA (see https://onclimatechangepolicydotorg.wordpress.com/carbon-pricing/8-the-social-cost-of-carbon/ and references therein).

[viii] Based on 2015 estimates.

The case for additional actions in sectors covered by the EUETS is now even stronger

Recently agreed reforms to the EUETS mean that excess allowances in the MSR will be cancelled.  This further strengthens the case for actions such as phase-out of coal plant, increasing energy efficiency and deploying more renewables.

About a year ago I looked at whether additional actions to reduce emissions in sectors covered by the EUETS do in practice lead to net emissions reductions over time [i].

It is sometimes claimed that total emissions are always equal to the fixed cap.  By implication additional actions do not reduce total emissions, because if emissions are reduced in one place there will be a corresponding increase elsewhere.  This is sometimes called the “waterbed hypothesis” by analogy – if you squeeze in one place there is an equal size bulge elsewhere.

Although often repeated, this claim is untrue.  Under the EU ETS at present the vast majority of emissions reductions from additional actions will be permanently retained, reflecting the continuing surplus of allowances and the operation of the MSR.  Furthermore, over the long term the cap is not fixed, but can respond to circumstances.  For example, tighter caps can be set by policy makers once emissions reductions have been demonstrated as feasible.

When I last looked at this issue, the fate of additional allowances in the MSR remained necessarily speculative.  It was clear that additional excess allowances would at least not return to the market for decades.  It also seemed likely that they would be cancelled.  However, no cancellation mechanism was then defined.

This has now changed with the trilogue conclusions reached last week, which include a limit on the size of the MSR from 2023.  The limit is equal to the previous year’s auction volume, and is likely, given the size of the current surplus, to lead to large numbers of allowances being cancelled in the 2020s.

With this limit in place there is a very clear pathway by which allowances freed up by additional actions, such as reduced coal burn or increased renewables, will add to the surplus, be transferred to the MSR then cancelled (see diagram).  Total emissions under the EUETS will be correspondingly lower.

There is now a clear mechanism by which additional actions reduce total emissions

Modelling confirms that with the limit on the size of the MSR in place a large majority of reductions from non-ETS actions are retained, because additional allowances freed up almost all go into the MSR, and are then cancelled.  This is shown in the chart below for an illustrative case of additional actions which reduce emissions by 100 million tonnes in 2020.  Not all of the allowances freed up by additional actions are cancelled.  First there is a small rebound in emissions due to price changes (see references for more on this effect).  Then, even over a decade, the MSR does not remove them all from circulation.  This is because it takes a percentage of the remainder each year, so the remainder successively decreases, but does not reach zero.  If the period were extended beyond 2030 a larger proportion would be cancelled, assuming a continuing surplus.  Nevertheless over 80% of allowances freed up by additional actions are cancelled by 2030.

The benefit of additional actions is thus strongly confirmed.

The large majority of allowances freed up by additional actions are eventually cancelled

Source: Sandbag

When the market eventually returns to scarcity the effect of additional actions becomes more complex.  However additional actions are still likely to reduce future emissions, for example by enabling lower caps in future.

Policy makers should pursue ambitious programmes of additional action in sectors covered by the EUETS, confident of their effectiveness in the light of these conclusions.  Some of the largest and lowest cost gains are likely to be from the phase out of coal and lignite for electricity generation, which still accounts for almost 40% of emissions under the EUETS.  Continuing efforts to deploy renewables and increase energy efficiency are also likely to be highly beneficial.

Adam Whitmore – 15th November 2017

[i] See https://onclimatechangepolicydotorg.wordpress.com/2016/10/21/additional-actions-in-euets-sectors-can-reduce-cumulative-emissions/  For further detail see https://sandbag.org.uk/project/puncturing-the-waterbed-myth/ .  A study by the Danish Council on Climate Change reached similar conclusions, extending the analysis to the particular case of renewables policy.  See Subsidies to renewable energy and the european emissions trading system: is there really a waterbed effect? By Frederik Silbye, Danish Council on Climate Change Peter Birch Sørensen, Department of Economics, University of Copenhagen and Danish Council on Climate Change, March 2017.

Prospects for Electric Vehicles look increasingly good

Electric vehicles update

Indicators emerging over the last 18 months increase the likelihood of plug-in vehicles becoming predominant over the next 20 years.  However, continuing strong policy support is necessary to achieve this.

Several indicators have recently emerged for longer term sales of plug-in vehicles (electric vehicles and plug-in hybrids).  These include targets set by governments and projections by analysts and manufacturers.

The chart shows these indicators compared with three scenarios for the growth of plug-in vehicles globally if policy drivers are strong.  (The scenarios are based on those I published around 18 months ago, and have been slightly updated for this post – see the end of this post and previous post for details.) The green lines show the share of sales, and the blue lines show the share of the total vehicle stock.  Other indicators are marked on the chart as diamonds, shown in green as they correspond to the green lines.  I’ve excluded some projections from oil companies as they appear unrealistic.

The scenarios show plug in vehicles sales in 2040 at between just over half and nearly all of new light vehicles.  However the time taken for the vehicle fleet to turn over means that they are a smaller proportion of the fleet, accounting for between a third and about three quarters of the light vehicle fleet by 2040.  The large range of the scenarios reflects the large uncertainties involved, but they all show plug-in vehicles becoming predominant over the next 20 years or so.

The indicators shown are all roughly in line with the scenario range (see detailed notes at the end of this post), giving additional confidence that the scenario range is broadly realistic, although the challenges of achieving growth towards the upper end of the range remain formidable.  Some of the projections by manufacturers and individual jurisdictions are towards the top end of the range, but the global average may be lower.

Chart.  Growth of sales of Plug-in light vehicles

 

The transition will of course need to be accompanied by continuing decarbonisation of the power sector to meet greenhouse gas emissions reduction goals.

Maintaining the growth of electric vehicle sales nevertheless looks likely to require continuing regulatory drivers, at least for the next 15 years or so.  This will include continuing tightening emissions standards on CO2 and NOx and enabling charging infrastructure.  If these things are done then the decarbonisation of a major source of emissions thus now seems well within sight.

Adam Whitmore – 13th October 2017

 

 

Background and notes

This background section gives further information on the data shown on the chart.  In some cases it is unclear from the reports whether projections are for pure electric vehicles only or also include plug-in hybrids.

Developments in regulation

Policy in many countries seems increasingly to favour plug-in vehicles.  Some recent developments are summarised in the table below.   These policy positions for the most part still need to be backed by solid implementation programmes.  Nevertheless they appear to increase the probability that growth will lie within the envelope of the projections shown above, which are intended to correspond to a world of strong policy drivers towards electrification.

Policy developments 

Jurisdiction Policy commitment
UK Prohibit sale of new cars with internal combustion engines by 2040[1]
France Prohibit sale of new cars with internal combustion engines by 2040[2]
Norway All new sales electric by 2025[3]
India All cars electric by 2030 (which appears unrealistic so goal may be modified, for example to new cars)[4]
China Reportedly considering a prohibition on new petrol and diesel.  Date remains to be confirmed, but target is for 20% of the market to be electric by 2025.[5]

 

Sales

The market is currently growing rapidly from a low base.  Total vehicle sales were 0.73 million in 2016, compared with 0.58 million in 2015.  Six countries have reached over 1% electric car market share in 2016: Norway, the Netherlands, Sweden, France, the United Kingdom and China. Norway saw 42% of sales being EVs in June 2017

Manufacturers’ projections

Several manufacturers have issued projections for the share of their sales they expect to be for plug-in vehicles.  Some of these are shown in the table.

Manufacturers’ projections for sales of plug-in vehicles

 

Manufacturer Target/expectation for plug-in vehicles
Volkswagen 20-25% of sales by 2025[6]
Volvo All new models launched from 2019[7]
PSA ( Peugeot and Citroen brands) 80% percent of models electrified by 2023[8]

 

Clearly individual manufacturers’ projections may not be achieved, and to some extent the statements may be designed to reassure shareholders that they are not missing an opportunity.  So far European manufacturers have been slow to develop EVs.  Also these manufacturers may not representative of the market as a whole.  Other companies may progress more slowly.

However others may proceed more quickly.  As has been widely reported, Tesla has taken over 500,000 advanced orders for its Model 3 EV, itself equivalent to almost the entire market for electric vehicles in 2015.  And in line with the Chinese Government’s targets manufacturers in China are expected to increase production rapidly.

Projections by other observers

Projections by other observers are in most cases now in line with the scenairos shown here.

  • Morgan Stanley project 7% of global sales by 2025[9]
  • BNP Paribas project 11% of global sales by 2025, 26% by 2030[10]
  • JP Morgan profject 35% of sales by 2025 and 48% of sales by 2030[11]
  • Last year Bloomberg’s projections showed growth to be slower than with these projections. However they have since updated their analysis, showing 54% of new cars being electric by 2040[12].
  • DNV.GL recently published analysis showing EV’s accounting for half of sales globally by 2033, in line with the mid case in this analysis.

In contrast BP predicts much slower growth in their projections[13].  However BP’s view seems implausibly low in any scenario in which regulatory drivers towards EVs are as strong as they appear to be.  Exxon Mobil gives lower projections still, while OPEC’s are a little above BP’s but still well below the low case shown here.[14].

Notes on changes to projections since May 2016

These projections are updated from my post last year but the differences over the next 15 years are comparatively minor.  The projections are for light vehicles, so exclude trucks and buses.  Note that percentage growth in early years has been faster than shown by the s-curve model – however this is likely to prove a result of the choice of a simple function.  What matters most for emissions reductions is the growth from now and in particular through the 2020s.

Assumption change Rationale
Higher saturation point Continuing advances in batteries reduce the size of the remaining niche for internal combustion engine vehicles
Longer time to saturation The higher saturation point will need additional time to reach.
Somewhat slower growth in total numbers of vehicles Concerns about congestion and changed modes of ownership and use are assumed to lead to lower growth in the total vehicle stock over time.  This tends to make a certain percentage penetrations easier to achieve because the percentage applies to fewer vehicles.

 

 

[1] http://www.bbc.co.uk/news/uk-40723581

[2] http://www.bbc.co.uk/news/world-europe-40518293

[3] http://fortune.com/2016/06/04/norway-banning-gas-cars-2025/

[4] https://electrek.co/2016/03/28/india-electric-cars-2030/

[5] http://www.bbc.co.uk/news/business-41218243

[6] http://www.bbc.co.uk/news/business-36548893

[7] https://www.media.volvocars.com/global/en-gb/media/pressreleases/210058/volvo-cars-to-go-all-electric

[8] http://www.nasdaq.com/video/psa-prepared-for-electric-vehicle-disruption–says-ceo-59b80a969e451049f87653d9

[9] https://www.economist.com/news/business/21717070-carmakers-face-short-term-pain-and-long-term-gain-electric-cars-are-set-arrive-far-more

[10] https://www.economist.com/news/business/21717070-carmakers-face-short-term-pain-and-long-term-gain-electric-cars-are-set-arrive-far-more

[11] https://www.cnbc.com/2017/08/22/jpmorgan-thinks-the-electric-vehicle-revolution-will-create-a-lot-of-losers.html

[12] https://about.bnef.com/electric-vehicle-outlook/

[13] https://www.bp.com/en/global/corporate/energy-economics/energy-outlook.html

[14] https://www.economist.com/news/briefing/21726069-no-need-subsidies-higher-volumes-and-better-chemistry-are-causing-costs-plummet-after