Page 28 - European Energy Innovation - Spring 2016 publication
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28  Spring 2016 European Energy Innovation


Impact of transition to low carbon
vehicles on oil prices and energy security

By Nicolò Gasparin is chair of the Automotive Battery Committee (ABC) of Eurobat (pictured)

Behind every story there                     While few would argue that the              mitigation underway globally,
              is a subtle and intriguing     expansion of US shale oil and OPEC’s        demand for oil would likely peak
              back-story. The story of last  subsequent reaction did not play a          some time around 2025, and reduce
              year’s plummeting oil prices   role, it is also simplistic to exclude the  thereafter, with profound impacts on
 is not exception. On the face of it,        role played by vehicle efficiency. The      oil prices. This has several important
 this development was dominated              VW scandal has demonstrated the             implications:
 by the expansion of US oil shale,           difficulty with relying on official fuel-
 which eroded OPEC’s monopoly                economy data, but regardless of that, it    •	 The economies of oil-importing
 advantage. In November 2014, the            is clear that without vehicle standards         regions, such as Europe, would be
 cartel abandoned its historic role          in place, several billion barrels more          boosted by lower energy costs and
 of constraining supply to maximise          oil would have been needed during               less volatility
 prices, and instead started competing       the last decade. This would have
 for market share. Add to that Iran’s        pushed the market to a slightly higher      •	 By using policies to reduce oil
 re-entry into the market after nuclear      equilibrium than today, most likely             demand, European governments
 sanctions were lifted; and we arrived at    resulting in slightly higher oil prices.        now have a powerful new card to
 where we are today.                                                                         play in setting global prices
                                             It is when we look into the future that
 It is natural that discussions of oil       this dynamic becomes particularly           •	 High-cost oil extraction, for example
 prices have previously focused largely      interesting. Forged last December, the          in the Arctic and ultra-deep water,
 on changes to supply. They are              Paris Agreement pledges to confront             would become uneconomical
 usually dramatic and accompanied by         the threat to our planet from climate
 conflict and geo-political upheaval.        change. To maintain global average          Low-carbon vehicle technologies also
 They make for interesting news.             temperatures within 1.5-2 degrees           deliver numerous other co-benefits
 Changes to demand are occasionally          Celsius of pre-industrial temperatures,     beyond reducing CO2 and helping
 mentioned, but then it is only in           carbon emissions will need to be            lower oil prices. Europe is heavily
 passing: broad changes to economic          radically reduced from all sectors. The     dependent on imports to service its
 growth, for example. What is rarely         transport sector is no exception. It is     oil needs, with 87% imported during
 mentioned is the gradual and steady         the world’s second-largest source of        2014. By shifting away from imported
 decline in the energy-intensity of          carbon emissions, and it is on track to     petroleum and towards domestically
 developed economies. Yet this factor        become the largest.                         produced electricity or hydrogen,
 – driven primarily by vehicle standards                                                 Europe could reduce the absolute
 around the world -- is increasingly         Much more needs to be done. Existing        volume of energy imported for its
 important.                                  efficiency standards have forced            transport sector and improve its
                                             cost-effective technologies, such as        energy trade balance.
                                             start-stop and hybrid engine systems,
                                             onto the market. New models of              Admittedly, the technologies to
                                             shared vehicle ownership promise            drive this change come at a cost.
                                             more efficient utilisation of assets.       However, consumers should be
                                             And electrification of vehicles offers      able to handle these costs, because
                                             the chance to replace petroleum fuels       the money invested in fuel-saving
                                             in transport with a growing share of        technology is usually recouped in 2-3
                                             renewable electricity.                      years via reduced spending at the
                                                                                         pump. Meanwhile, expenditure on
                                             In a business-as-usual scenario,            fuel-saving technology feeds through
                                             demand for oil could be expected            to technology suppliers: several
                                             to return to growth, outstripping           successful European companies,
                                             supply some time around 2020 and            such as members of EUROBAT, the
                                             causing prices to return to growth.         European Association of Automotive
                                             But in a post-Paris world, with carbon      and Industrial Battery Manufacturers.

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