The collapse of world oil prices in recent months presents government officials with an important decision: Follow the conventional path ...
The collapse of world oil prices in recent months presents government officials with an important decision: Follow the conventional path of bailing out the oil industry or accept the inevitable decline of oil demand driven currently by COVID-19, and over the longer-term by climate policy, and invest in shifting jobs and economic growth towards renewable energy and zero emission vehicles.
The COVID-19 pandemic has caused hundreds of thousands of deaths and sparked a worldwide recession. But the lockdowns have also given us a glimpse of what our future world could look like — a world with less pollution and one where an insolvent oil industry need not be a drag on the taxpayer. That world is within reach. We can move beyond oil to clean energy by pushing our governments to embrace stronger regulations to increase the share of electric vehicles on the roads.
We don’t need to shut our economy down in order to achieve blue skies. Strengthening some simple, tried and true policy tools can increase deployment of electric passenger and freight vehicles, eliminate tailpipe pollution, save a massive amount of money, and boost jobs and grow the economy. And in turn, this will reduce global carbon emissions and help to avoid climate chaos.
While the pandemic revealed how quickly we can get blue skies back, it also revealed that the oil industry is teetering on the brink of financial failure — and was doing so even before all this started. In fact, 90% of US shale oil companies were unprofitable in 2019, well before the pandemic. And when COVID ushered in a 30 percent collapse in oil demand earlier this year, oil prices actually went into negative territory — so low that oil producers were actually paying to get rid of their oil.
Recognizing that profits of yesteryear are unlikely to return, oil companies have begun lowering the declared value of many petroleum reserves, conceding that those reserves may never be developed.
Government should focus on providing new employment in clean energy for oil industry workers. But instead, as part of its stimulus response, the US government is providing the oil and gas industry billions of dollars in government aid, including buying the oil industry’s junk bonds and taking on its extremely risky debt — bailouts that all too often are lining the pockets of already wealthy owners and shareholders at taxpayers’ and workers’ expense.
The smart economic stimulus investment would be to fund the industries of the future, not the past. This would include retraining workers to build new infrastructure and support advanced manufacturing, including in particular for electric vehicles. Building a clean vehicle fleet will create thousands of new, clean jobs, and building out a national charging infrastructure will increase fleet reliability and convenience. And all of this will help avert climate catastrophe.
If governments in Europe and China, along with the leading US states advanced a few simple common-sense transportation policies while demand for oil is still relatively low, they could make 2019 the year that global oil demand peaked — speeding the transition to a post-oil, clean-energy future.
These policies broadly fall under two categories, and both lead to increased EV sales. The first incentivizes vehicle manufacturers to sell a minimum share of zero emission vehicles each year. Such policies are currently in effect in 11 U.S. states and China. For instance, California’s Zero-Emission Vehicle Program provides incentives for car makers to build an increasing number of zero-emission vehicles each year; it will lead to EVs representing at least 8% of total car sales by 2025. Ten other states, accounting for 30% of the total U.S. vehicle market, have adopted this zero-emission vehicle policy alongside California.
In China, a similar policy (known as the “New Energy Vehicle Policy”) is expected to result in an even larger share of EV vehicles in the passenger market — with approximately 12% EVs in 2023. The government policy offers subsidies to both EV buyers, and to cities, which further incentivize electric vehicles by restricting the annual registrations of combustion vehicles.
The second policy category requires each vehicle manufacturer to meet a minimum fleet average fuel efficiency or carbon intensity per mile standard each year. Such a policy is currently in effect in the U.S., Europe, China, India and several other countries. The European Union currently has the world’s strictest vehicle fleet fuel efficiency standards — and while it has not created a zero-emission vehicle program, its standards are nonetheless expected to lead to about 15% of new cars and vans sold in 2025 being electric, as well as 2% of trucks.
Combined, these regulations have contributed to the sale of 7.2 million EVs over the last decade (2010-19). And Europe, China and California (along with 10 states following California’s EV lead, and a host of additional states that are contemplating joining this coalition) are all currently in various stages of reviewing and increasing the stringency of their vehicle standards.
Meanwhile, technological advances continue to rapidly lower the cost of batteries, bringing down the price differential between electric vehicles and internal combustion vehicles. In fact sales of combustion passenger vehicles have been dropping since 2018, leading automakers to see the writing on the wall, and invest billions of dollars globally in an electric future. It is likely that by 2025, EV buyers can quickly recoup their investment costs and save serious money even without subsidies.
But clear policy directions from the government will be critical if we are not to derail our EV progress during this period of economic uncertainty. Setting bold EV policies while staying the course on efforts to shift demand to mass transit, micromobility, biking and walking, could bend the oil demand curve enough to make sure we never return to 2019 production levels.
How much more do we have to do to make 2019 the peak oil year? EV sales in the US, China and Europe would need to grow 8-fold over the coming decade. This is entirely achievable if zero-emission vehicle programs are strengthened in the next two years: EV sales grew 40% year over year between 2016 and 2018, and if we replicate this growth, we will substantially exceed our target.
This is more than a symbolic goal. Once investors recognize that oil demand is in permanent decline, they will look for opportunities with better returns and choose more sustainable investments for communities and the planet. And, inasmuch as oil is second only to coal as a contributor to global carbon pollution (responsible for 35% of fossil fuel-related greenhouse gas emissions), cutting oil consumption will be a critical step in the global effort to reduce carbon pollution sufficiently to avert the worst effects of climate change.
We can slow the wildfires and hurricanes. We can invest stimulus money in smart ways and enact policy changes that guide us toward a clean-energy future — one where we can breathe the air and where a climate disaster that would dwarf the impacts of COVID-19 has been avoided.
Now is the time to act.