Experts unsure more electric vehicles will mean less oil demand in 2020s

Hurdles hinder switch to all-electric future while economic growth fuels crude consumption

As the global shift toward electric vehicles gathers momentum, some analysts are forecasting a faster-than-expected drop in demand for oil. Others, however, are not so sure.

France and Britain plan to ban sales of gasoline- and diesel-fueled cars by 2040, while China will require automakers to produce electric vehicles at a set ratio of their output. India has also kicked off its drive to electric cars by 2030, with major automakers starting to boost production of the vehicles.

At a September commodity-related event in Singapore held by Britain’s Financial Times daily, an expert noted that peak oil demand will be moved to the 2020s, earlier than previous projections of the 2030s and 2040s.

The Institute of Energy Economics, Japan has outlined a scenario for oil demand if electric vehicles advance as planned by governments. Demand for oil will peak around 2030 and slowly decline thereafter, the IEEJ said while projecting the scenario assuming that the ratio of electric vehicles and other eco-friendly cars to total 30% of global new car sales in 2030, 66% in 2040 and 100% in 2050.

The estimates by the Tokyo-based think tank seem to support views predicting the early arrival of peak oil demand. IEEJ senior economist Akira Yanagisawa claimed, “The possibility of electric vehicles becoming as widespread as planned is low.”

Stumbling Blocks

There are many hurdles to clear before electrics become a dominant form of transportation. Improving infrastructure is one of them.

There also are problems related to tax, subsidies and other systems. Japan, the U.S. and many European countries tax auto fuel, using the revenue to finance road maintenance and public services.

“If the shift to electric vehicles advances, how to obtain alternative sources of revenue will become an unavoidable issue,” said Naohiro Niimura of Tokyo-based research and consulting firm Market Risk Advisory.

In order to continue pushing electrics in the face of reduced subsidies, the cost of batteries, which account for roughly 40% of a vehicle’s cost, must be lowered. But this may prove difficult as the price of rare metals used in batteries continues to rise due to increased demand.

Also, energy conservation efforts have sent crude oil consumption, per global gross domestic product, falling since the 1970s, still, total consumption is increasing. Even if energy conservation continues at its current pace, economic growth will push consumption up until at least 2040.

“Widespread use of electric vehicles is unlikely to move peak [oil] demand greatly forward in the absence of extraordinary technological innovations,” Okoshi said.

The shift to eco-friendly electric vehicles will progress steadily to reduce reliance on oil. But technological advances unaccompanied by user-friendly features and economic efficiency eventually hit a snag.

Sensible measures that take into account the possibilities — as well as the limitations — of electric vehicles should be formulated to promote use of the vehicles. Otherwise, the world may be disappointed when it realizes just how far electric vehicles can go.

(The original article appeared in the Nikkei Asian Review)

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