Electric vehicles are accelerating the end of the oil age

There is plenty of hand-wringing on display at the COP28 climate conference in Dubai about the slow pace of reducing the consumption of fossil fuels to fight climate change. But one positive that delegates can point to is the growing number of electric vehicles (EVs) worldwide that is already making a surprisingly big dent in demand.

Growing sales of EVs in recent years have led forecasters to speed up their projections for when global oil use will peak, as public subsidies and improved technology help consumers overcome the sometimes eye-popping prices for battery-powered cars, according to industry experts.

The Paris-based International Energy Agency (IEA), a grouping of 29 industrialised nations, expects world oil consumption to reach its zenith at the end of the decade at 103-million barrels a day, after making regular adjustments from its 2017 forecast of a nearly 105-million bbl/day peak in 2040.

“The game-changer has been the policy support for the shift to electrification quite substantially reducing oil demand from transportation sector, which has been the key driver of global oil demand growth,” said Apostolos Petropoulos, an energy modeller at the IEA.

Oil giant BP has pushed forward its global peak oil demand projections, while the governments of the US and China — the world’s two biggest consumers of the fossil fuel — have cut their domestic consumption forecasts.

Transportation is responsible for about 60% of world oil demand, with the US alone accounting for about 10%, according to the IEA. That share should fall, as the IEA expects EVs will have erased about 5-million bbl/day of world oil demand by 2030.

Global EV sales now account for about 13% of all vehicle sales and are likely to rise to between 40% and 45% of the market by the end of the decade, according to the IEA. That’s thanks to a blend of increasingly stringent efficiency standards and subsidies introduced by various governments since the 2015 Paris Agreement to hold global warning to within 1.5°C above pre-industrial temperatures.

The latest subsidy measures include the US Inflation Reduction Act’s $7,500 tax credit for buying a new EV, passed last year and intended to help offset high prices.

Still, the IEA says EV sales need to be even higher — in the order of 70% of the market by 2030 — to keep to the Paris Agreement target for limiting warming.

Whether sales can scale those heights is uncertain. General Motors, Ford and Stellantis have delayed or scrapped plans to accelerate production in recent weeks as labour costs rise and higher interest rates appear to be slowing growth in the US.

In the longer term, though, falling costs for EV batteries have some researchers feeling optimistic.

Cheaper in China

The rate of EV adoption will depend heavily on pricing and the availability of charging stations, according to industry experts. China has the advantage on both counts.

The average EV in China cost €31,165 in mid-2023, according to UK research firm JATO Dynamics. The cheapest EV in China was 8% cheaper than the comparable petrol-powered equivalent, JATO found, thanks to huge government subsidies and easy availability of rare earths that are crucial in EV production.

EVs account for about a quarter of the market in China, and the country is expected to lead global growth.

In contrast, the average price for an EV in the US is more than $53,000, according to automotive research company Kelley Blue Book — about $5,000 more than a petrol-powered car.

The US also lags well behind China in number of public charging stations. An industry-funded white paper released in October by the Electrification Institute says the US has about 52,000 public charging stations, Europe about 400,000 and China about 1.2-million.

Even so, EVs are expected to grow to as much as 50% of new US car registrations by 2030, according to the IEA, as drivers are drawn to the improving technology, falling prices and the prospect of sidestepping volatile prices at gas pumps.

“Change on the political side could delay the transition,” said Petropoulos, referring to concerns among some EV makers that next year’s US election could usher in a new set of policies. “But ultimately the transition is happening now.”

Reuters