The Production Gap report says G20 governments have committed more than $230bn (£173bn) in Covid-19-related funding to fossil fuel production and consumption to date, far more than the $150bn to clean energy. But it found that between 2020 and 2030, global coal, oil, and gas production must fall by 11%, 4%, and 3% a year respectively, to meet the 1.5C target.
In addition to government policies, economics are also important. And the reality is that alternatives to fossil fuels are either cheaper now (wind and solar power) or are becoming cheaper in the next few years (battery electric vehicles).
Oil demand is expected to drop in the next few years due to decreased air travel (which will lead to a 4% drop in oil demand alone in 2021), and the increased adoption of electric vehicles. So beating the 4% for oil is a given.
Coal is dropping like a rock due to the fact that it's more expensive than renewables and natural gas. Global consumption peaked in 2013 and more capacity is being retired than is being built now. While China still builds new coal fired power plants to keep construction workers employed, they run the plants at lower capacity factors because the electricity is more expensive and more polluting than the alternatives. While reductions in coal use may not reach 11% in the early 2020's, reductions of greater than 11% per year are likely by the end of the decade. It's unlikely that any coal fired power plants will be operating in the US, India or Europe after 2035 because it is cheaper to build new wind and solar than it is to run an existing coal fired power plant. It will be interesting to see how China treats coal in it's new five-year plan to be published soon. They can't afford to have their manufacturers pay more for electricity if Vietnam, India and their other competitors switch to cheaper renewable electricity.
Natural gas is currently the most competitive fossil fuel with renewables, but as renewables continue to decrease in cost, natural gas will lose that advantage. For electricity generation, renewables will continue to take market share from gas at an increasing rate. In the US, we're currently installing 75% new renewables to 25% new gas. A few years ago, those numbers were reversed. In the US, we're seeing media reports about natural gas being in the same position coal was a few years ago (about to be replaced by renewables).
And we're seeing large battery installation replace peaker gas plants and investment in new LNG export facilities has dried up with no new final investment decisions for LNG facilities in North America this year. Several major pipeline projects in the US were cancelled this year.
In summary, while fossil fuel producers may have grandiose plans to continue to grow their facilities and production ability, the reality is that they're on the decline. And the alternatives to fossil fuels continue to get cheaper, which will lead to more cancellations for planned projects and more early retirements for existing facilities.
Exxon just wrote down $17 billion in fossil fuel assets. BP has acknowledge that peak oil demand occurred in 2019 and shifted billions of dollars of investment plans from oil production to renewable energy projects. With these large private corporations making these financial decisions, it's clear that the energy transition is well underway.
