It’s ‘the beginning of the end’ of fossil fuels, IEA projects

Sep 12, 2023, 1:30pm EDT
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New projections by the International Energy Agency are expected to show that fossil fuel demand may peak sooner than expected. IEA forecasts set to be released this week show demand for oil, gas, and carbon could begin to fall before the end of the decade. The IEA had estimated last year that demand would continue to rise until at least 2030, but a surge in renewable energy projects has led to the projected date being revised forward.

"We are witnessing the beginning of the end of the fossil fuel era," IEA head Fatih Birol wrote in a Financial Times oped, adding that “we have to prepare ourselves for the next era1 .” Russia’s invasion of Ukraine, which led to oil and gas prices soaring, prompted a rush of investment and government incentives — particularly in the U.S. and the EU — for renewable energy. The U.S. alone may invest hundreds of billions of dollars within the next decade. The quick turnaround “shows that climate policies do work,” Birol said.

Despite surging production, renewable generation is becoming more expensive in the U.S., concerning environmentalists and making several projects inviable. After years of decline, the cost of generating green electricity has risen since 2021. The rise, driven largely by higher financing costs, component scarcity, and protectionist policies, has forced renewable developers to raise prices by as much as 30% this year alone. “We used to see the power price just drop every year on year2 ,” the head of a renewable energy investment firm said. “We’re not going back to that,” if interest rates stay high, he said.

Although reaching peak oil demand would be an important signal that the renewable transition is occurring at a global scale, it is by no means enough to ensure that the world keeps to within 1.5 degrees Celsius above preindustrial levels. A key part in reducing oil demand is replacing the world’s car fleet: Road fuel vehicles alone account for roughly 45%3 of the global oil demand. There are positive signals, however. China became the world’s largest car exporter4 earlier this year, largely on the back of a surge in electric vehicle sales. Meanwhile in the U.S., leasing an EV became the cheapest option5 for new car buyers last month.