Pandemic transformed energy and climate in 2020
Last year gave us many things to ponder — perhaps too many. Nevertheless, it is the analyst’s job to distill the trends that define today and tell us something about tomorrow. In that spirit, here are some significant takeaways from my writing on energy and climate in 2020.
Energy became the smallest component of the S&P 500
In 2008, energy was the S&P 500’s second-largest sector, right behind information technology. Its heft has diminished. After dropping below utilities, then real estate, and finally materials, in August energy became the smallest sector by weight in the S&P 500. Shrinking from almost 16 percent to barely more than 2 percent of the S&P 500 raises a multitrillion-dollar thought experiment for investors: What value will energy companies add to a technology-driven, electrified world?
Not all electric vehicles are four-wheel cars
In May, a BloombergNEF analysis found that the electric vehicles on the road are already avoiding a million barrels per day of the world’s would-be oil consumption. There are now millions of personal electric vehicles on the road and hundreds of thousands of electric buses, not to mention commercial electric vehicles. Yet none of those categories is the main part of avoided oil consumption today. For that we can thank the tiny electrics with two or three
wheels — they’re responsible for more than half of that vanished demand for oil. There are almost a quarter-billion such electric vehicles on the road today. China buys more than 18 million electric two-wheelers a year; by 2040, BNEF expects the world to buy 70 million.
BP calls the top on oil demand
The big takeaway from BP’s annual energy outlook: Oil demand will peak this decade. That’s not because of aggressive
policies aimed at reaching netzero global greenhouse gas emissions by 2050, nor as a result of carbon prices or other interventions aimed at limiting global temperature rise. BP says that even if energy policy keeps evolving at pretty much the pace it is today, oil demand will still start declining.
Fossil fuel emissions have probably peaked
Carbon dioxide emissions from fuels burned for power, transportation, industry and
building-related applications probably peaked in 2019. Power emissions from natural gas likely did too. Power sector emissions — the largest single component of fuel combustion emissions today — probably topped out earlier, in 2018. That’s also true of emissions from coal-fired power, still the single largest component of global power generation. Coal and gas will continue to shrink, each ending up at 11-12 percent of total power generation by 2050. Solar, though, will be nearly double that, and wind even more.
U.S. greenhouse gas emissions see record drop
U.S. greenhouse gas emissions have been trending downwards for the past 12 years, thanks to a power sector transforming through more gas, less coal, more renewable generation and greater efficiency. The pandemic also had an impact: BloombergNEF finds that 2020’s emissions are on track to be 9.2 percent lower than in 2019. That’s the biggest drop on record. U.S. greenhouse gas emissions haven’t been so low since 1983, when the U.S. economy wasn’t quite 40 percent of its current size. Emissions are likely to rebound next year, but will still be lower than any year since 1990.
Electricity spending tops gasoline
The COVID-19 pandemic has upended conventional wisdom in oil markets (prices will never go negative) and car sales (electric vehicle sales will fall off a cliff ). At the end of the summer, it sideswiped another decadesold trend, at least in the U.S. For the first time since at least 1960, U.S. personal spending on electricity was higher than it was on gasoline. Will it happen again? It could, with more people working at home and a major shift to electric personal transport (and a transfer of spending from gas and diesel into electricity).