What would happen to an Oil Exporter when the world’s seventh largest economy decides that over the next fifteen years it will phase out gas powered cars? Any economist would say it is a simple demand and supply issue. If no new users of Oil came into the market, all Oil Exporters would be in trouble because all remaining suppliers would find that the price of oil would drop. Just remember this nugget of information for a second because I have another piece of information to share.
In the UK, the Guardian is a well known newspaper. If one reads their website, one would think that British Tories are behind the “eight-ball” as it comes to Climate Change. As an example, during the last election, the Guardian called out the British Conservative Party because it rarely mentioned the need to deal with Greenhouse Gas Emissions. Or as they put it, “Johnson’s party still falls far behind the opposition parties. The SNP mentions climate at three times the rate of the Tories, while Labour and the Lib Dems mention it almost five times as often.” (Tory manifesto mentions climate crisis only 10 times, the Guardian.com, Pamela Duncan & Fiona Harvey, 28 Nov 2019)
The Guardian does not mince their caustic words. They note that the British Conservative Party prefers to use the relatively tame phraseology of ‘climate change’, while its competitors use the term ‘climate emergency’ or ‘climate crisis’. Or, as they say, while the Conservative Party prefers to use the term ‘climate change’, the “ SNP uses ‘climate change’ 22 times compared to seven for ‘climate emergency’. Both Labour and the Lib Dems refer to a climate ‘emergency’ or ‘crisis’ more often than ‘climate change’”.
Before we go too far down this road, let us note the context. In June of 2019, the Parliament of the United Kingdom unanimously agreed to go Carbon Neutral by 2050. While the British Conservative Party may be late to the game in their home country, they are miles ahead of what is going on in North America.
To understand what I mean by how far ahead the British are, we can look at the recommendations of the UK’s Parliamentary Committee on Climate Change. Accordingly to them, on top of moving to electric cars by 2035, the UK – the seventh largest economy in the world – will have to do a number of things which include, but are not limited to, expanding their forests from 13% to 17% by 2050, retrofit and decarbonize all buildings in the UK, turn thermostats in the winter down to 19 degrees Centigrade and eat less meat. Given that the UK has recently gone through periods of time recently where they have not used a coal plant, one can see that they are on their way.
In fact, the UK has reduced their carbon footprint significantly already. In carbon dioxide equivalent, the UK greenhouse gas emissions has already gone from 773.8 million tonnes in 1990 to 590.4 million tonnes in 2010. However, as we can see by looking at the recommendations before the UK Parliament, the reductions which have taken place are not enough. Especially when the previous Prime Minister – who was also Conservative – (Prime Minister Theresa May) said that the UK will “eradicate its net contribution to climate change by 2050”.
If one looks, throughout Europe, one will find that this sentiment is shared. While Sweden excludes international shipping and aviation, it has a legislated net zero goal. Sweden plans to meet it by 2045. In fact, recently the European Union, sans Poland, just recently agreed to the net zero by 2050 goal; and it is likely that the European Union as a whole can reach that goal.
In fact, many European Union countries have been doing the hard work of transition for quite some time. Countries like Germany, France, Italy, the Netherlands, Norway and Denmark have been turning away from fossil fuels and towards conservation and renewable solutions for quite some time now. That is one of the reasons why the 533 million European Union emits 9.33% of the world’s CO2, but the US – with many less people – expels close to twice as much (14.75%).
Some might ask why this “net zero goal means” anything to Alberta? Well, the answer is simple: for a country to get their greenhouse gas emissions to a “net zero” rating, they have to radically limit their fossil fuel use. Today, the European Union is the second biggest consumer of crude oil. Using 15% of the world’s oil production, they are just ahead of China (who’s close to 14%) and behind the US (at 20%).
If the European Union is successful in reducing their carbon emissions, the portion of crude that they buy will fall. As Lucien Mathieu, transport and e-mobility analyst at T&E noted in a Forbes.com piece (Electric Cars in Europe will Triple by 2021, by Dave Keating, Jul 18, 2019, 09:19am) “Thanks to the EU car CO2 standards, Europe is about to see a wave of new, longer range, and more affordable electric cars hit the market”. Now, as of today, I will admit that electric cars in Europe only have about 2% market share; but this will change.
We know this because some countries are banning new registrations of internal combustion cars. Oil producing Norway is doing this. They are banning registrations as of 2025. To encourage the transition, the Norwegian government is offering incentives and they are succeeding in their goals. In 2019, one out of every three new cars purchased in Norway is an electric car. In 2020, it is three out of every four.
In Iceland, Sweden and the Netherlands, the change will come later. Legislation indicates that by 2030, those countries will follow Norway’s lead. Consequently, it should not be a surprise that 15% of the cars in Iceland are electric, while in Sweden the number is 8.4%. The Netherlands is bringing up the rear at 6.8%
Given that most oil that consumed is used in the transportation industry, when Europe transitions their car fleet away from oil, the Crude Oil Market will have much more supply than demand. Accordingly, a move to “net zero” means a move toward more oil market gluts and low world oil prices for the next decade. This is not good for Alberta. This is made even worse when you consider that Mexico City, some US States (including California), British Columbia, Quebec, India, Israel, Taiwan and China are going to do the same between 2030 and 2050.
Now some Albertans might think that banning the registration of new internal combustion engine cars might be the extent of the problem for Alberta. However, they would be wrong. From carbon taxes to conservation regulations, over the next twenty years, the world is going to increasingly use less oil, natural gas or coal produced by Alberta and its competitors; and the technology is ready for this change.
In the 1960s, solar panels had an efficiency of about 14%. Now, there are prototypes that are achieving rates of 40% or more. While, at the same time, some estimates indicate that the price of solar panels has dropped 60% over the past few years. We have seen the same trend in home battery storage and other associated fields; so much so that some California communities are even talking about more restrictions on retail natural gas connections.
So I used to ask if the Alberta Legislature was ready. Is it ready – in a decade – for a 10, 25, or 35% reduction in global oil usage? Is it ready for California’s move away from Natural Gas? Is it ready to deal with a WTI oil price that doesn’t hit $50 USD? These are the questions which all parties should be asking in the Alberta Legislature and these are the questions which are not being answered in Edmonton and Ottawa. Alberta needs to be ready for the change that is coming and it is obvious that we aren’t.