Oil demand will peak in 2025, years earlier than previously expected, the International Energy Agency said in its World Energy Outlook on Tuesday.
But while the transition away from oil is arriving sooner than expected, IEA executive director Fatih Birol warned that this year will see the second-largest annual increase in CO2 emissions in history, leading to an “unsustainable economic recovery” from COVID-19.
The IEA’s call of peak oil comes as fossil fuel prices spike across the globe. A surge in demand caused by economies leaving COVID-19 lockdowns has coincided with sluggish supply resulting from kinked supply chains and low investment in oil and gas production—the effects of nations’ green pledges and a price crash in recent years. At more than $80 a barrel, oil is near a seven-year high, and gas prices in the U.S. have tripled in the past 18 months.
Looking forward, the issue will be matching rising demand without turning back to fossil fuels, the IEA said. While international pledges to lower investment in oil and gas are aligned with plans to achieve net-zero emissions by 2050, the IEA said that investment in renewable energy must be tripled to close the gap between expected supply and demand.
In the short term, Birol noted that in order to cover the gap in the demand caused by the drop in fossil fuel production, “we have to invest in demand-side policies—electric cars, solar, wind, hydrogen.”
The IEA report, which comes a few weeks ahead of the UN’s COP26 climate change summit, says that globally $4 trillion will be needed to be invested annually in clean energy projects and infrastructure through 2030 to limit global warming to 1.5 °C.
The report says that current national emission reduction pledges are insufficient to meet these goals. Birol urged leaders to come together at the COP26, and make an “unmistakable signal” for investors to end their commitments to dirty energy.
Even if governments make no further climate change commitments, oil demand is expected to peak right after 2025 at 97 million barrels per day (bpd), and then decline to 77 million bpd by 2050. The decline of oil investment goes against predictions the IEA made just last year in the same report, which forecasted global oil demand to flatline rather than peak in the next two decades, settling at 104.1 million barrels per day by 2040. The demand for natural gas would also peak after 2025 and then plateau to 3,850bn cubic meters in 2050—just below current levels.
Today’s pledges cover less than 20% in emissions reductions needed to close the gap to keep the 1.5 °C path within reach. To reach net-zero emissions in 2050, governments will have to spend north of $30 trillion.
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