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The future is supercharged

Electric vehicles are increasingly central to government policy and car manufacturers' plans alike. What does their uptake mean for the energy sector?

Oil and its products have given the world more than a century of easy mobility. Gasoline and diesel keep ambulances running and planes need jet fuel. They enable global trade, on land and at sea, and create wealth.

But its dominant role in global transport—like its function in power generation in previous decades—is coming under threat, starting with cars.

The UK added its weight to the growing movement towards electric vehicles, declaring in July this year that sales of petrol and diesel vehicles will be banned after 2040.

That decision followed France's announcement weeks earlier to also end sales of petrol and diesel vehicles by the same year.

Car manufacturer Volvo has pledged to make only fully electric or hybrid cars from 2019 onwards, betting on an increase in demand in the next two years. For now, penetration of EVs is low. The global stock doubled from 1m units in 2015 to 2m last year, says the International Energy Agency (IEA)—but that's still less than 1% of the world's fleet.

In Europe, California and Manhattan, the rise of the silent, economical EV and its hybrid cousin is conspicuous. No longer is a Prius or Tesla the expensive badge of an eco-warrior. Auto-makers believe EVs are the future and a tsunami of new models—more than 100—is about to hit the market. The question is no longer if the battery will hurt oil demand, but how much.

The forecasts are diverse. The IEA's central case is that EVs will pinch about 1.3m barrels a day from demand by 2040. If so, the oil industry can rest easy—in the same time, consumption will still grow by another 10m b/d or so. Yet, at the other end of the spectrum, Bloomberg New Energy Finance says battery cars will cut 13m b/d from demand by 2040. Oil would go into permanent decline.

What can be said is that EVs and alternative forms of mobility—electric rail, natural gas bunker fuel, car-sharing, hydrogen fuel cells, self-driving vehicles—are on their way. EVs are leading the race and promise the biggest impact. Government subsidies have given them a push—helping, for example, EVs to account for about 40% of the new-car sales in oil-rich Norway. Climate policy and fuel-economy rules have also played their part.

Unstoppable progress

But the market is taking over. Battery costs continue to fall steeply each year. New charging-point networks and wired car parks are sprouting across advanced economies. Sceptics in the oil industry might not believe in a grid-powered transport future—but China does. It wants to become the dominant manufacturer of EVs, both for its own fleet and the world's. The largest major automobile manufacturers will from next year unveil the first wave of new EVs and their hybrid-powered cousins in China. India, whose economic rise the oil industry assumed would mean soaring petroleum needs, wants all transport to be electrified by 2030.

In a report on the rise of EVs, the World Energy Council identified several recommendations for policymakers and energy leaders. The report, E-Mobility: Closing the Emissions Gap identified the EV gap, which is the gap between the number of EV sales required to meet fuel economy targets for passenger cars. In the European Union, this figure is 1.4m, in the US, 0.9m, and in China, it is 5.3m.

No longer is a Prius or Tesla the expensive badge of an eco-warrior

The report identified that regulators could help by developing incentives for consumers and manufacturers in line with emissions standards. Vehicle manufacturers could also partner with utility electricity providers to deliver a superior value proposition to consumers.

Consumers themselves can play a role, by evaluating the economic and environmental benefits of EVs alongside other alternative transport methods that are coming online, and provide feedback to regulators and manufacturers.

A challenge for the oil industry is that this shift is underway while oil prices are relatively low. The new enthusiasm for EVs is not a response to high-cost fuel and these days it's not only concern about the environment either. Small EVs are convenient and cheap to run, especially in cities. In some places, it's cheaper—with the subsidies—to go fully electric. The consumers' verdict will only become truly clear in a few years' time, but auto-makers, are pushing ahead with plans for new, better, longer-driving and cheaper EVs.

Even if EVs do make the breakthrough, natural gas could be a major source of their electricity. But the oil sector is starting to accept the change. Joel Couse, Total's chief energy economist, said recently that EVs would make up 15-30% of new vehicles by 2030.

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