What comes after peak coal?

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Welcome back to Fonte Energetica.

Global temperatures will likely rise to more than 1.5C above pre-industrial levels for the first time within the next five years as an impending El Niño weather phenomenon amplifies human-caused temperature rises, the World Meteorological Organization said yesterday.

The effect of El Niño, warming the Pacific Ocean, will be temporary. But the likelihood of even briefly exceeding the key 1.5°C threshold in the coming years will be a key moment that will reverberate through the climate movement and the energy industry.

Reducing the world’s dependence on coal-fired energy is at the heart of efforts to keep temperatures from rising further. These efforts may pay off; Coal use in the global energy system could peak this year, according to Wood Mackenzie. But reaching peak demand is only the beginning. This is the subject of my first note today.

In Data Drill, Amanda looks at how America’s love affair with the sport utility vehicle is shaping the electric vehicle revolution.

Thanks for reading – Justin

Peak coal does not mean the end of coal

Last year’s energy crisis drove worldwide coal use to record levels as energy producers from China to India to Germany scoured the globe for fuel supplies in a worrying trend for the fight to reduce emissions that cause global warming.

But global use of coal in the energy sector could peak this year, according to consultancy Wood Mackenzie.

“As evidenced by last year, it’s safe to say the world is not done with coal yet. In fact, we expect to see a record year for global demand for thermal coal this year,” said Natalie Biggs, global head of coal markets at Wood Mackenzie. “That said, thermal coal is still set for permanent decline after this year as decarbonization goals gain traction, particularly for developed economies.”

However, peak coal does not mean the end of coal. Rather, Wood Mackenzie’s outlook shows a slight decline in fuel. Even peaking this year, consumption is on track to be only slightly lower in 2030 than it was in 2015, according to the group.

That slow ebb poses a major challenge to the climate fight.

The International Energy Agency has said that meeting the world’s 2050 net-zero emissions targets and keeping a lid on temperature rises would require not only a spike in coal demand, but also a rapid and dramatic drop in the world’s use of carbon. coal. Coal emissions must be completely eliminated from the global energy system by 2040, says the IEA.

The United States and Europe are roughly on that trajectory with coal plants shut down and the fuel likely to be “almost completely phased out” by 2040, Biggs said.

The story is different in Asia, especially in China and India, where the demand for coal is still growing.

Both countries are investing huge amounts of money in renewable energy deployment. But coal is still the cheapest way to generate electricity in both nations, and is expected to remain that way for many years, “meaning coal demand in Asia will remain strong,” Biggs said.

In a sign of what may be happening for oil and other fossil fuel markets, peak demand doesn’t necessarily mean coal is about to get cheap. Pressure on supplies from low-investment and climate activists pressuring investors to cut ties with industry means producers may struggle to keep up even with falling demand.

“The coal supply faces issues with chronic underinvestment,” Biggs said. “Major banks are under pressure to stop providing finance for coal projects and [environmental, social and governance] commitments to hold investments in coal are growing”.

“Major diversified miners are also facing shareholder pressure to divest in coal mining segments despite record profits posted last year,” he added. (Justin Jacobs)

Data tutorial

America’s obsession with big cars has big implications for electric vehicle adoption and its carbon footprint.

Electric SUVs accounted for 60 percent of all electric vehicle sales in the United States in 2022, compared to 39 percent worldwide, according to recent forecasts from the International Energy Agency.

SUVs are also making up a growing share of the electric models available on the market. SUVs and large cars made up more than 80% of all electric models in the US in 2022, up from about 50% in 2018 and surpassing the current gasoline share of 70%.

James Di Filippo, a senior policy analyst at the Atlas Public Policy think tank, said the trend toward electric SUVs was driven by a combination of consumer interest, wider profit margins and supportive politics.

“[SUVs] they are the most popular vehicles. If you’re entering the EV space with a new vehicle, you’re going to want to put your first foot in a very popular space,” Di Filippo said.

The affinity for SUVs should be bolstered by President Joe Biden’s famed Inflation Reduction Act, which includes a $7,500 tax credit for consumers who purchase an EV that meets certain sourcing and assembly requirements.

The Treasury eased vehicle classifications to allow more SUVs to qualify for the tax credit in February. To date, only two non-SUV or large car models qualify for full credit: Tesla’s Model 3 and the Chevrolet Bolt, the latter of which will be discontinued later this year.

The preference for larger EVs comes with a trade-off. The IEA found that in France, Germany and the UK, an electric SUV’s battery was twice as large as that of a small electric vehicle, requiring 75% more critical minerals and generating 70% more emissions in the production process.

“Typically, the bigger the battery, the more metals it uses,” said Chris Burton, global head of commodities at Credit Suisse Asset Management. “We have to make sure there’s enough supply for that, and there’s only so much that can be saved by saving some metals or improving recycling.”

Aside from sustainability, the prevalence of larger electric models means there are few affordable options for consumers. The average American electric SUV cost $54,000 in 2022, about $20,000 more than the average small electric model, according to the IEA. More than eight in 10 Americans cited cost as a reason not to buy an electric vehicle in a recent survey by the University of Chicago’s Energy Policy Institute and the AP-NORC Center for Public Affairs Research.

Biden wants EVs to make up 50% of all auto sales by 2030. But EVs accounted for just under 8% of all auto sales last year, according to the IEA.

“The United States still has a lot to learn, let’s say Chinain terms of how to produce compact cars,” said Abhishek Murali, electric vehicle analyst at Rystad Energy. “This is one of the main things holding back the adoption of electric vehicles in the US.” Rystad monitored nine model announcements of electric vehicles in the United States in 2022, all SUVs. (Amanda Chu)

Strengths

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Energy Source is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg. Reach us at energy.source@ft.com and follow us on Twitter at @FTEnergy. Stay updated on past editions of the newsletter Here.