Peak fossil fuel demand will happen this decade

But the decline in oil, gas and coal will not be steep enough to limit global warming to 1.5C

This article was first published in the Financial Times

There’s a taboo in the traditional energy sector against suggesting that demand for the three fossil fuels — oil, gas and coal — could go into permanent decline. Despite recurring talk of peak oil and peak coal over the years, both fuels are hitting all-time highs, making it easier to push back against any assertions that they could soon be on the wane.

But according to new projections from the International Energy Agency, this age of seemingly relentless growth is set to come to an end this decade, bringing with it significant implications for the global energy sector and the fight against climate change.

Every year, the IEA’s World Energy Outlook maps out potential pathways the global energy system could take in the coming decades to help inform decision-making. This year’s report, to be released next month, shows the world is on the cusp of a historic turning point. Based only on today’s policy settings by governments worldwide — even without any new climate policies — demand for each of the three fossil fuels is set to hit a peak in the coming years. This is the first time that a peak in demand is visible for each fuel this decade — earlier than many people anticipated.

These remarkable shifts will bring forward the peak in global greenhouse gas emissions. They are primarily driven by the spectacular growth of clean energy technologies such as solar panels and electric vehicles, the structural shifts in China’s economy and the ramifications of the global energy crisis.

Global demand for coal has remained stubbornly high for the past decade. But it is now set to peak in the next few years, with big investments drying up outside China as solar and wind dominate the expansion of electricity systems. Even in China, the world’s largest coal consumer, the impressive growth of renewables and nuclear power, alongside a slower economy, point to a decrease in coal use soon.

Some pundits suggested global oil demand might have peaked after it plunged during the pandemic. The IEA was wary of such premature calls, but our latest projections show that the growth of electric vehicles around the world, especially in China, means oil demand is on course to peak before 2030. Electric buses and two- and three-wheelers are also growing strongly, especially in emerging economies, further eating into demand.

The “Golden Age of Gas”, which we called in 2011, is nearing an end, with demand in advanced economies set to fall away later this decade. This is the result of renewables increasingly outmatching gas for producing electricity, the rise of heat pumps and Europe’s accelerated shift away from gas following Russia’s invasion of Ukraine.

Peaks for the three fossil fuels are a welcome sight, showing that the shift to cleaner and more secure energy systems is speeding up and that efforts to avoid the worst effects of climate change are making headway. But there are some important issues to bear in mind.

For starters, the projected declines in demand we see based on today’s policy settings are nowhere near steep enough to put the world on a path to limiting global warming to 1.5C. That will require significantly stronger and faster policy action by governments.

Demand for the different fuels is set to vary considerably among regions. The drop in advanced economies will be partially offset by continued growth in some emerging and developing economies, particularly for gas. But the global trends are clear: low-emissions electricity and fuels, as well as energy efficiency improvements, are increasingly taking care of the world’s rising energy needs.

The declines in demand also won’t be linear. Although fossil fuels are set to hit their peaks this decade in structural terms, there can still be spikes, dips and plateaus on the way down. For example, heatwaves and droughts can cause temporary jumps in coal demand by pushing up electricity use while choking hydropower output.?

And even as demand for fossil fuels falls, energy security challenges will remain as suppliers adjust to the changes. The peaks in demand we see based on today’s policy settings don’t remove the need for investment in oil and gas supply, as the natural declines from existing fields can be very steep. At the same time, they undercut the calls from some quarters to increase spending and underline the economic and financial risks of major new oil and gas projects — on top of their glaring risks for the climate.

With today’s policies already bringing the fossil fuel peaks into sight, decision makers need to be nimble. The clean energy transition may well accelerate even further through stronger climate policies. But the energy world is changing fast and for the better.