The Internal Combustion Engine is Alive and Well

Recent analyses forecast that oil use, primarily gasoline, will peak anywhere from the early 2020s to as late as 2040. The basis for this forecast are government actions to compel a reduction in mobile source CO2 emissions and a transition to EVs. While these forecasts may prove accurate, there are reasons to apply a reasonable dose of pessimism that EVs will lead to a reduction in gasoline powered vehicles..

Climate change alarmism is predicated on the belief that the consumption of fossil fuels and the resulting increase in CO2 emissions is causing serious climate change that will only worsen. This belief is based primarily on the results of complex computer models that have been shown time and again to overstate actual warming, and hence the effect of atmospheric CO2 levels. Since 1998, actual global temperatures have not increased in lock step with increases in CO2 levels and even the IPCC has lowered its estimate of climate sensitivity. While none of this has so far had an effect on government policies outside of the US, at some point reality will make denial and the cost of it unacceptable.

So, absent more compelling evidence on anthropogenic climate change or a significant break though in EV technology the pressures to transition from the internal combustion engine (ICE) should subside and the ICE will continue to have a bright future.

Advances in vehicle and fuel technologies will lead to further reductions in tail pipe emissions, including CO2, and to further increases in fuel efficiency and economy. Those advances include direct injection, cylinder deactivation, variable valve timing, more turbo charged engines, greater use of sensors and computers to manage engines and better aerodynamics. It is estimated by some that ICE efficiency could reach 50%.

There are about 7.5 billion people in the world with 1.1 billion in developed countries. World wide there are about 1.2 billion on road light duty vehicles—gasoline powered. Almost one-half of those are in the US and Europe. As the emerging and developing economies grow, so will the demand for mobility. That will lead to a higher penetration rate of ICE powered vehicles. If the ownership rate reaches one half the US/Europe rate in the next two decades, about 1.5 billion vehicles would be added to the global fleet.

Economic development around the globe and advances in technology explain why EIA and HIS Markit project that ICEs will still be the consumers choice in 2040.

It’s Déjà Vu All Over Again

Several analyses have recently been released concluding that the end of the oil era is at hand. A Norwegian analysis puts peak demand five years from now while BP puts the start of a decline between 2035 and 2040.

The predicted end of the oil age is based on a belief that renewables will “dominate an increasingly electrified and efficient energy system.” There seems to be a growing belief that wind and solar are increasingly cost-competitive with oil, natural gas and coal. Beliefs need to be more than wishful thinking. The manufacturing costs of solar panels and wind turbines may be declining and generous government subsidies stimulate demand but they are not enough to bring about the long anticipated energy transition. It is total systems cost that matters along with the penetration of new technology.

Perhaps by 2040 there may be break throughs in battery and storage technologies but progress has not been that great over the past two decades and government does not have a good track record in forcing technologies into the market. Although a great deal of money is being ploughed into the development of energy storage technologies, they are in the early stage of R&D and utilities will not adopt them until their reliability is proven and they are cost competitive.

Since both wind and solar are intermittent, utilities need either proven storage capabilities or reliable back up power which is most likely to be either coal or natural gas. The EU has been the most aggressive in attempting to move to renewables and away from fossil fuels, especially Germany. But recently six European nations called for continuing the use of coal fired plants beyond 2030 and Germany, which has electricity rates three times the US average has backed away from its goal of reducing CO2 levels 40% below 1990 levels by 2020. A more likely transition, absent mandates and subsidies, is not to wind and solar but natural gas which is in great abundance.

Since oil is primarily used to make transportation fuels a decline in demand would require a dramatic shift to hybrids and EVs. There are a number of reasons to be skeptical about that happening in the next decade or so. First, governments are likely to reduce or eliminate generous subsidies for alternatives as they confront growing deficits. And, without those subsidies, demand will shrink. Second, as developing nations achieve higher standards of living, there will be an increase in mobility, which will come from gasoline or diesel powered vehicles. Third, battery packs remain expensive and suffer range limitations, especially in cold and very hot climates. Fourth, trucks, airplanes and ships will continue to rely on liquid fuels. Fifth, continued advances in technology for internal combustion engines will increase their efficiency and cost-effectiveness. And finally, over the next several decades the weight of scientific evidence ought to make it even more clear that CO2 is not the primary driver of warming and climate change.

For over a century, there have been regular predictions that the oil age would end in 20 years or less. But oil continues to dominate transportation because of its abundance, energy density, and cost-effectiveness. Someday, one of these predictions about the end of the oil age will prove true but the odds do not favor that day bring in the foreseeable future.