EVs are not a universal solution to climate change

The most jarring statistic of this past week came from Morgan Stanley energy analyst Martijn Rats, who noted that while 72 per cent of new cars in Norway are electric vehicles, oil consumption in the country hasn’t changed.

This data point underscores the extent to which electric vehicles are not a panacea for climate change, and also the scale of the challenge that decarbonization presents for the global economy.

Increased market penetration for electric vehicles is a necessary but not sufficient condition to address climate change. In Norway’s case, basic GDP growth and population increases raised oil demand more than electric vehicles reduced it. Globally, the combined effects of economic growth, and rising standards of living in the developing world, have fully offset the benefits of limiting internal combustion engines.

Mr. Rats reports that the global population increases by one billion people, and global per capita GDP growth climbs roughly 35 per cent, every 14 years. Both trends drastically increase energy demand.

Longevity and standards of living have huge effects on energy demand. Morgan Stanley presented a chart showing numerous countries by both standard of living, as measured by the United Nations human development index, or HDI, and energy usage.

The HDI is composed of numerous indicators including rural access to electricity, poverty rates, income inequality and internet access. Mr. Rats’ chart clearly shows that as a country’s HDI rises, so does the per capita energy consumption.

China, for example, has an HDI of roughly 0.75 (the scale goes from 0-1.0) and consumes about 90 gigajoules per capita annually. The United States, with an HDI of 0.93, uses roughly 275 gigajoules per capita per year.

Developing nations seek both economic growth, which raises energy demand and citizen standards of living. The latter increases the energy intensity – the amount of energy used per person – of the economy.

Decarbonization of the global economy is a tall, tall order. Renewable power will have to triple and quadruple from its current 16 per cent of the total to replace coal, oil and natural gas. Electric vehicles are part of the solution, but a much smaller one than many believe.

The scale of electrification will substantially increase the demand for strategic metals – copper, cobalt and lithium central among them – and related miners will be major beneficiaries.