IEEJ：September 2017○ｃIEEJ 2017
Special Bulletin
A Japanese Perspective on the International Energy Landscape (343)

September 29, 2017

Future of Automobiles’ Powertrain and Its Implications for Energy MarketKen Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
As noted in the 335th issue of this special bulletin titled A Japanese Perspective on theInternational Energy Landscape, moves have emerged in some countries to restrict or ban gasoline
and diesel automobiles that now account for a dominant share of vehicle ownership in the world. In
the United Kingdom and France, their governments have announced plans to ban sales of newgasoline and diesel vehicles by 2040. Among emerging countries that are expected to drive global
growth in vehicle sales and ownership, China and India are reportedly considering similar plans. In
response to such policy level moves, major automakers are enhancing their initiatives to promoteadvanced vehicles such as electric and fuel cell vehicles, symbolized by Volvo AB’s announcement
to switch all new vehicle sales to electric and hybrid vehicles.
Macro factors behind these moves include a trend of enhancing initiatives to addressenvironmental problems including climate change and air pollution. Factors in the automobile
market include the fact that remarkable technological developments and their effects, including theextension of driving ranges for electric vehicles, the relevant improvement of battery performanceand lower electric vehicle prices, have attracted attentions. Efforts to diffuse recharging equipment
for electric vehicles have also played a role in inducing the moves to restrict or ban gasoline anddiesel vehicles sales. From the viewpoint of auto industry strategies, governments, industries andcompanies are racing to increase their influences while strategically considering what advanced
technologies would lead to mainstay next-generation vehicles and how these technologies wouldchange the competitive landscape for the global auto industry.
Choices on next-generation vehicles are one of the factors that would exert great
influences on the energy sector. This is because oil as vehicle transportation fuel now plays a keyrole in the energy mix. It is also because new competitive energy sources have emerged in thetransportation sector in which oil has remained a dominant fuel. This means that a possible “gamechanger” may come out in the area where no major change has been predicted. The so-called
consensus view has been that global demand for oil including transportation fuel will sustain growtheven in the long run. The recent auto technology development and major countries’ moves to ban
conventional vehicle sales could lead to a change in the consensus view. Such perception change isattracting attentions.
As indicated by the phrase “game changer,” however, the change may not be usual. Anygame changer triggers a change that had been viewed as impossible or unpredictable and would
reverse traditional views. In other words, such enormous change may not happen easily.
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For example, our Asia/World Energy Outlook 2016 analyzes the diffusion of advancedvehicles in the reference and advanced technologies scenarios. In the reference scenario in which thepresent trends will remain unchanged in the future, conventional automobiles including gasoline anddiesel vehicles will see their share of global new vehicle sales falling slowly from 94% in 2014 to59% in 2040. In the advanced technologies scenario in which advanced energy-related technologies
will diffuse to the maximum extent on both the supply and demand sides under the fundamental
enhancement of energy security and environmental policies, conventional vehicles’ share of new
auto sales will substantially decline to 23% in 2040. In the entire world, some 80% of new vehicles
sales will be replaced by cleaner vehicles sales. When we prepared the outlook, we assumed themaximum, ambitious diffusion of advanced technologies as noted above. Even in this scenario in
which oil consumption efficiency in general will also be improved, global oil demand will still
increase from 88.75 million barrels per day in 2014 to 96.32 million bpd, though at a very slow pace.
Global oil demand growth will be so steady that oil demand would not peak easily even on
the diffusion of advanced technologies (including the expansion of next-generation vehicles). If
dramatic changes beyond assumptions for the abovementioned advanced technologies scenario occur,
however, oil demand may peak. Such dramatic changes may have enormous impacts on crude oilprices, the international oil industry, oil producing economies and the global economy. In my talks
with experts in Europe and the Middle East I visited September 13-21, this issue was controversial.
At present, the future picture of technological innovations and their diffusion are too
unclear and uncertain. We must verify whether the diffusion of advanced vehicles at the dramatic
speed and to the dramatic extent mentioned above would be feasible or not, from the viewpoint ofthe availability of policies, economic efficiency, technologies, raw materials and infrastructuredevelopment. As for impacts on the energy side, we will have to examine how oil demand would beaffected and how international oil supply and demand, and crude oil prices would be influenced. We
will also have to consider how a decline in demand for vehicle fuel would affect the structure of
petroleum product demand, oil refining and petroleum product production, and the choice of crude
oil by the refiners.
Energy-related impacts may not be limited to the oil sector. Depending on what will
replace gasoline and diesel vehicles, various questions will emerge. If electric vehicles expand
sharply, various implications for carbon dioxide emissions and other environmental loads may
emerge depending on the power mix. If fuel cell vehicles expand, various implications for CO2
emissions may emerge depending on how massive hydrogen supply would be realized and howhydrogen would be produced. In summary, the future picture of next-generation vehicles will have awide range of implications for the future global landscape of energy and the environment.
The future is always uncertain. Depending on a single scenario is risky. It will grow evenmore important to address various uncertainties from various angles through strategic thinking.

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