China Joins the U.K., France and Others in Phasing Out Fossil Fuel-Powered Vehicles

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Alternative Energy

Toward the end of the 19th century, two German inventors filed very similar patents in two different German cities on the same day.

The date was January 29, 1886. Karl Friedrich Benz submitted a patent for a three-wheeled gasoline engine-powered vehicle. Meanwhile, Gottlieb Daimler filed a patent for a four-wheeled, gasoline engine-powered vehicle.

Remarkably, the two inventors had never met each other… but the patents they filed on the same day marked the beginning of the fossil fuel transportation age.

And now, nearly a century and a half since it started, that age is drawing to a close. Countries around the world are moving to fully do away with internal combustion engine (ICE) vehicles as electric vehicles (EVs) become more cost-effective to mass-produce.

After seeing several of its European counterparts pass pro-EV measures over the past year and a half, China has become the most recent government – and by far the most influential – to move ahead toward an EV future.

European Countries Declare War on ICE Vehicles

The beginning of the end of fossil fuel transportation age started in the Netherlands. In April of last year, Dutch politicians voted to ban sales of ICE vehicles starting in 2025.

A couple of months later, Norway passed almost identical legislature, forbidding the sale of ICE vehicles by 2025.

A little more than a year after that, France joined the party: On July 6, 2017, Emmanuel Macron’s government announced it would ban ICE vehicles starting in 2040.

Then it was the U.K.’s turn: On July 25, 2017, the government announced a ban on the sale of ICE vehicles to take effect by 2040.

All of these European countries have the same goal. They are trying to meet their emissions targets established in the Paris climate agreement of 2016.

The World’s Largest Country Gets on Board

There’s no question that the countries that have decided to ban ICE vehicles have raised some eyebrows. And yet, I’m sure many see it as a symbolic gesture with minimal global impact since the countries that have made these declarations represent a small share of the total automobile market.

China, on the other hand, is the world’s largest manufacturer and consumer of cars. It’s also the world’s second-largest economy.

Just this past Saturday, September 9, China announced that there will be a time when automakers are no longer allowed to sell ICE vehicles there.

Every automotive manufacturer around the world is now paying attention.

EV Manufacturers Look to the World’s Biggest Polluter

China is the world’s biggest polluter. As of 2015, China was responsible for nearly 30% of the world’s carbon dioxide emissions – a staggering 10.6 million kilotons. In the capital city of Beijing, about a third of the pollution is believed to come from vehicle exhaust.

The country’s decision to ban ICE vehicles is not the first time it has attempted to combat its devastating pollution problems. Several years ago, China announced it was removing 5 million old vehicles from roads in order to curb emissions.

But clearly, that didn’t do enough, as Saturday’s decision goes to show.

In 2016, to satisfy the demand of the world’s biggest automobile market, China produced 28 million cars – nearly a third of every car made in the world that year.

The opportunity that’s been created here for EV manufacturers can’t be understated…

Some manufacturers are late to the party, but many are quickly getting on board. Swedish carmaker Volvo (now owned by Geely, a Chinese company) is an example.

Geely wants to sell 1 million EVs by 2025. To meet that goal, every new Volvo the company produces from 2019 onward will be an EV.

Other manufacturers, including Ford, Renault-Nissan and General Motors, are all developing EVs with the Chinese market in mind. By 2025, China wants EVs and plug-in hybrids to represent one-fifth of all new vehicle sales.

What Does This Mean for Oil?

The world’s move to EVs is certainly good news for the planet. However, it’s also going to bring big changes to the oil industry.

China is the world’s second-biggest user of crude. Every day it uses more than 11 million barrels, most of which it imports.

This past March, its crude oil imports hit an all-time high of 9.17 million barrels per day.

Removing that much oil from the demand side will send prices plummeting. Many producers won’t be able to continue.

The oil markets will go through some turbulent years. Other than global majors, many marginal suppliers will go out of business.

We are entering the age of the EV. And 131 years after it started, the end of the ICE vehicle age is in sight.

Ten years from now, when skies are cleaner, we might have to thank China for getting the ball rolling.

Here’s to cleaner air.

Good investing,

Dave

P.S. China’s surprise decision on Saturday to ban ICE vehicles sent a clear signal to the world: The age of EVs is upon us.

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