New UC Davis market-based sustainability forecasting approach concludes supplanting gasoline and diesel with renewable fuels could take 131 years

At the current pace of research and development, replacing gasoline and diesel with renewable fuel alternatives could take some 131 years, according to a new University of California, Davis, study using a new sustainability forecasting approach based on market expectations. The forecast was published online 8 Nov. in the ACS journal Environmental Science & Technology.

In the paper, Nataliya Malyshkina and Deb Niemeier point out that the peak of oil production is estimated to occur approximately between 2010 and 2030, and note that all those dates are considerably earlier than their estimate of the time until renewable replacement technologies are viable in the market (around 2140). “Obviously, our results suggest that there is a potential danger that crude oil will be depleted before it can be replaced by viable substitutes.”

We acknowledge that some of the difference between the estimates for the time until oil replacement and the time until oil depletion could be reduced in response to changes over time. That is, as fossil fuel resources diminish, we would expect both market and individual behavior to change. We would expect that new reserves of conventional and unconventional oil may become available for exploration due to geological exploration and advances in oil extraction techniques or that extraction from less feasible oil fields becomes more economically attractive. We would also expect that oil consumption would decrease due to energy-saving measures and/or due to responsiveness of demand to higher oil prices. All of these factors would change our predicted outcome.

—Malyshkina and Niemeier

Malyshkina and Niemeier set out to create a new tool that would help policymakers set realistic targets for environmental sustainability and evaluate the progress made toward those goals. Their research establishes a probabilistic theoretical approach based on market expectations reflected in prices of publicly traded securities to estimate the time horizon until the appearance of new technologies related to replacement of nonrenewable resources, for example, crude oil and oil products.

Two key elements of the new theory are market capitalizations (based on stock share prices) and dividends of publicly owned oil companies and alternative-energy companies. Other analysts have previously used similar equations to predict events in finance, politics and sports.

Sophisticated investors tend to put considerable effort into collecting, processing and understanding information relevant to the future cash flows paid by securities. As a result, market forecasts of future events, representing consensus predictions of a large number of investors, tend to be relatively accurate.

—Nataliya Malyshkina, UC Davis postdoctoral researcher

To assess the time (T) when technological innovations are likely to appear, they apply advanced pricing equations, based on a stochastic discount factor to those traded securities whose future cash flows critically depend on appearance of such innovations. Applying a simple approximation of the proposed approach to replacement of crude oil and oil products, they found that T works out to approximately 131 years for replacement of gasoline and diesel.

Our estimate T≈131 years for the time until a replacement of gasoline and diesel (beginning at 2009) is about 2.6 times larger than the time until the development of alternative ways of meeting the needs that are served by resource consumption that was assumed by Graedel and Klee. Also our estimate is significantly longer than the 20 to 50 years previously suggested by several energy experts for the time horizon until a considerable fraction of oil is replaced.

There are a number of possible reasons for the large range. For example, there are often subtle but persistent price signals embedded in long-term investment decisions and stock price fluctuations. In 2008 the International Energy Agency (IEA) reported that investment in renewable generation fell proportionately more than that in other types of generating capacity. In fact, the IEA predicted that for 2009, renewable investment could drop by as much as one-fifth. There are also examples in the past in which experts and scientists were overly optimistic about the diffusion of new technologies. In particular, a controlled thermonuclear fusion for energy production was initially expected within few decades from the first successful test of an H-bomb in 1952. However, despite more than 50 years of extensive research, no commercial fusion reactor is expected until the second half of the 21st century. Finally, differences in estimates of T can emerge as a result of variations in values assigned to the factors underpinning such estimates (e.g., the extent to which new technologies are expected to penetrate the market).

—Malyshkina and Niemeier

Niemeier, UC Davis professor of civil and environmental engineering, said the new study’s findings are a warning that current renewable-fuel targets are not ambitious enough to prevent harm to society, economic development and natural ecosystems.

Our results suggest it will take a long time before renewable replacement fuels can be self-sustaining, at least from a market perspective. We need stronger policy impetus to push the development of these alternative replacement technologies along.

—Deb Niemeier


  • Nataliya Malyshkina and Deb Niemeier (2010) Future Sustainability Forecasting by Exchange Markets: Basic Theory and an Application. Environ. Sci. Technol., Article ASAP doi: 10.1021/es100730q

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