Sustainability think tank RMI publishes an ongoing series that explores how demand for fossil fuels is peaking, or has already peaked in many countries and sectors, and will soon enter a phase of accelerating decline.

One article in the series provides a fascinating and entertaining history of past energy transitions. Its central argument is this:

Once an energy source reaches its peak, its decline into irrelevance is inevitable and only a matter of time.

The graphic below illustrates the pattern: as a Challenger (in our case, renewable energy) gains traction, demand for the Incumbent (in our case, fossil fuels) peaks. The peak is followed by a plateau for a few years as the Incumbent fights back.

The Peak-Plateau-Decline shape for fossil fuel demand. Source: RMI

The peak typically occurs before there is price parity between the Challenger and the Incumbent, but the fight is already decided at this point. 

As soon as the Challenger reaches price parity, the Incumbent starts its decline into irrelevance. The article cites several historic examples, such as the transition from horses to cars and from gas to electric lighting.

Horses to cars transition in the U.S.  Number of horses and cars, ‘000. Source: RMI

Demand peaks matter because this is when investors sell and the balance of power starts to shift.