In this episode of the Daily Graph, we explained that the optimal price of diesel in Europe is probably somewhat higher than it is today in order to accelerate EV adoption and the destruction of the diesel market. The tool is the bombing of Russian diesel refineries. It’s a j curve.
Here is the link:
https://www.graphcall.com/execute?task=NavigationPage&g=b8317353-f005-45a0-8ce8-90b3b85b51f6
The process behaves like a J-curve. Initially, diesel prices rise faster than demand declines. However, the price shock encourages substitution toward EVs, especially as new models have become increasingly affordable, even for people with more limited means. This high capacity utilisation helps lower the fixed cost of EV manufacturers further.
In a second phase, prices of Diesel remain high while volumes decline, as has been observed in China. As EV adoption accelerates, diesel consumption falls, reducing import volumes.
Although the import bill initially rises because of higher prices, it eventually starts to decline because prices remain relatively stable at a high level while quantities are steadily eroded by EV substitution.
In a second phase the imports M in the (X-M) equation falls, meaning that imports are permanently reduced and the income of fossil fuels exporters actually permanently hurt as explained by the BIS.
GDP = C + I + G + (X - M)
