Next week will see three oil giants answer to their shareholders at their Annual General Meetings. And while Chevron and Exxon will likely feel the heat from the recent climate denial investigations, Shell has been quietly trying to lay the foundation to show its taking climate change seriously. But just how committed is Shell to the Paris climate targets? Juliet Phillips, campaign manager atย responsible investment charity ShareAction, takes aย look.
In the lead up to Shell’sย annual general shareholder meeting tomorrow, the oil majorย quietly slipped out a new report entitled โA better life with a healthy planetโย two weeks ago, laying down a potential pathway for limiting temperature rises to underย 2ยฐC.
Within this unprecedented report, Shell seemed to describe a future where its current business model would be irrelevant โ albeit it on an uncertainย deadline.
The company recognised thatย โthe world of the net-zero future is a complete turnaround from today, when hydrocarbons constitute more than 80% of the energy systemโ โ it estimates that a net-zero world will use about 20-25 percent oil and gas,ย a 60 percentage point reduction from todayโs mix of hydrocarbons in the energyย system.
And this came just over a month after Shell acknowledged that when it comes to climate change, policy action and legal risks are mounting for fossil fuel companies.
But any excitement about Shellโs climate epiphany was quickly tempered by a disclaimer found on the first page of its healthy planet report: โWhile we seek to enhance our operationsโ average energy intensity โฆ we have no immediate plans to move to a net-zero emissions portfolio over our investment horizon of 10โ20 yearsโ.
In other words: hereโs a nice report, but donโt take it too seriously. Please donโt think this means weโreย actually committing to a low-carbon transition โ at least not for another 10-20ย years.
To limit warming to below 2ยฐC with the aim to achieve a 1.5ยฐC target, full decarbonisation of the energy sector is needed by 2045-2055. The world doesnโt have another 20 years to wait for oil majors like Shell to move if we are to stay โwell belowโ 2ยฐC, as agreed at the COP21 climateย conference.
This disclaimer raises questions about Shellโs ability to adapt for the full decarbonisation of the energy sector needed by 2045-2055 in order to achieve the less than 2ยฐC of warmingย pathway.
As soon as you open the bonnet, itโs clear that this isnโt a company committed to a โbetter life with a healthy planetโ. Indeed, Shellโs Annual Report and Sustainability Report tell a very different story. In these, the risks that this momentous and urgent shift in the energy mix pose to the firmโs current business model are hugelyย underplayed.
For instance, the Sustainability Report suggests by 2050, renewable energy will reach a mere 9 percent market share, and just 8 percent of transport will be powered by renewables. This drastically differs from the landscape described in โA better life on a healthy planetโ, where 80 percent of the global passenger car fleet are electrified over the coming decades โ an outlook more in line with the exponential growth scenarios many city analysts areย approximatingย
Shell wasnโt kidding when it stated that itโs not looking to re-align its investment strategy. The company boasts of spending $1.1 billion in low-carbon research and development. However, this is just a fraction of the amount the company is spending on hydrocarbon exploration โ for example, Shell spent around $7 billion in theย Arctic.
KPIs and executive incentives continue to encourage the replenishing of fossil fuel reserves, with climate receiving negligible consideration andย weighting.
What about the risk of stranded assets? The company reports โShell has around 10.5 years of oil and gas reserves, part of about 25 years of resources in design, under construction or in operation. However, our assessment is that Shellโs reserves will not become stranded in the energy transition.โ
One might cynically wonder, which company would suggest to its shareholders that itโs wasting their money? Peabody Energy โย the coal company who recently filed for Chapter 11 bankruptcyย โ certainlyย didnโt.
Whatโs more, Shellโs findings contrast to Carbon Tracker, whoย found that $76.9bn of capital expenditure is unneeded from 2015 to 2025 under the International Energy Agencyโs 450 scenario (where the world limits warming to 2ยฐC),ย suggesting that Shell is pursuing projects that are uneconomical in a two degreeย world.
So Shell clearly isnโt planning for a better life on a better planet. Of course, itโs not just the fossil fuel sector that needs to shift for this to be possible. Itโs the transport industry, which props up the structural demand for oil. Itโs utilities, which consume huge volumes of coal and gas. Itโs the banks, who finance these high-carbon projects. All of these things will need to happen โ and rapidly โ if we are to keep the 1.5 degree ambition inย sight.
Nonetheless, fossil fuel companies like Shell have a huge role to play, and this canโt be abandoned, particularly given their level of political influence. Shell has recently beenย accused of (and denied) trying to block EU progress on electric vehicles.
If Shell is serious about promoting โa better life with a healthy planetโ, the company needs to demonstrate its commitment to decarbonisation through action โ not just hotย air.
Photo: Open Grid Scheduler viaย Flickr
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