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 at responsible investment charity ShareAction, takes a look.
In the lead up to Shell’s annual general shareholder meeting tomorrow, the oil major quietly slipped out a new report entitled ‘A better life with a healthy planet’ two weeks ago, laying down a potential pathway for limiting temperature rises to under 2°C.
Within this unprecedented report, Shell seemed to describe a future where its current business model would be irrelevant – albeit it on an uncertain deadline.
The company recognised that “the world of the net-zero future is a complete turnaround from today, when hydrocarbons constitute more than 80% of the energy system” – it estimates that a net-zero world will use about 20-25 percent oil and gas, a 60 percentage point reduction from today’s mix of hydrocarbons in the energy 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 Shell’s climate epiphany was quickly tempered by a disclaimer found on the first page of its healthy planet report: “While we seek to enhance our operations’ average energy intensity … we have no immediate plans to move to a net-zero emissions portfolio over our investment horizon of 10–20 years”.
In other words: here’s a nice report, but don’t take it too seriously. Please don’t think this means we’re actually committing to a low-carbon transition – at least not for another 10-20 years.
To limit warming to below 2°C with the aim to achieve a 1.5°C target, full decarbonisation of the energy sector is needed by 2045-2055. The world doesn’t have another 20 years to wait for oil majors like Shell to move if we are to stay ‘well below’ 2°C, as agreed at the COP21 climate conference.
This disclaimer raises questions about Shell’s ability to adapt for the full decarbonisation of the energy sector needed by 2045-2055 in order to achieve the less than 2°C of warming pathway.
As soon as you open the bonnet, it’s clear that this isn’t a company committed to a ‘better life with a healthy planet’. Indeed, Shell’s 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 firm’s current business model are hugely 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 “A better life on a healthy planet”, where 80 percent of the global passenger car fleet are electrified over the coming decades – an outlook more in line with the exponential growth scenarios many city analysts are approximating
Shell wasn’t kidding when it stated that it’s 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 – for example, Shell spent around $7 billion in the Arctic.
KPIs and executive incentives continue to encourage the replenishing of fossil fuel reserves, with climate receiving negligible consideration and weighting.
What about the risk of stranded assets? The company reports “Shell 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 Shell’s reserves will not become stranded in the energy transition.”
One might cynically wonder, which company would suggest to its shareholders that it’s wasting their money? Peabody Energy – the coal company who recently filed for Chapter 11 bankruptcy – certainly didn’t.
What’s more, Shell’s findings contrast to Carbon Tracker, who found that $76.9bn of capital expenditure is unneeded from 2015 to 2025 under the International Energy Agency’s 450 scenario (where the world limits warming to 2°C), suggesting that Shell is pursuing projects that are uneconomical in a two degree world.
So Shell clearly isn’t planning for a better life on a better planet. Of course, it’s not just the fossil fuel sector that needs to shift for this to be possible. It’s the transport industry, which props up the structural demand for oil. It’s utilities, which consume huge volumes of coal and gas. It’s the banks, who finance these high-carbon projects. All of these things will need to happen – and rapidly – if we are to keep the 1.5 degree ambition in sight.
Nonetheless, fossil fuel companies like Shell have a huge role to play, and this can’t be abandoned, particularly given their level of political influence. Shell has recently been accused of (and denied) trying to block EU progress on electric vehicles.
If Shell is serious about promoting ‘a better life with a healthy planet’, the company needs to demonstrate its commitment to decarbonisation through action – not just hot air.
Photo: Open Grid Scheduler via Flickr