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Shell’s “Sky” Scenario: Pie-in-the-Sky Greenwashing?

By -- May 10, 2018

“Sky, an exposition of what consumers would have to pay in the near-term in order to defer the climate-model-predicted disastrous future, may be Shell’s ‘cover your ass’ defense against environmental lawsuits and attacks.  But by providing a scenario for evaluation, Sky might just prevent the politically correct from becoming the economically incorrect.”

Major oil and gas companies do seemingly funny things in a socio-economic climate where their main products are demonized. One company tried to get “beyond petroleum.” Another touts its support for a tax on carbon-dioxide emissions. Still another publicizes its long-run forecasts that demote the demand for its main products. Shell is that third company.

Shell’s Previous Scenarios

Leading up to Earth Day, the media was replete with articles and opinion pieces about the need to kill the fossil fuel industry before it kills the planet. All the anti-fossil fuel movement tactics were in evidence – assaulting oil and gas companies for hiding their knowledge and complicity in promoting increased use of oil and gas, attacking investors and bankers financing producers and pipeline owners who are encouraging increased oil and gas consumption, and threatening lawsuits against energy companies for failing to modify their business models in favor of green energy. 

Amidst this full-throated attack, we learned of Shell Oil’s latest planning scenario – SkyThe report received praise as well as scorn.  It was praised for highlighting the need for an energy revolution and laying out how Shell’s core business could be eliminated. The scorn was because the plan wasn’t aggressive enough and still provided a market for the company’s core products. 

Shell’s latest vision for how the world’s energy system might transition extends and enhances earlier ones that outlined pathways to a cleaner world. The May 2016 report, “A Better Life With A Healthy Planet: Pathways to Net-Zero Emissions,” was a supplement to Shell’s 2013 planning process: “The New Lens Scenarios.” 

That effort produced two scenarios – “Mountains” and “Oceans” – that examined the implications for the pace of global economic development, the types of energy used and the growth in greenhouse gas emissions. In one case – Mountains – the world experiences moderate economic development, while government policy shapes the global energy system and environmental pathway. 

More compact cities and a transformed global transport system are the result, but GHG emissions drive temperatures above the 2oC target. The Oceans scenario envisions a more prosperous but more volatile world, where the energy system is shaped more by market forces than government policy. Combined, these forces limit the growth of nuclear power and natural gas use, retard the development of carbon capture and storage technology, and contribute to an electricity generation structure that requires 30 more years to become carbon neutral than in the Mountains scenario. The two Lens scenarios were disappointing to environmentalists hoping to see a pathway to a fully decarbonized world. 

In fact, the head of Shell’s scenario planning, Jeremy Bentham, wrote in the report’s introduction “it is likely that the global energy system in the future decades will closely resemble the trends predicted in these scenarios.” The scenarios evolved following the failure of the Copenhagen Accord in 2009, in which 100 countries would have adopted steps to limit carbon emissions and keep global temperatures from rising by 2oC. 

New Enviro Strategy

Subsequent failures to reach agreement on global carbon emission limitations added to the frustration of the environmental movement. What environmental leaders began recognizing was that the cataclysmic predictions of their climate models were so dire they generated a fatalism that translated into inaction. Mountains and Oceans confirmed this assessment. 

The environmental industry reassessed its game plan and re-energized its effort.  While attacks on oil and gas companies continued, the efforts became more sophisticated.  The idea of fraud lawsuits emerged.  But more dramatic efforts were launched against companies desiring to build new pipelines. 

Not only were the owners targeted, but the regulatory bodies, including the legality and completeness of their approval processes, were targeted. Obstructionism, in any way possible, became the new mantra. That effort grew to include investors and financial institutions underwriting energy infrastructure investments. As a good citizen of the European “One World” community, Shell realized it needed to address the climate change failure of its Lens’ scenarios, regardless of whether they were correct. 

Shell’s New Head: van Beurden

By now, Shell had a new leader. In Ben van Beurden’s foreword to “A Better Life With A Healthy Planet,” he wrote:

We know our long-term success as a company depends on our ability to anticipate the types of energy that people will need in the future in a way that is both commercially competitive and environmentally sound.

Mr. Bentham then highlighted the challenge of being successful. After pointing out that energy demand will likely require a doubling of the global energy system over the balance of the century, he also pointed out “that a net-zero emissions world is not necessarily a world without any emissions anywhere.” 

In essence, energy systems in different parts of the world could, and likely would be structured differently. 

Mr. Bentham concluded that while meeting the necessary energy needs in a net-zero carbon emissions world is technically feasible, “it will be very challenging.” The 2016 report was designed to examine the necessary consumption and production transformations, the economic growth pathways of developing countries, and what governmental policies were needed to facilitate this transformation. 

The report began by outlining the future energy demand challenge, which Shell characterized as both providing sufficient energy but also halting the accumulation of carbon emissions. While renewables are perceived as the solution to the energy challenge, Shell’s conclusion is that “for the foreseeable future, hydrocarbons will still be required where high process-temperatures and dense energy storage are necessary.…” 

Shell cited industries such as iron, steel, cement, chemicals, and heavy freight and air transportation as ones where renewables offer no acceptable solution to the energy challenge. Given this problem, Shell concluded that “…the energy system in an emerging net-zero emissions world will be something of a patchwork.” This leads to differing degrees of energy decarbonization and efficiency. 

According to Shell, the final elimination of carbon emissions not addressed by renewables and increased energy efficiency would depend on carbon emissions capture and storage deployed at scale, along with the use of sustainable biomass. Neither of these options are commercially available now. 

Criticisms: Left and Right

Once again, Shell’s planning scenario came up short, especially in the eyes of the European anti-fossil fuel community. The Healthy Planet scenario set the stage for Sky, which further explores exactly how a decarbonized world can be achieved, while also setting forth the challenges, and, importantly, the timing of actions necessary to achieve that goal. 

On April 4th, Friends of the Earth Netherlands announced it will take Shell to court if the company does not act on demands to stop its destruction of the climate. This potential lawsuit is unique in that it demands Shell act to counter climate change rather than merely pay compensation. The thrust of the resolution would require Shell to significantly limit its investments in oil and gas globally by forcing it to comply with climate targets. 

The dilemma Shell faces was crystalized in a comment by Colin Roche, extractive industries campaigner at Friends of the Earth Europe, who stated, “not only is Shell one of Europe’s biggest climate polluters but also one of Europe’s biggest carbon pushers, continuing to lobby for a fossil fuel future even as the effects of climate change begin to ruin lives and livelihoods across the planet.” 

A target of the lawsuit is to dissuade Shell from investing in the Nord Stream II gas pipeline to bring Russian gas to Germany, but continuing to invest in traditional oil and gas exploration and development is also something the environmentalists want stopped. While Shell’s shift toward a natural gas-centric energy portfolio with fewer carbon emissions and its recent $400 million investments in renewable ventures (about 2% of the company’s annual capital investments) represent smart strategic initiatives, those steps may be insufficient to hold off the lawsuit. 

A Nord Stream II investment may be the straw that breaks Shell’s back. 

Sigwatch, an NGO that tracks activist activities against companies, listed Shell as the world’s most hated company in its 2016 ranking, the fourth consecutive year Shell earned the title. Much of the Shell hatred was driven by its plan to drill for oil and gas in the Arctic Ocean, an effort it abandoned after a failed attempt and a near disastrous accident. Solar farms, clean retail electricity and more natural gas may not protect Shell from an aggressive attack program by environmentalists. 

The recent Groningen gas field earthquakes and output restrictions that followed, are a reminder to the Dutch people of the risks of fossil fuels, which underlies the Friends of the Earth lawsuit threat. The Sky planning scenario outlines why fossil fuels such as natural gas will always remain part of the energy mix even in 2070 and a net-zero carbon emissions world. That is a good reason for Shell to promote Sky. 

On the other hand, Sky demonstrates to the world that there is a pathway to environmental nirvana, but not without a significant restructuring of the global energy system with meaningful impacts on people’s lifestyles. At the same time, Sky shows that achieving its carbon emissions goal requires swift and radical actions with respect to government policies and energy technology and investments, something not happening now.

If that should change, Shell has a business plan to capitalize. On the other hand, the failure to put in place the drivers necessary for Sky’s success, it may become Shell’s lawsuit defense. 

Conclusion

Sky may well be “pie in the sky,” which is defined by Webster as an unrealistic or ludicrous concept.  The phrase was coined in a song parody of the 1861 Salvation Army hymn, “In the Sweet By-and-By.” The hymn was mocked for over-emphasizing salvation rather than working to meet people’s material needs. 

Is that today’s environmental movement? Sky, an exposition of what consumers would have to pay in the near-term in order to defer the climate-model-predicted disastrous future, may be Shell’s ‘cover your ass’ defense against environmental lawsuits and attacks.  But by providing a scenario for evaluation, Sky might just prevent the politically correct from becoming the economically incorrect.

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