Energy Post Premium

Original analysis by independent journalists

Saudi Arabia raises its solar and wind targets to 60GW by 2030

by

Saudi Arabia raises its solar and wind targets to 60GW by 2030

by Arasan Aruliah

January 21, 2019

The Kingdom of Saudi Arabia has made even bigger promises of a renewable revolution before, but little has materialised. Well known as a world leading oil producer, exporter and consumer, it needs to stick to its commitments, and improve on them, if it is to play its part in emissions reductions.

In an interview with the UAE’s state news agency, WAM, Dr. Khalid bin Saleh Al Sultan, President of the King Abdullah Atomic and Renewable Energy City, announced that Saudi Arabia aims to produce 60 GW of renewable energy by 2030, including 40 GW from solar energy and 20 GW from wind and other sources. He explained that Saudi Arabia is working, under the framework of the KSA Vision 2030 and the National Transformation 2020 Programme, on building a sustainable renewable energy sector, along with the “Saudisation of technologies”. In order to find a balanced mix of fossil and alternative energy, achieve growth and prosperity, and reinforce energy security, they will integrate alternative energy into the national energy network.

Promises have been made before. In fact, over the past six years, the Saudis have announced a number of initiatives and investments totalling more than $350bn in renewable energy. But there’s little sign of any construction that matches those ambitions. Fatih Birol, executive director of the International Energy Agency, observes of the Saudi’s intentions, “There has been a lot of stop and go.”

“There has been a lot of stop and go” – Fatih Birol, IEA

The Saudis have certainly been sending mixed signals over its commitment to reversing climate change. In 2013, the government announced its plan to build 54 GW of renewable power and 17 GW of nuclear power by 2032 to cover 40–45% of future electricity production. It then drastically revised down these targets in 2016 to an ‘initial phase’ of only 9.5 GW by 2023. And at COP24, held in Poland back in December, it was one of four countries (the others being the United States, Russia, and Kuwait) that opposed the inclusion of the Intergovernmental Panel on Climate Change’s (IPCC) Special Report on Global Warming of 1.5°C in the negotiating text.

Saudi Arabia had also planned to phase-out of fossil fuel subsidies. However in December 2017 the government announced it would slow down this fossil fuel subsidy phase-out because it needed to lift the economy during difficult periods.

So an announcement to increase renewables generation is a welcome move in the right direction, provided the promise holds. While we wait for more evidence of it actually happening, or another policy reversal, it’s worth looking at Saudi Arabia’s emissions performance so far.

Saudi Arabia’s targets are “critically insufficient”

Climate Action Tracker (CAT) gives a good summary of the performance and projections for different regions and nations across the globe. Their most recent analysis for Saudi Arabia is dated 30th November 2018. It states: “under current policy projections, Saudi Arabia’s emissions [will] be at 1,061–1,117 MtCO2e by 2030—an almost six to seven-fold increase from 1990 levels.” It’s a performance worth their lowest rating possible, “critically insufficient: if all government targets were in this range, warming would exceed 4°C.”

To put the latest 60 GW promise in perspective, CAT comments on an even more ambitious announcement that was made in March 2018. Saudi Arabia and Japan’s SoftBank Groupsigned a memorandum of understanding to build a 200 GW solar plant, the largest single solar project in the world. If the MoU ever became policy and went live it could dramatically lower the emission outlook for the Kingdom. But CAT’s analysis says that if all 200 GW were fully installed, Saudi Arabia may rise above its “critically insufficient” rating, but only into the category “highly insufficient: if all government targets were in this range, warming would reach between 3°C and 4°C.” In other words, it’s not nearly enough.

Rising domestic consumption may yet force Saudi Arabia into renewables

All this is perhaps not a surprise, given the country is one of the world’s leading oil producers, and the national economy is highly dependent on it. Since 1970 oil exports have covered 90% of total government revenues, and contributed more than 35% of GDP.

It also has one of the world’s highest rates of per capita energy consumption, forecast to triple by 2030 when compared to 2010 levels. But domestic consumption itself is putting pressure on them to diversify away from oil and into renewables. As domestic consumption rises, not only do export revenues decline, government spending rises too because domestic oil use is heavily subsidised. Perhaps it is this that will see the Saudis keep their latest promise – and hopefully improve on it.

2030 GHG targets: more needs to be done to align action and policy with climate science

by

EU COP24 commitments: more needs to be done to align action and policy with climate science

by Luca Bergamaschi
December 20, 2018

As the dust settles after the 24th UN climate conference (COP24) successfully delivered the “rulebook” of the Paris Agreement, European Commission officials head back to Brussels knowing they deliver the best possible outcome. Despite geopolitical tensions, all Governments – especially the EU and China – showed their determination to multilateral cooperation on climate. Luca Bergamaschi of climate think-tank E3G, just back from Katowice, reports from Brussels.

While finalising the rulebook is an achievement in itself given the current geopolitical environment, countries were not prepared to send a clear signal towards scaling up action in response to the stark warning from the latest scientific report on the impacts of 1.5 degree of global warming. Even within Europe there is a deepening divide between progressive Member States, such as France and The Netherlands, demanding increased efforts to cut greenhouse-gas (GHG) emissions and those determined to defend the status quo, such as Germany and Poland.

To maintain its international climate leadership and credibility, especially vis-à-vis the most vulnerable countries, next year the EU will need to signal that its domestic commitments and strategy are aligned with the scientific evidence. This will be key to arrive at COP26 in 2020 with a strong European offer in the form of an increased Nationally Determined Contribution (NDC, equivalent to the EU 2030 GHG target) and a Paris-compatible long term strategy. The two key meetings to do so in 2019 will be the European Council on the Future of Europe in May 2019 in Sibiu and the UN Secretary General’s Climate Summit on 23 September in New York.

What happened in Poland

Countries agreed most of the implementing rules of the Paris Agreement overcoming initial challenges posed by fossil fuels producing countries. The negotiations went in overtime but eventually they all agreed a common set of rules for preparing, monitoring, taking stock and comparing climate pledges. These rules are applicable to all countries but allow developing countries a few years more to fulfil all rules, while receiving support through capacity building. Also, the rules provide clear guidance for countries to take stock of, and subsequently enhance, their pledges every 5 years by assessing progress towards the long-term goals of the Paris Agreement and financial support (including for losses and damages caused by climate change).

Only one decision was postponed to next year. This was on the design of market mechanisms for carbon reductions (Article 6 of the Paris Agreement) that do not compromise environmental integrity, for example through double counting of emissions reductions. This will now be negotiated at a later stage as Brazil, a potentially large provider of carbon credits to the market from its large forest resources, could not agree.

While shared, universally-applicable rules are a necessary condition for international cooperation, they are no substitute for increased climate action, as current national commitments on emission reduction are not sufficient to bridge the growing emissions gap in 2030. If left unchanged, current commitments would lead on average to over 3 degree of warming by the end of the century.

At COP24 countries failed to clearly signal their intention to update their national commitments against the warnings of the IPCC report on 1.5 degree. And yet even the IPCC report might be underestimating critical climate risks. This is the message delivered by Professor Hans Joachim Schellnhuber, Director Emeritus of the Potsdam Institute for Climate Impact Research, during arguably the most important side event in Katowice.

In fact, the IPCC might be depicting a too rosy picture of the earth system. Even delivering the Paris Agreement temperature targets, we might activate a cascade of “tipping elements” – the vital organs of the earth system, such as the Greenland and West Antarctica ice sheets – that would turn the world into a hothouse earth and lead to unmanageable sea level rises.

The most critical issue is the non-linearity of climate change and the synchronicity of extreme weather events around the world, which could cause a cascade of irreversible change. In light of these new findings, a key task of European policy makers – especially for the next Commission – is to better understand these risks and how to effectively respond in order to build adequate resilience and protect all Europeans especially those most exposed, such as in Southern Europe.

European diplomacy works

Reaching the agreement was a success of European diplomacy often in partnership with the most vulnerable countries. The EU played an important role as bridge-builder between countries by acknowledging the key role finance plays in enhancing emission reductions. The EU and others made sure that that greater predictability of financial support is enshrined in the rulebook which reassured developing countries and created trust among them.

Importantly, the EU alone has pledged a voluntary contribution of €10 million for the Adaptation Fund. This was an important signal of solidarity towards key European allies, especially the most vulnerable countries. The EU also brought together the High Ambition Coalition, including 12 Member States, to make a clear statement about their priorities for the rulebook, which helped putting pressure on the final hours of negotiations.

European non-state and business actors also played a key role for increasing European leadership. 45 European business, investors, cities and regions launched the initiative Step Up Now, showcasing the climate action they are undertaking already and calling on EU countries to commit to net-zero emissions by 2050 as well as to adjust the 2030 targets. This new coalition is expected to grow over the next few months in the run-up to the Future of Europe summit in May 2019. At the same time, London Mayor Khan unveiled his plan to tackle the climate emergency and become carbon neutral by 2030, the Danish Maersk – the world’s largest container shipping company – is the first global shipping company to set itself a target of becoming CO2 neutral by 2050 and Volkswagen committed to roll out its last petrol and diesel model in 2026.

Unsurprisingly, coal received special attention throughout the whole conference. Three thousand people marching in Katowice asked the same thing as global investors managing $32 trillion worth of assets: a quicker exit from coal. Progressive Polish Mayors issued a declaration in favour of climate policies and major new actors joined the Powering Past Coal Alliance – the first global alliance working to advance to transition away from unabated coal – including Scotland whose wind power broke the 100% output for the first time in December. And Greta Thunberg, a young Swedish teenager who inspired school strikes to protest against climate inacation all around the world, was the rising star both inside and outside the conference.

Aligning financial flows with the Paris Agreement is proving instead more challenging. While the European Bank for Regional Development (EBRD) committed to phasing out direct coal financing, it is failing to tackle its significant investments in gas infrastructure. The positions of the EU Council and the Parliament on the next EU budget do not yet signal a clear trend away from fossil fuel investment. The biggest risks of new gas investment are ending up as stranded assets or locking in emissions.

Opportunities in 2019

At the latest European Council (13-14 December), European Heads of State confirmed that Member States will respond to the recently published long-term strategy presented by the European Commission in more detail in the first half of 2019. This will be the first opportunity for aligning the EU long term strategy to climate science, in particular to 1.5 degree, and responding to increasing demand from the majority of businesses and citizens for enhanced climate action. This will require to set a target of net-zero GHG emissions by 2050 at the latest. Ideally, Heads of State will also discuss what this means for 2030 targets. New analysis shows that reaching net-zero by 2050 requires raising the 2030 ambition level to 55-65%.

In the run-up to the Future of Europe Summit, governments could use the next months to find consensus towards a net-zero emissions goal by 2050 and new 2030 GHG target (which corresponds to the European NDC) through discussing what this means for industry competitiveness, finance, infrastructure, social policies and innovation. The recently published report presented at COP24 by the EU Commission’s DG Research and Innovation on decarbonisation pathways could support this effort. Its recommendations include:

  1. the need for sustained Research and Innovation activities on decarbonisation across all sectors, including a robust programme on climate change science;
  2. the establishment of large mission-oriented programmes of a cross-cutting nature for the deployment of system-level transdisciplinary innovation;
  3. the development of partnerships with industry to address together the most difficult aspects of decarbonisation, on which industry alone would not invest enough and with the necessary urgency;
  4. and the launch of Transition Super-Labs, very-large-territory initiatives of real-life management of the transition from typical fossil-fuel-based local economies to zero-carbon ones.

This discussion and the agreement for an ambitious, long term climate-neutral target would allow the EU, and the current European Commission, to respond to the shortcoming of COP24 and use the Sibiu Summit to define its legacy on the Paris Agreement, ensuring that climate change will be a high priority for the next European Commission. This will of course depend on the formation of the next European Parliament. The political discussion on climate change during the electoral campaign will also be key to shape how Heads of State will respond to it in May.

“from now on, my five priorities will be: Ambition in mitigation. Ambition in adaptation. Ambition in finance. Ambition in technical cooperation and capacity building. Ambition in technological innovation” UNSG, Antonio Guterres

If Heads of State can provide guidance on the long term strategy while committing to a higher European NDC, this would allow for a concerted diplomatic effort for higher ambition with China and Canada to be agreed at the next Ministerial on Climate Action (date to be determined but presumably in the first quarter of 2019). This would inject much needed global leadership and prepare higher pledges to be announced at the UN Secretary General’s Climate Summit on 23 September in New York. This will be the most important international meeting on climate change during 2019 where countries are invited to make new national commitments – the missing element of COP24. In the words of UNSG Antonio Guterres, “from now on, my five priorities will be: Ambition in mitigation. Ambition in adaptation. Ambition in finance. Ambition in technical cooperation and capacity building. Ambition in technological innovation”.

A lot of work needs to be done to overcome the current divide inside Europe between progressive and less progressive Member States. The upcoming recommendations of the new Coal Commission in Germany could trigger a rethink and a repositioning of Germany, opening up the possibility of increasing the 2030 GHG target and organise more pressure on Central and Easter European countries, in particular on Poland. It will require a strategic offer to persuade them to move towards accepting higher targets by 2030. The next six months are therefore key to achieve this.

Conclusion

After COP24 the focus shifts to domestic processes and partnerships to keep the promise of the Paris Agreement alive through enhanced climate efforts. The EU is now expected to act as the global pacesetter on increasing NDCs ahead of the 2020 deadline. The EU can count on the support of a broad set of governmental, non-state and business actors. They provide the basis for discussing the range of actions needed to increase ambitions and in doing so to keep a chance of avoiding the most dangerous levels of climate change.

***

Luca Bergamaschi is Senior Associate on climate and energy diplomacy at climate think-tank E3G

back to menu

Better risk data is catalyst for transition

by

ENERGY WATCH #3 - December 13, 2018

Better risk data is catalyst for transition

by Mike Scott

back to menu

Investors are becoming increasingly pivotal in the climate change debate as the risk data available improves in quality and quantity. That data points towards growing risks to high-carbon companies they are invested in and therefore to their returns. It provides an important counterpoint to the efforts by some of the world’s largest fossil fuel producers – the US, Russia, Saudi Arabia and Kuwait – to water down climate commitments. The reality is, these companies must either plan in the risk arising from climate policies or see the money go elsewhere.

On many issues, business bends with the political wind because it knows that opinion will swing one way or the other depending on who is in power. On climate change, though, they know it’s happening, and that action is needed. If it doesn’t happen now, it will have to happen later, and it will likely cost more and be more disruptive.

The dangers, increasingly evident in extreme events such as this summer’s global heatwave, including in the Arctic Circle, are backed up by the Intergovernmental Panel on Climate Change’s most recent report, which shows that there are huge benefits, socially and economically, from keeping average temperature rises as low as possible.

That’s why more than 400 global investors with assets under management of $32 trillion – Boston Consulting Group calculated that the global total at the end of 2017 was $79.2 trillion – have called on governments around the world to address the “ambition gap” and step up action to address climate change, in particular by phasing out thermal coal power, putting a meaningful price on carbon and phasing out fossil fuel subsidies.

Investors are starting to take their own action to minimise their risks, in part by divesting from high-carbon companies and investing in lower-carbon alternatives. New York State Comptroller Thomas P. DiNapoli, who runs the $207 billion New York State Common Retirement Fund, says: “Despite the misguided policies of the Trump Administration, global efforts to address the very real threat climate risk presents to the economy, financial markets and investment returns are ongoing. Investors who ignore the changing world do so at their own peril.”

But while the world’s largest emitters are firmly in the spotlight thanks to initiatives such as Climate Action 100+, and are starting to respond (see last week’s story about Shell’s new climate targets), investors have been warned that they may be missing risks in many ‘overlooked’ industries, which are indirectly affected by the transitional risk of climate change, but not being recognised – and that means that companies in these sectors will soon come under increasing pressure to change.

MSCI says these ‘overlooked’ carbon-dependent industries are those which have low direct carbon emissions, but high revenue dependence on companies with carbon intensive operations and/or products. These industries include oil & gas equipment and services, heavy electrical equipment e.g. steam turbine manufacturers, and auto-parts and equipment.

One of the most striking illustrations of this is the recent reversal of fortunes at GE, which has had to write off billions of dollars and has cut thousands of jobs, including that of its CEO, after its bet on fossil fuel power generation – purchasing the power assets of Alstom – went bad as demand for steam turbines plummeted. Its rival Siemens, despite facing many of the same issues, has fared much better because it recognised much earlier that there would be a switch away from fossil fuels.

Remy Briand, head of ESG at MSCI comments: “Companies in these overlooked industries could pose an equally high risk to investors as those from the more traditional high carbon industries. Climate change risk is no longer simply determined by assessing historical carbon footprints.”

However, part of the problem for companies is that the signals from investors are inconsistent, with Influencemap pointing out that the world’s largest asset management groups – with a combined $40 trillion in capital market assets – have actually increased the holdings of thermal coal reserves in their funds by more than 20% (with fund inflows accounted for) since the Paris Agreement. They include investors that have very publicly called on companies to reduce their impacts, such as Blackrock and State Street.

A lot of this is to do with the rise of passive investing, where “universal” investors buy into entire benchmarks, regardless of companies’ carbon commitments. But Influencemap found that even some funds marketed as low-carbon have significant amounts of fossil fuel assets in them.

“Both index providers such as MSCI and S&P and the asset managers that use them to market climate themed funds are likely to be more carefully scrutinized on these funds and fossil fuel reserves contained within them in light of the IPCC’s latest statements on thermal coal,” the research group says.

Michael Liebreich, founder of Bloomberg New Energy Finance, says that what’s going on in Katowice is just a sideshow. “Climate economics precede climate diplomacy, not the other way around, and the economics keep looking better and better…shareholders and lenders are becoming increasingly uncomfortable with high-carbon business models,”

The signals from investors may be unclear for the moment, but with improved data bringing greater clarity on who is investing in fossil fuels and what the risks are, energy companies will face tough questions from their shareholders about how they are tackling climate change.

back to menu

Shipping’s decarbonisation forecast: cloudy, but bright spells expected for the future

by

ENERGY WATCH #1 - December 7, 2018

Shipping’s decarbonisation forecast: cloudy, but bright spells expected for the future

by Matthew James

back to menu

The International Maritime Organisation has joined the race to net zero emissions. The decarbonisation of shipping, especially for long-haul marine transportation, remains one of the biggest challenges facing the energy and business community. Innovation in infrastructure, technology and new fuel solutions all need to play their part in setting the maritime transport sector on the right course.

The maritime sector was always a “green pioneer”. That was down to submarine technology. Early submarine engines were part battery powered (nuclear came much later). Even before World War 1 all the major powers had submarines. So they can claim to be the first to prioritise battery power and come to grips with the struggles of minimising weight and size. So what went wrong?

Today, shipping is one of the largest greenhouse gas (GHG) emitting sectors of the global economy, responsible for around 1 Gt of CO2eq every year. EU shipping is responsible for 1/5 of those emissions. If shipping were a country, it would be the 6th biggest GHG emitter. And there are other problems completing a pretty black environmental picture.

The umbrella NGO, Transport & Environment (T&E) has recently produced a pretty pessimistic report which gives the impression that (apart from smaller inland and coastal marine transport) shipping will keep churning out more and more CO2 long into the second half of the century. T&E’s Faig Abbasov describes shipping as the neglected child of the transport sector, alluding to the fact that until now, shipping has not been subject to the same scrutiny and intense regulatory pressure as other sectors. But significantly, the report assumes that larger vessels will struggle to go low-carbon. The ocean going tanker and cargo fleets are the worst emitters. That means design efficiencies and speed-capping must play a part in reducing emissions on big boats.

If shipping carries on ‘as is’ the International Council on Clean Transportation warns sea transport could be responsible for 17% of all CO2 emissions by 2050. The International Maritime Organisation (IMO), the UN agency responsible for regulating shipping, quotes figures that show some progress: 796 million tonnes of CO2 emissions in 2012 (an improvement on 2007). Not bad considering that shipping falls into the “difficult to decarbonise” category. But that drop was helped by a decade of stagnant growth in key economies. IMO regulations mean the shipping industry has to adopt alternative fuel sources to achieve more and faster progress.

[Graph taken from DNV GL Energy Transition Outlook 2018: Maritime Forecast to 2050]

IMO strategy

In April this year the IMO adopted an initial greenhouse gas (GHG) strategy for international shipping. Called the “Initial IMO Strategy on Reduction of GHG emissions from ships”, it says: “The Initial Strategy envisages for the first time a reduction in total GHG emissions from international shipping which… should peak as soon as possible and to reduce the total annual GHG emissions by at least 50% by 2050 compared to 2008, while, at the same time, pursuing efforts towards phasing them out entirely.”

The IMO also includes rules on ship design “to strengthen the energy efficiency design requirements for ships [to achieve] reduction of CO2 emissions per transport work by at least 40% by 2030, and 70% by 2050”. That sets a clear target for the shipping engineers to sit down with those at the forefront of the renewable energy industry, find some answers and launch those new ships.

Which alternative fuels are best?

T&E concludes that “a mix of alternative zero emission technologies including battery-electric, liquid hydrogen and ammonia would cause the least additional strain on the broader energy system. Synthetic fuels such as electro-methane and electro-diesel, on the other hand, would be the least optimal and also extremely difficult to monitor and enforce.”

They split the problem into two categories: short and long sea journeys. Their view is that the most efficient and immediate solution for short sea voyages is battery powered ships. For longer journeys, it’s liquid hydrogen and liquid ammonia produced with zero-emission electricity.

The big problem with the “theoretical climate neutrality” of synthetic methane is, as with LNG, the methane leakage and slip that can take place during the transportation, bunkering and onboard combustion of the fuel.

T&E’s Faig Abbasov warns: “We need to avoid wasting lots of time and money on solutions that can’t deliver shipping decarbonisation. The biggest pitfalls are biofuels, which can’t be scaled or enforced sustainably, especially in shipping. LNG and synthetic methane are other dead ends due to methane leakage and enforcement problems.”

On a positive note, a surprisingly high percentage of European shipping emissions come from vessel types which are already suitable for fully electrified alternatives. As much as “15% of the EU’s maritime emissions could be in this category of short sea shipping, ro/ro passenger vessels and et cetera,” says T&E’s Lucy Gilliam.

It’s clear that the early adopters must be the small ships. Approximately 14,000 ships, 22% of the global commercial fleet, are below 400 gross tonnes, most of which are small coastal ships, e.g. tugs and passenger ships/ferries. Half of these are operating in Europe. Smaller ships travel shorter distances, so can be battery (or part-battery) driven and never be too far from a charging station. Given the potential quick wins from converting smaller ships, the regulators must tighten the rules here, and soon. “The technology is readily available to start this process and [journey] range can be extended as technology matures,” says the T&E report.

Regulatory stimulus

DNV GL is a global quality assurance and risk management company. In their report “Energy Transition Outlook 2018: Maritime Forecast to 2050” they provide a valuable reminder to the maritime industry of what rules are coming into force, and what rules might be added to make sure emissions targets are met.

Both the shipping sector and the fuel innovators had better take note. If the IMO’s targets are robustly enforced and met, DNV GL has modelled what that future energy mix for marine will look like. They find that by 2050, 39% of shipping energy will be from carbon-neutral fuels, which will have overtaken the 34% share of liquid fossil fuels, such as heavy fuel oil (HFO) and marine gas oil (MGO).

Liquefied natural gas (LNG) and liquid petroleum gas (LPG) will, together, have a 23% share. Electric batteries will be an energy source on one third of all ships from mid-century, providing about 5% of the total energy for shipping. Shortsea and non-cargo shipping will use 40% of the total energy; and, in these segments, electricity will constitute 11% of energy use.

Digging deeper, the DNV GL report includes a fascinating analysis into the design of carbon-robust bulk carriers under possible future CO2 regulations. It explores three design alternatives for a ship designed today and built in 2020: a standard ship, an LNG-powered ship, and a fuel-efficient option. “One striking finding is that investing in energy efficiency and reduced carbon footprint beyond current standards seems to increase competitiveness over the lifetime of the vessel,” the report states.

Someone is listening. Denmark’s Maersk, the world’s largest container shipper, announced this week that it aimed to have carbon neutral vessels commercially viable by 2030 by using energy sources such as biofuels and would cut its net carbon emissions to zero by 2050.

Electric ships are the “quick wins”

If shipping has a lot of catching up to do, what progress is being made with electric-driven ships, the most likely early adopters?

In Norway, research group Sintef Ocean and Zurich-based ABB are working together on hydrogen fuel-cell technology that can power full-sized vessels.

Sintef’s vessel simulator is being used to test different combinations of diesel, battery and fuel cells under varying loads. They even have their eyes on the big ships: “Ultimately, any type of commercial or passenger ship could be driven by fuel cells,” says Sintef’s Anders Valland.

How soon will it happen? Working alongside ABB, Ballard Power Systems is pushing the current kW-scale fuel-cell technology into a full MW-scale output. That’s enough to push big vessels through the water. In mid-2018 it developed a unit capable of producing a 3 MW unit – or 4,000 horsepower – the size of a standard fossil-fuelled marine engine.

Ballard Power Systems’ Nicolas Pocard says: “Marine applications are currently in development; they should become widely available within three to five years after the first systems are implemented and proven in the field.”

Governments and regulators must keep supporting the innovators.

Entrepreneurs developing new business models aimed at helping the industry by capitalising on developments in the electricity sector are keen for governments to catch up. “More can be done using subsidies, taxes, and regulations to help with the transition. Policy makers should be aware that a solution might be closer than we think. If they can play their role in speeding up the process, we can play ours better and faster,” says Frits Muller, entrepreneur and advisor at Skoon.

Opportunities and incentives

The maritime sector has a long way to go, but the purpose of the IMO’s new regulations is to propel the sector forward and catch up with the rest of the world.

The smaller the ship, the sooner it will be converted to a low- or no-carbon vessel. The inland and short range picture is set to change spectacularly, creating a significant demand (and therefore acting as a driver) for renewable energy production.

At the other end of the scale, the existing huge tankers will be the slowest to change. Given that the vast majority of emissions from the sector come from big, long-range transport vessels, where net zero fuel options are just not viable yet, this is a big problem. Hopefully, the designers and financers of the big ships being built today can see the new fuel alternatives as the future, as more evidence comes in that efficient low carbon vessels can save money in the long term.

back to menu

Shell links executive pay to emissions goals – now follow that!

by

ENERGY WATCH #2 - December 7, 2018

Shell links executive pay to emissions goals - now follow that!

by Mike Scott

back to menu

Royal Dutch Shell has kicked off the annual round of announcements that accompany the UN climate conference with possibly the most consequential initiative of all. It has said it will set short-term, binding targets to cut emissions. Not only that, but it will link executive pay to meeting these targets.

One of the biggest producers of fossil fuels has, for the first time, agreed to cut its carbon emissions – by 20% by 2035, rising to around 50% by 2050. And it is doing this in absolute terms, not per unit of production as high emitters so often do.

This is not tree huggery. It is a hard-headed business decision to position the company for the “energy transition”. “This ambition positions the company well for the future and seeks to ensure we thrive as the world works to meet the goals of the Paris Agreement on climate change,” said CEO Ben van Beurden.

The company has now set the bar for the industry.

But will other oil majors follow?

While Shell is ahead of many of its rivals, it will not be the last company to do this. This is part of a bigger trend, although everyone will do things in their own way.

The other European majors seem likely to follow suit, although US companies may react slightly differently – for example, ExxonMobil announced last week that it’s going to use wind and solar power to produce shale gas in the Permian Basin. Most of the oil majors are stepping up their investments in renewable energy and electric transport. Following Shell’s announcement, expect a race to the top.

When your product is oil, your customers’ emissions matter too

The emissions Shell is planning to reduce include those of its customers. This is another huge development – big oil is starting to realise that it has to deal with end-use emissions as well as its own operations. This is the result of the increasing focus on “Scope 3” emissions – those in a company’s value chain rather than from its direct operations – that is embedded in initiatives such as the RE100, Science Based Targets, the Greenhouse Gas Protocol and CDP’s collection of carbon emissions data. For many products and companies, their key impacts lie not in their own facilities and production but in their supply chains (e.g. food producers) or their end users (e.g. oil and gas groups).

Shell needs to consider end user emissions because other companies are looking to reduce their own Scope 3 emissions to meet their own sustainability targets. If Shell wants to keep selling to them, it has to reduce the emissions from its products.

Shareholder activism is working

This move is the result of pressure from investors, which is both increasing and becoming increasingly targeted in its focus. Shell was asked to act by Climate Action 100+, a group of more than 300 investors representing $32 trillion of assets, which targets the 100 biggest global emitters, representing up to two thirds of global emissions (plus another 61 nominated by the investors as either having significant climate risks or a significant opportunity to drive the clean energy transition.) Three quarters of the companies are either fossil fuel providers or their major customers in utilities, transportation and chemicals.

So even if the sectors ignore investors, their customers are likely to ask them to act. Mindy Lubber, CEO of investor group Ceres, said Shell’s announcement was a critically important benchmark against which other oil and gas majors will be assessed. “Climate Action 100+ will now use this commitment to raise the bar for the oil and gas industry as a whole.”

It’s easy to criticise the sector for a combination of dragging its feet and greenwash announcements that amount to little (ExxonMobil’s algae adverts, for example). But this looks like an indicator of a real change in strategy. Last year, Shell made a load of acquisitions in clean energy, and a load of announcements around climate, that were all pretty small-scale compared to its investments in its core business, and non-binding. These targets are not only binding, they are linked to senior executives’ pay.

Against a geopolitical backdrop that looks really quite pessimistic for climate action, given the prominence of Trump, Bolsonaro, Putin, MBS and others, this sends a huge message to climate-sceptic leaders that the business at the heart of it all believes the science, sees the writing on the wall and thinks now is the time to act.

It also suggests that the sector is starting to see a way through the morass of climate action, which until recently must have looked potentially deadly. It sees healthy demand for years to come in chemicals (including plastics), shipping (where diesel or natural gas could be cleaner alternatives to bunker fuel), and aviation.

The renewable age is starting to make commercial sense

The industry may also be ready to embrace carbon capture, particularly if the carbon can be used rather than stored. I recall conferences over a decade ago where the majors said that CCS was all very well, but governments were going to have to pay. With renewables increasingly cost-competitive with fossil fuels for power, industrial operations and transport, that equation may be changing.

Of course, we need to be realistic about how much difference this will make. The same day as Shell’s announcement, Wood Mackenzie published a report saying that even with oil demand peaking some time in the 2030s, fossil fuels will still comprise 77% of global energy demand. The difference, apart from the growth in the amount of renewable electricity, is that a huge amount of coal is replaced by gas. This suits the majors just fine.