At the Oil & Money Conference this week in London, Royal Dutch Shell’s CEO Ben van Beurden warned that energy companies that do not collaborate in the fight against climate change under the 2015 Paris Agreement risk going out of business.
“Energy companies which do not play a full role in such collaborations and that do not evolve will fall behind society. They will fall by the wayside,” van Beurden told the Oil & Money conference.
He called on leaders of energy as well as other industries including aviation, shipping and steel to jointly draw up plans to tackle greenhouse gas emissions to reach the Paris climate goals for “net zero” emissions by the end of the century.
Government-set taxes on carbon emissions will not be enough to turn the tide and coordinated action from industries to improve efficiency and reduce carbon emissions is essential, van Beurden posited.
An important message was that governments and industries need to transform demand, not solely focus on supply, as the transformation trigger to address decarbonization.
In a 5-minute video interview with Bloomberg on the conference sidelines, van Beurden addressed the recent social and political backlash against big oil (“big energy”) in the context of climate change mandates and decarbonization initiatives. He noted that he is seeing a shift to more mature debates in which energy suppliers, consumers, and society (not just suppliers alone) are coming together to transform the debate to get to a better place.
Walking the Talk? Shell’s Betting on its Climate Scenario
Shell has been recognized since the 1970s as a pioneer of scenario analysis. In its Sky Scenario released earlier this year, Shell describes one possible path to successfully combat climate change which they describe:
“A new energy system is emerging. The Paris Agreement has sent a signal around the world: climate change is a serious issue that governments are determined to address. By 2070 there is the potential for a very different energy system to emerge. The Sky scenario outlines what we believe to be a technologically, industrially, and economically possible route forward, consistent with limiting the global average temperature rise to well below 2°C from pre-industrial levels. It reveals the potential for an energy system to emerge that brings modern energy to all in the world, without delivering a climate legacy that society cannot readily adapt to.”
In its March 2019 Sky Scenario report, Shell described the key signposts and sector triggers that would be likely under this future view of achieving the tenants of the Paris Climate Agreement. The scenario envisions a plausible energy future in which the world achieves net-zero carbon emissions by 2070, holding global average temperatures beneath the international target of 2 degrees Celsius.
Towards this objective, a major joint initiative was announced in September in which Shell, the Danish government, and 60 other companies, including Citigroup bank and AP Moeller Maersk, the world’s largest shipper, would identify ways to develop a system to fast track zero emissions fuels and commercially viable ships by 2030.
But getting to net zero will likely require offsets because certain industries like aviation and shipping still lack the technology to abandon fossil fuels altogether. A reality not lost on executives who discussed the practical requirements to transform the energy industry at the October UN Climate Action Summit on Sept. 23.
Critics of Shell’s Sky Scenario have weighed in on the probability of the Sky scenario coming to fruition under the signposts Shell identified, but also critique the notion of Shell being the vanguard to drive this energy transition.
Between the Sound Bites: Spin vs. Shift in Business Vision
These climate scenario debates will and should continue. However, this is actually the point of scenario analytics – to create a plausible future framework to stress test and measure the signposts and triggers for where the future may be headed, the velocity, and the policy, technology, and competitive dynamics that will formulate the potential future energy landscape. Debate and disagreement are not bad things in scenario planning – it’s actually an important goal of the process to develop priorities and contingency plans.
The question is: Is this a great example of a company like Shell actually changing its business vision based on embracing its own future decarbonization scenario OR is this market positioning and spin to deflect focus from the core fossil-fuel business still very much a part of their portfolio.
After all, Shell’s CEO is asking industries to change their business strategies and positioning, a conclusion that may have taken Shell’s internal team many cycles in order to get to their own business acceptance and adoption of climate change principles. When did Shell hit that trigger point in its own exploration of market trends and signposts?
These exploration cycles occur over time & iterations within a company like Shell, with substantial resources and a dedicated scenario team. But what does the timing of potential acceptance and adoption curves for other companies and industries, who may not have devoted the equivalent time or resources, look like if you believe the premise of Shell’s Sky Scenario it is plausible and likely?
Is there a process or approach to shorten and replicate that S-curve before energy companies “fall to the wayside” as Shell’s CEO Ben van Beurden observed? Demand, supply, incentives, business drivers and capabilities are a complex system that will require an integrated, intelligent approach to optimize business model shifts.
Is there a potential for a coalition of big companies that have already reached some level of buy-in on a decarbonization strategy that could share their business insights for other companies and industries? What can be done more proactively to accelerate the evolution and synchronization of this energy transformation to maximize the likelihood that it will actually occur?
Let’s continue this discussion to deepen the debate, explore the disagreements, and identify the opportunities.
Editor’s Note: The new business model for EnergyPaiges will be launching soon. We will be filtering thousands of news reports & data analysis published every day to optimize the news by providing a lens of outcomes & impacts. Our insights will continuously be applied to three EnergyPaiges scenarios that characterize different plausible paths for how the energy industry may evolve. Stay tuned!
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