Speeches 2007

Jeroen van der Veer writes about tackling CO2 emissions in the Financial Times

24/01/2007

Jeroen van der Veer

Article published in London's Financial Times newspaper, Wednesday 24 January 2007

States should create a climate for change

Systemic changes are needed in order to promote effective action to tackle carbon dioxide emissions. Society needs more energy as much as it needs better ways to reduce the negative environmental effects of its production and use. Governments have a crucial role in ensuring that consumers and industry respond effectively.

In order for market forces to work we (paradoxically) need more regulations. Governments must urgently provide the rules that can foster lower carbon dioxide emissions. These regulations must encourage both investment in new technologies and energy conservation.

The European Union's newly proposed energy policy includes many welcome ideas and sets ambitious goals for reducing emissions over a relatively short period. But past experience has shown that aggressive targets mean little unless EU member governments provide incentives and rules that make them achievable. Policies need to accelerate society's search for CO2 solutions and greener fossil fuels.

These fall into two broad categories: Standards and market mechanisms. Both will be necessary to trigger innovation and technology development. Indeed, in some cases setting standards now to take effect after a period of up to 10 years can speed-up the emergence of new technology.

One approach could be to toughen regulations on the energy efficiency of everything from buildings to consumer appliances. This would help to encourage conservation. Japan, which has promoted conservation through a variety of rules since the 1970s energy crisis, provides a good example of how effectively they can influence consumption. Japan used the equivalent of 2.8 tonnes of oil per person in 2004, compared to 5.4 tonnes per person in the US, according to the International Energy Agency (IEA).

Policymakers the world over should make wider use of flexible market mechanisms such as the capping of carbon emissions and trading of credits that has occurred under the European emissions trading scheme since 2005. While Europe's CO2 market is a good start, trading needs to become global in order to be truly effective. Only once widespread trading has established a clear cost for emitting CO2 will companies routinely incorporate it into calculations for big investments such as power plants and refineries that often have a life-span of 30 years or more.

Governments can partner with industry on large-scale projects to capture and store CO2 from sources like power plants. Indeed, power generation offers one of the biggest opportunities for limiting emissions. Generation is now responsible for 41 per cent of global energy-related carbon emissions, according to the IEA. That could rise to 44 per cent by 2030, as electricity takes an bigger share of energy consumption.

Unlike vehicles, power plants are stationary, making it easier to capture the carbon they emit. The technology exists to inject that CO2 into the ground where it can safely be stored. Shell and other oil companies have injected naturally occurring CO2 into oil wells for decades to coax out crude.

We are currently exploring a project with Statoil and the Norwegian government to capture CO2 from a power plant on the Norwegian coast and inject it into oil wells in the North Sea. Other approaches, such as storing CO2 in vast underground saltwater deposits, also show promise, but much work remains to improve the technology and bring down costs.

Under Europe's current carbon trading scheme, companies that undertake projects to capture and store CO2 receive no credit for the reduction in emissions. That must change. Public funding would also help to make this technology more viable. Unless governments and industry work more closely together, there will be little incentive to undertake projects – and the practice of capturing carbon will likely develop at a crawl.

Biofuels made from plants and organic waste also have the potential to lower transport emissions. Today, however, many are made from food crops such as corn and sugar cane that require lots of energy to produce. Although these fuels can reduce emissions, second-generation biofuels made from non-food sources could offer even greater reductions. In Shell we focus on second or even third-generation biofuels that squeeze more liters out of fewer acres. We believe that laws to promote the use of biofuels should reward ones that deliver the most CO2 savings and that reduce costs.

Companies like Shell clearly have an important role to play. Our own energy efficiency improvements are already delivering CO2 savings of about 1m tonnes a year. We are already one of the world's largest distributors of biofuels. Since 2000, we have invested more than $1bn in alternative energy sources like wind, solar and hydrogen. Our aim is to turn one of them into a substantial business over time.

But no single company or industry can effectively address the challenge of global climate change. If governments provide a sound regulatory framework, companies can better help to "attack CO2". Likewise, if governments fail to play their part to address the problem, lawmakers and society at large should not look to industry to solve it alone.

The writer is chief executive of Royal Dutch Shell