The need for change
The energy system the world has now cannot supply more energy and, at the same time, reduce greenhouse gas emissions like carbon dioxide. To achieve this, the system must change.
Today's energy system is largely tied to fuels that release greenhouse gases into the atmosphere when used.
In the future, that system must be made of products which, on average, release much lower levels of greenhouse gases for each unit of energy used.
In other words, they must have a lower carbon intensity, which Shell calls a carbon footprint. The products in the new energy system will include renewable electricity, biofuels and hydrogen, alongside oil and gas.
The three-part answer
Lowering the carbon intensity of the energy products in the energy system is one part of the answer. The second part of the answer is how those energy products are used: how much is consumed and how efficiently.
The third part of the answer is dealing with the carbon dioxide emissions that cannot be avoided. These will need to be removed and stored through natural processes like reforestation or by using technology.
Shell is a big company and we supply around 3% of the energy the world uses. We want to play our part and contribute to the global effort to tackle climate change as we provide energy the world needs.
We must also have a sustainable business model that is in tune with our customers. Shell cannot continue to be financially successful if it does not have this. To that end, Shell decided to set itself a challenging ambition.
We intend to cut the carbon intensity of the energy products we sell, in step with society as it moves towards the goal of the Paris Agreement.
That means fewer greenhouse gases emitted on average with each unit of energy we sell – by around 20% by 2035 and by around half by 2050.
And that includes all the emissions from the life cycle of each of our energy products: from production to processing, to transportation and through to final use. This is what we call our Net Carbon Footprint ambition.
The Paris Agreement: taking immediate action
While our ambition is long term, we believe we must act today. So beginning in 2019, we have set an unconditional three-year target to reduce our Net Carbon Footprint by 2% to 3% compared to 2016.
This target setting will then be done annually, with each year’s target covering either a three or five-year period. Our executives' pay is now linked, in part, to this target.
To ensure our Net Carbon Footprint ambition is consistent with the Paris Agreement, we looked into how the world could achieve its goal. We published the results of this work as our Sky scenario.
Using Sky, alongside work done by the International Energy Agency, we laid out a possible path that society could take towards Paris while also allowing enough energy use to enable living standards to rise. Our Net Carbon Footprint ambition is consistent with that path.
Governments, regulators and consumers also have a major role to play if the world is to achieve the goal of the Paris Agreement. The world must change the way it uses energy and the types of energy it demands. And if Shell is to meet our ambition we will have to be a part of this effort by changing what we sell.
Shell only controls its own emissions but by changing the mix of energy products we supply, we aim to help and influence others to lower their emissions.
Both energy demand and energy supply must evolve together. This is because no business can survive unless it sells things that people need and buy.
That is why we must remain in tune with society as it moves towards the goal of the Paris Agreement. If society changes its energy demands more quickly, we intend to aid that acceleration. If it changes more slowly, we will not be able to move as quickly as we would like. We will, however, have to move faster than society to make the same progress.
The energy product mix Shell sells today comes with a higher intensity of greenhouse gases than the average in today's global energy system.
One reason is that Shell's product mix includes only a relatively small amount of renewables. This means that we are behind. Our ambition means catching up.
The full range of emissions
This starts with ensuring our operations use energy as efficiently as possible. But this covers less than 15% of the greenhouse gases associated with our energy products. The rest are caused by customers when using our products: by driving their cars, for example.
So our Net Carbon Footprint ambition includes not only Shell's greenhouse gas emissions but also our customers' greenhouse gas emissions from their use of the energy products we sell to them.
That means that, while we will address the greenhouse gases created as we make our energy products, the Net Carbon Footprint ambition means far more for us. Over time, we must change the mix of the products we sell.