How can society meet the goal of the Paris Agreement?

Energy is a fundamental human need. It is essential for survival, for health and the benefits of modern life. It is needed for cooking, heating and cooling, for travel and all forms of economic activity. Energy enables opportunities for a growing population seeking to improve their quality of life.

The world's population today is around 7.5 billion, and by 2050 the UN expects the world population to reach close to 10 billion. Society faces a dual challenge: how to extend the benefits of energy to everyone on the planet while making a transition to a low-carbon energy future to manage the risks of climate change.

The goal of the Paris Agreement is to hold the increase in the global average temperature to well-below 2° Celsius, while pursuing efforts to limit the temperature increase to 1.5 °C compared to pre-industrial levels. Achieving this goal will require a dramatic reduction in greenhouse gas emissions, reaching a point of net-zero global emissions within the second half of this century.

It will require fundamental changes in the way energy is produced and used across the global economy. Greatest focus is required in the power, transport, buildings and industry sectors, which account for the bulk of greenhouse gas emissions.

There are three ways to reduce global greenhouse gas emissions:

  1. Improve energy productivity by more efficient use of energy combined with modal shifts and use of technology to manage energy demand.
  2. Change the mix of energy products used by society. This will involve replacing high carbon-intensity products with lower or zero carbon products. An example would be substituting coal with natural gas. Another example would be substituting gasoline/petrol in internal combustion engine cars with renewable electricity in battery-powered vehicles.
  3. Store emissions in carbon sinks by using carbon capture and storage and nature-based solutions such as reforestation. A sink is a mechanism to remove and store carbon dioxide from the system, either at the point of emission or by natural or technological removal from the atmosphere.

Only in combination will these deliver the full reduction in energy system emissions required by the Paris Agreement. See illustration below:

The scale of the challenge will require unprecedented collaboration and action between all parts of society. This must involve governments, end-users of energy and businesses, including energy producers and suppliers.

Governments need to introduce long-term policies, for example carbon pricing, that reshape the economy and the energy system for our society. They also need to enable the development of lower-carbon and renewable sources of energy and support low carbon technologies, such as carbon capture and storage.

End-users of energy have a critical role to play through the choices they make. This means the types of energy they use, the amount of energy they consume and how efficiently they use it.

Businesses will need to adapt their strategies, innovate and develop technologies that will support the transition to a lower carbon future. Energy producers and suppliers, like Shell, will need to act to enable this shift.

What is Shell's Net Carbon Footprint ambition?

In December 2017, Shell announced its Net Carbon Footprint ambition. Our plan is to reduce the Net Carbon Footprint of the energy products we sell in step with society's progress towards meeting the Paris Agreement.

In April 2020 we announced that we intend to accelerate our Net Carbon Footprint ambition, to align with the stretched goal of the Paris Agreement to limit the global average temperature rise to 1.5° Celsius. 

This means we have now increased our ambition and aim to reduce the Net Carbon Footprint of the energy products we sell by around 65% by 2050. As an interim measure, we aim to reduce it by around 30% by 2035.

We will set specific Net Carbon Footprint targets each year for the following three- to five-year period. Beginning in 2019, we set an unconditional three-year target to reduce our Net Carbon Footprint by 2% to 3% by the end of 2021, compared to a 2016 baseline. This was followed-up in 2020 with a target of a 3% to 4% reduction by the end of 2022, against the same baseline.

From 2019 our executives’ pay has been linked to this target and, beginning in 2020, we have incorporated the energy transition condition into the performance share awards made to around 16,000 employees globally.

Greenhouse gas emissions need to be reduced in all parts of the energy system. As shown in Chart 1 above, there are three ways to achieve this: improve energy productivity; change the mix of energy products; and store emissions in carbon sinks. 

As an energy supplier, Shell has the ability to change the mix of the energy products that we sell to reduce the average carbon intensity and we can also develop carbon sinks within our own operations. These actions are the focus of the Net Carbon Footprint.

Shell introduced the Net Carbon Footprint as a quantitative way of measuring the decarbonisation of the energy products we sell. Publishing our Net Carbon Footprint annually allows our progress towards achieving our ambition to be tracked.

What is the scope of the Net Carbon Footprint?

The Net Carbon Footprint includes carbon dioxide, methane and other greenhouse gas emissions. The scope of the Net Carbon Footprint includes:

  • emissions from our own operations associated with the production and processing of energy products;
  • the emissions of third parties who supply energy or products to us – both intermediate and finished products. As such, we include emissions from activities that we may not own or operate;
  • our customers' emissions when using the energy products sold by Shell. This is an important point. The emissions generated from the processes that bring an energy product to the customer represent around 15% of overall emissions. The use of a product generates around 85% of overall emissions. Shell was the first oil and gas company to include our customers’ emissions from the use of the energy products that we sell to them in plans related to climate change;
  • emissions mitigation by Shell using carbon sinks, such as reforestation or carbon capture and storage.

All of these are considered together in our Net Carbon Footprint calculation. Chart 2 below provides an illustration.

What is not included in the Net Carbon Footprint calculation?

The Net Carbon Footprint calculation covers energy products. Non-energy products such as chemicals, lubricants and bitumen are not included. This is because their end-use is not combustion, and so they are not consumed as energy in the way that liquefied natural gas (LNG), gasoline or diesel are consumed.

An example of a non-energy product would be the chemical ethylene, which is a precursor chemical for plastics as well as other common products. The calculation includes our trading activities, such as where we buy products from others to resell them but excludes trading activities that does not result in a product sale.

The calculation includes the emissions from the production, processing and transport of energy products as well as their use by the end-users. However, it does not include emissions associated with the construction or decommissioning of the assets, e.g. refineries, involved in producing the products.

A core principle is that it also does not account for actions taken by end-users of energy that lie outside of Shell’s control: both positive and negative. This includes actions such as the choice of a more or less efficient car and how far it is driven, both of which affect the overall energy demand.

Similarly, we do not account for the application of carbon sinks by end-users where Shell is not involved, because this shouldn’t be credited to Shell. An example of this would be carbon capture and storage that might be applied in the cement or steel industry.

What methodology have you applied to the Net Carbon Footprint?

The environmental impact of a product throughout its lifetime can be measured using an approach called lifecycle assessment. This approach can be used to establish the total emissions which are generated when a product is produced, delivered to, and used by, a consumer. The total greenhouse gas emissions across a product’s lifecycle are often referred to as its Carbon Footprint.

If this approach is applied to energy products, the Carbon Footprint of a litre of gasoline would include the emissions associated with: a) the production, transport and refining of crude oil; b) the transport of the fuel to a service station, and; c) the final combustion of the fuel in a vehicle.

Shell uses this approach to measure the Carbon Footprint of its energy products by assessing the lifecycle emissions associated with the energy we deliver to the market. Specifically, we calculate the emissions intensity (gCO2e/MJ) in terms of the grams of carbon dioxide equivalent (gCO2e) per unit of energy (MJ) delivered.

Carbon dioxide, or CO2, is the most abundant greenhouse gas emitted by human activities. Other important greenhouse gases also need to be included. The term "carbon dioxide equivalent" is a way of adding them together on a common basis by equating each of them to carbon dioxide.

Once we’ve determined the Carbon Footprint for each of the individual energy products sold by Shell, we then calculate the overall Net Carbon Footprint by taking a weighted average of the footprints of the individual products, with the weighting based on the sales volumes.

We describe this as a Net Carbon Footprint because we subtract, or "net off", any emissions that we store in sinks. For example, we subtract emissions that are stored using carbon capture and storage in our own operations. We also subtract any carbon dioxide emissions that are removed from the atmosphere and stored using natural carbon sinks that we create using nature-based solutions, such as reforestation.

The Net Carbon Footprint methodology allows like-for-like comparisons, as well as the aggregation of a range of energy products including renewables. In order to calculate the energy content of the different products, their lower heating values are used to derive the energy content in megajoules. A fossil-equivalence approach is used to account for electrical energy.

A detailed description of Shell’s Net Carbon Footprint methodology is available on our website.

Why did Shell choose a metric that has an underlying intensity basis and not an absolute emissions metric?

Greenhouse gas emissions need to be reduced in all parts of the energy system. There are three ways to achieve this: improve energy productivity, change the mix of energy products and store emissions in carbon sinks. 

Over time, the energy products that our customers want will change as they look to reduce emissions. They will want a mix of energy products with an increasingly lower Carbon Footprint. As an energy provider, Shell will act to support this shift. 

The Net Carbon Footprint is a metric designed to track the change in the emissions intensity of the energy products that we supply. It is an intensity-based metric because it focuses on Shell’s contribution to the energy system.

Society will need more energy, so the total amount of energy Shell contributes is likely to increase. An intensity-based metric allows Shell to focus on providing the energy that our customers want while contributing to decarbonisation by also supplying lower-carbon energy products.

The Net Carbon Footprint focuses on the type of energy supplied. It does not focus on the elements of the energy system that lie outside of our control, namely total energy demand or the extent to which carbon sinks are deployed by other parties.

How does Shell's Net Carbon Footprint relate to the broader energy system?

The Net Carbon Footprint of the energy products sold by Shell can be compared against the Carbon Footprint calculation for the mix of energy products in the overall energy system.

Our intent is that the Net Carbon Footprint ambition will move in step with the Carbon Footprint of the energy-mix used by society (i.e. our customers). Shell's Net Carbon Footprint today is higher than the overall energy system's Carbon Footprint, despite the absence of coal in our portfolio.

This is because Shell's portfolio today is largely comprised of oil and gas. We do not benefit from the greater percentage of low or zero carbon energy found in the broader energy system e.g. hydroelectricity, nuclear, wind or solar. This also includes generally non-commercial traditional renewable fuels like peat, wood and dung.

Is Shell's Net Carbon Footprint Ambition in line with the emissions reduction needed by the Paris Agreement? 

Shell's Net Carbon Footprint ambition is designed to be consistent with the Paris Agreement goal of limiting the increase in global average temperature to well-below 2°C and the stretched goal to limit it to 1.5°C compared to pre-industrial levels.

To achieve this, we have calibrated our ambition using scenarios which have outcomes aligned with the Paris Agreement. These scenarios are taken from a database developed for the IPCC Special Report on Global Warming of 1.5°C (SR 1.5).

We began by calculating the footprint range for a group of 1.5°C scenarios taken from the SR 1.5 scenario database. To do this we calculated the footprint of the energy mix in each of the individual scenarios in a similar way that we calculate the footprint of the mix of energy products sold by Shell. 

Having established the Net Carbon Footprints of both Shell and the mix of energy products in a range of scenarios using a comparable measure, we are then able to compare how both Shell and the global energy product-mix might need to change to meet the goal of the Paris Agreement. 

This showed that by 2050, the footprint of the energy-mix in the global energy system needs to reduce by around 50% to 80%. There is a range of possible outcomes because individual scenarios rely to different extents on changing the energy mix, improving energy productivity and using sinks to capture residual emissions.

Shell's ambition is to reduce our Net Carbon Footprint by around 65% relative to the 2016 baseline by 2050, placing us within the range defined by the 1.5°C scenarios from SR 1.5. We aim to reduce our Net Carbon Footprint by around 30% by 2035 as an interim measure. In this way Shell’s ambition is designed to be consistent with the Paris Agreement.

Our ambition depends on society making progress to meet 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. 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.

How did you select the group of 1.5°C scenarios which were used to calibrate Shell’s Net Carbon Footprint ambition?

The scenarios prepared for the IPCC Special Report on Global Warming of 1.5°C (SR 1.5) are categorised according to their temperature outcome and degree of overshoot. Overshoot refers to the extent to which a scenario exceeds an emissions budget and subsequently relies on sinks to compensate for the excess emissions.

To calibrate our ambition, we started by selecting all the scenarios in the 1.5°C high overshoot and 1.5°C low overshoot categories. We then selected the scenarios which focused on earlier action and placed less reliance on the use of sinks. Finally, we removed any outlying values at the top and bottom of the range to produce the 1.5°C pathway shown in Chart 3.

The 1.5°C pathway in Chart 3 accounts for the use of sinks to capture emissions during the production and use of energy products. This is aligned with the methodology used to calculate Shell’s Net Carbon Footprint and allows this pathway to be used as a reference for comparison.

What actions will reduce the Net Carbon Footprint of the energy products you sell?

Our Net Carbon Footprint ambition will require Shell to drive down the emissions caused by the production, manufacturing and distribution of the energy products that we sell.

It will also require us to sell more energy products that produce little or no emissions. This is an important point. The emissions generated from processes that bring a product to customers represent around 15% of overall emissions. Customers’ emissions from the use of an energy product generates around 85% of overall emissions.

We have several options to reduce the Net Carbon Footprint of the energy products that we sell. These range from improving the efficiency of our own operations and maturing our investments in renewable power generation, to developing carbon sinks.

The greatest contribution Shell can make right now is to continue to grow the role of natural gas to fuel transport, heat and light homes, and power industries. Natural gas emits between 45% and 55% fewer greenhouse gas emissions than coal when used to generate electricity, according to data from the International Energy Agency (IEA).

Beyond natural gas, we are investing in low-carbon technologies and businesses that will be necessary to enable the transition. These include low-carbon biofuels, carbon capture and storage, hydrogen, solar power, wind power and nature-based solutions such as reforestation.

In 2016, we set up a New Energies business to better focus these efforts and explore commercial opportunities in new and fast-growing segments of the energy industry.

In 2017 we acquired NewMotion, one of Europe's largest providers of battery electric vehicle charging points. NewMotion operates more than 30,000 private electric charge points located in homes and offices in the Netherlands, Germany, France and the UK.

It also provides 100,000 registered charge card users access to over 50,000 public charge points across 25 countries in Europe. 

Shell has developed a smart-charging technology that allows consumers to take power from the grid to charge their vehicles at times of low demand. This will lower consumers' electricity bills and help to prevent localised power shortages.

Shell is the biggest shareholder in Silicon Ranch Corporation, a leading US developer, owner and operator of solar energy plants. Shell has also agreed to acquire 100% of sonnen, a leader in smart energy storage systems and innovative energy services for households.

Natural ecosystems such as forests and wetlands play a critical role in capturing and storing carbon and can make a vital contribution to limiting global warming. One of the ways that Shell intends to reduce the Net Carbon Footprint of the energy products we sell is by investing in such nature-based solutions.

An example is in the Netherlands, where we offer companies the opportunity to compensate for the emissions associated with the use of their vehicles.

This initiative supports third-party projects, including the Kasigau Corridor project in Kenya, which was developed by Wildlife Works. The Kasigau Corridor project protects 500,000 acres of a threatened area of forest, while preserving biodiversity and wildlife habitat.

Since 2017, Shell’s executive scorecard for the annual bonus has included a target for reducing our greenhouse gas emissions from our operational assets such as refineries. Improving the energy efficiency of the facilities we operate is one of the ways we manage our greenhouse gas emissions.

From 2019 onwards, we have been reporting our progress towards our Net Carbon Footprint ambition. 

Alongside our business activities, we work with governments to help them to produce effective energy transition plans and policies. We encourage government-led carbon pricing to incentivise businesses and end-users of energy to reduce greenhouse gas emissions and support technologies such as carbon capture and storage. 

We also intend to work with our customers to address the emissions which are produced when they use the fuels they buy from Shell and help them find ways to decarbonise. This will involve working with broad coalitions of businesses, governments and other parties, sector by sector, to identify and enable decarbonisation pathways for each sector.

These are just a few examples of the actions we will undertake to achieve our Net Carbon Footprint ambition. For other examples, please see the Shell Energy Transition Report. However, our current business plans will not get us to where we want to be. That means our business plans have to change over time as society and our customers also change. This is what we mean by being “in step with society.

Is your data externally verified?

Shell annually submits the Net Carbon Footprint calculations to our environmental auditors for verification. Assurance statements are published on the Shell Sustainability reporting and performance data website.

How will you assess and report progress against the Net Carbon Footprint ambition?

Every five years, Shell will assess collective progress toward meeting the Paris Agreement’s long-term goal informed by the agreement’s five-yearly "global stocktake".

Shell will review our ambition based on this assessment of progress, revised scenarios and Nationally Determined Contributions, which make up the backbone of the Paris Agreement. Inherent in this review will be an appraisal of developments in technology and policy.

The first five-year review by Shell is currently anticipated to take place after 2021.

Progress against Shell's Net Carbon Footprint ambition is reported annually in our Annual Report and Sustainability Report. This is in line with best practice as set by the Task Force on Climate-related Financial Disclosures. 

How will the link to remuneration work in practice? How will you ensure it motivates the right actions? 

In 2018, Shell announced it will set specific Net Carbon Footprint targets each year covering the following three-year period. The target setting process will start from 2019 and will run to 2050.

In 2019, Shell's remuneration committee decided to include an energy transition condition into the 2019 long-term incentive plan based on recommendations from Shell's corporate and social responsibility committee. In 2020, we have incorporated the energy transition condition into the performance share awards made to around 16,000 employees globally.

This condition includes our rolling three-year Net Carbon Footprint targets along with other measures that will help us to achieve our strategic ambitions in the long term, related to growth of Shell's power business, commercialising opportunities in advanced biofuel technology and the development of sinks to capture and store carbon.

For more information, see the directors' remuneration report in our Annual Report.

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