Shell's Net Carbon Footprint ambition: frequently asked questions

How can society meet the Paris Agreement?

Energy is a fundamental human need. It is essential for survival, for health and the benefits of modern life. We need it for cooking, heating and cooling, for travel and all forms of economic activity.

Every product we buy or service we use to make our lives better comes from a business or organisation that relies on energy. Energy enables opportunities for a growing population seeking to improve their quality of life. The world's population today is around 7.5 billion.

By 2050 the UN expects the world population to be 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 keep the increase in the global average temperature to well-below 2° Celsius compared to pre-industrial levels. Achieving this 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 by end-users combined with the 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 sourced from a wind farm 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 the efficiency with which they consume 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.

By 2050 we intend to reduce our Net Carbon Footprint by around 50%. We plan to reduce our Net Carbon Footprint by around 20% by 2035 as an interim measure.

We will set specific Net Carbon Footprint targets each year for the following three- or five-year period. 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.

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 the extent that our customers are willing to buy them.

We can also develop carbon sinks within our own operations. These are the focus of the Net Carbon Footprint.

Chart 1 above shows that the changing mix of energy products is an important part of the effort required to meet the Paris Agreement.

It is necessary to have a specific metric to track the contribution of emission reductions when changing the energy mix. Shell introduced the Net Carbon Footprint as a quantitative means to track its own efforts. It will allow our stakeholders to measure the progress made by the company.

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 emissions associated with the use of the energy products that we sell 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 would be the chemical ethylene, which is a precursor chemical for plastics as well as other common products. The calculation also does not include energy products that are traded by Shell but which are eventually sold to customers by other companies.

The calculation covers the full journey of the energy molecule or electron itself, from production to end use. As such it does not include emissions associated with the construction or decommissioning of physical assets.

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. These actions include how efficient a car is and how far it is driven, which affects overall energy demand.

Similarly, we do not account for the application of carbon sinks by end-users where Shell has no involvement because they quite rightly shouldn’t be credited to Shell. For example 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 is often measured using an approach called lifecycle assessment. Shell defines the lifecycle greenhouse gas emissions impact of an energy product as its Carbon Footprint.

This Carbon Footprint describes the total emissions which are generated for each unit of an energy product delivered to, and used by, a consumer.

For example, the Carbon Footprint of a litre of gasoline would include the emissions associated with: a) the production 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.

The Carbon Footprint is measured in grams of carbon dioxide equivalent per megajoule, or gCO2e/MJ. Carbon dioxide, or CO₂, is the most abundant greenhouse gas emitted by human activities, in terms of the impact on global warming.

However, there are other important greenhouse gases which must 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. Some energy products emit no carbon during their end-use, such as electricity or hydrogen fuels.

Shell based its Net Carbon Footprint methodology on standard lifecycle emissions intensity accounting principles. These principles have a long history in the field of measurement and understanding of greenhouse gas emissions.

The overall energy system is comprised of many different energy products and each energy product is supplied in different amounts. The combination of the individual products and their amount is referred to as the energy-mix.

To track the decarbonisation of the energy system, it is useful to calculate an average Carbon Footprint for all the different energy products that make up the energy-mix. This is done using a weighted average to account for the proportions of different energy products which each have different Carbon Footprints.

The weighted average Carbon Footprint is calculated by working out the percentage of each energy product in the mix. The percentage share of each product is then multiplied by that product's Carbon Footprint to determine the contribution from that product to the overall weighted average.

The contributions from each individual energy product are then combined to give the weighted average Carbon Footprint for the energy mix.

Using the same principle, Shell's Net Carbon Footprint is the weighted average Carbon Footprint of the mix of energy products sold by Shell.

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 is not a mathematical derivation of total emissions divided by total energy. It is a weighted average aggregation of lifecycle CO₂ intensities of different energy products normalising them to the same point relative to their final end-use.

This allows like-for-like comparisons and 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 their normalised energy content in megajoules using a fossil-equivalence approach to account for electrical energy.

 

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

The Paris Agreement goal of keeping global temperatures well below 2°C requires the energy system to reach net-zero greenhouse gas emissions in the second half of this century. This is an absolute emissions goal.

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. 

Shell's role is to provide energy to society (ie our customers) and to develop our business in a sustainable way, delivering on our duty to our shareholders. We are supporting the energy transition through research and development, the development of new low carbon products, and our investments in low carbon technologies and ventures.

We also encourage governments to introduce long-term policies, for example carbon pricing, that reshape the economy and the energy system for our society. 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 energy products that we supply to provide a comparison with the global energy-mix. 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 (ie our customers). This is measured in grams of carbon dioxide equivalent per megajoule, or gCO2e/MJ.

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 eg hydroelectricity, nuclear, wind or solar. This also includes generally non-commercial traditional renewable fuels like peat, wood and dung.

Keeping pace with a societal reduction pathway that realises the goal of the Paris Agreement would require Shell to reduce its Net Carbon Footprint by around 50% by 2050, and by around 20% by 2035.

Our Net Carbon Footprint ambition requires Shell to drive down the emissions caused by the production, manufacturing and distribution of the energy products that we sell. It will require us to provide more energy products that produce little or no emissions.

For information on how we plan to achieve our ambitions, see the question below entitled: What actions will reduce the Net Carbon Footprint of the energy products you sell?

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 explicitly designed to be consistent with the emission reductions needed to meet the Paris Agreement.

Because it is designed to ensure Shell is consistent, the Net Carbon Footprint metric itself specifically concerns all the areas of emissions influenced by energy suppliers like ourselves. 

Our ambition has been calibrated using data from scenarios which are in line with the Paris Agreement. These scenarios are the International Energy Agency's (IEA) Energy Technology Perspectives (ETP) 2°C scenario and Shell's Sky scenario.

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.

The goal of the Paris Agreement is to keep the increase in global average temperature to well-below 2°C compared to pre-industrial levels. To achieve this will require a dramatic reduction in greenhouse gas emissions, reaching a point of net zero global emissions within the second half of this century. 

In Chart 1 above we show that to reach net zero emissions, actions will be needed in three areas: 1) improving energy productivity, 2) changing the mix of energy products; and 3) storing remaining emissions in carbon sinks. 

Of these three areas, Shell's Net Carbon Footprint ambition focuses on the second, namely changing the mix of energy products. This is because it is the area we can influence. 

It is our ambition to reduce the Net Carbon Footprint of the energy products we sell in step with society's progress towards meeting the Paris Agreement. By 2050 we intend to reduce our Net Carbon Footprint by around 50%. We plan to reduce our Net Carbon Footprint by around 20% by 2035 as an interim measure.

Credible scenarios agree that governments, regulators, businesses and consumers all have a major role to play if the world is to meet 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 in step with the evolving demand of our customers.

Today Shell supplies around 3% of the energy the world uses and 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 ever-lower carbon intensity. As an energy provider, Shell will act to support this shift. Shell only directly controls its own emissions from operations but by changing the mix of energy products we supply, we aim to help others to lower their emissions. 

We will use the Shell Net Carbon Footprint metric to track and target our progress in this regard. 

In calculating our Net Carbon Footprint, we aimed to encompass the full picture of the impact of Shell energy products and activities. 

When we looked at Shell's portfolio in 2016 using this approach we found the measure of the overall Shell Net Carbon Footprint was 79 grams of CO2 equivalent per megajoule consumed (CO2e/MJ).

We understand all the different products and activities in our portfolio associated with this figure, and we can use the metric to guide our choices to mitigate emissions.

The Net Carbon Footprint metric associated with Shell is calculated in a straightforward and transparent way, as has been substantiated in consultation with independent external analysts.

It is not quite as straightforward, however, as simply taking one number - for the greenhouse gases that will be emitted when the products we sell are used - and dividing that by another number - for the energy content of those products. 

This is because we have also made sure the full life-cycle emissions from our products are taken into account by the calculation, and some of those emissions are generated in making and transporting the products.

A further aspect we have included in the calculation is the fact that Shell sells products whose raw or refined materials have been sourced from other companies. We take the emissions associated with those activities into account as well. 

Finally, in the coming years, we want to reduce the impact associated with our products and activities by applying carbon dioxide capture and storage on some of our operations and also through activities like supporting verified reforestation.

Yet while we take such activities by Shell into account in our calculation, it would not be appropriate to take credit for any similar activities undertaken independently by our customers or others, so these are excluded from the calculation.

In taking this approach we aim to show the full picture of the impact of Shell products and activities. It is by showing the full picture we can use this metric effectively to guide all our choices.

To benchmark our progress, we used an equivalent Net Carbon Footprint measure for the global supply of energy to society. We can use that figure to track the overall global progress towards achieving the Paris Agreement. 

To calculate this benchmark figure, we take the global energy and emissions figures and make the same adjustments noted above to show the full picture of the total contribution from the products and activities of all energy suppliers like Shell. 

In this way we created data points that are directly comparable: to directly compare Shell's progress with that made in the global energy system.

Once the global energy system's Net Carbon Footprint was calculated in this manner the emissions intensity was found to be around 75 gCO2e/MJ.

This is lower than the current number for Shell - 79 gCO2e/MJ - for the reasons outlined in the response to the above question: How does Shell's Net Carbon Footprint relate to the broader energy system?

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

We did this by using figures for 2050 from the IEA and Shell Sky scenarios, which are both consistent with a Paris outcome.

This calculation revealed that by 2050, the Carbon Footprint of the energy-mix in the global system in a world on track to meet Paris would be around 40gCO2e/MJ (see Chart 3 below). 

Shell's ambition is to bring our Net Carbon Footprint from where it is today at 79gCO2e/MJ to where the world needs to be by 2050 to be on target for Paris at 40gCO2e/MJ: a drop of around 50%. 

Using this approach, the global energy system needs to fall by 46% from 75gCO2e/MJ to 40gCO2e/MJ.

It has been noted that the raw global scenario data, which have not been adjusted to be directly comparable to Shell's Carbon Footprint calculation scope, indicate that the global energy system's carbon intensity needs to reduce by about 60-65% by 2050. 

This is consistent with the fall outlined within Shell's Net Carbon Footprint, but the different ways the two percentages are calculated means that the two data points are not comparable. 

The emissions intensity of the overall energy system needs to fall by more (60-65%) than the Carbon Footprint (46%) because it includes the impact of all societal actions taken to reduce emissions described above, such as improving energy productivity and carbon capture and storage. 

The Carbon Footprint, however, focuses only on the contributions to this from changing the mix of energy products. This is the appropriate focus for an energy supplier like Shell.

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. 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 will 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 will also report 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. 

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.

Is your data externally verified?

Shell will present the Net Carbon Footprint calculations for annual assurance to Lloyds Register Quality Assurance, our environmental auditors, for quality assurance.

While we have received third party limited assurance on our 2016 Net Carbon Footprint, we are currently re-evaluating our assurance processes to ensure that we will be able to obtain third party assurance in parallel with the projected timing of our future Net Carbon Footprint disclosures. 

Third-party assurance statements will be published on the Shell global website. Shell will also continue to work closely with reputable institutions, such as the World Resources Institute and Transition Pathway Initiative for their independent critique and feedback.

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 Defined Contributions, which make up the back bone 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 will be reported annually. In the initial years, this disclosure will be made in our Sustainability Report.

In later years we will move to integrate Net Carbon Footprint reporting into the Annual Report and Form 20-F, as appropriate.

This is in line with best practice as set by the Task Force on Climate-related Financial Disclosures. In our 2018 Sustainability Report, which is published in April 2019, we will provide the Net Carbon Footprint value for the 2016 base-line year, as well as values for 2017 and 2018.

We have also published the Net Carbon Footprint value for the 2016 base-line year in our Annual Report published in March 2019.

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.

This condition will include our first three-year target towards achieving our Net Carbon Footprint ambition 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.

The energy transition condition will apply to the executive directors, Executive Committee members and around 150 of Shell's senior executives in 2019. From 2020, subject to any required staff consultation, we intend to incorporate the energy transition condition into the performance share awards made to around 16,000 employees globally.

For more information, see the directors' remuneration report in our Annual Report 2018.