Shell’s “energy scenarios” see fossil fuels remaining a huge part of the energy mix to 2050. But are they realistic? And if Shell is right, what does it mean for the planet’s future?
Shell’s “energy scenarios” see fossil fuels remaining a huge part of the energy mix to 2050. But are they realistic? And if Shell is right, what does it mean for the planet’s future?
In the blazing June sunshine of Nogaro racetrack, deep in the south of France, a corporate futurist sharing the same name as the world’s most famous utilitarian philosopher, Jeremy Bentham, was predicting the future of global energy. Meanwhile, outside thousands of students attempted to make home-made carts with tiny engines travel further than 3400 kilometres on just one litre of petrol.
While the students practised for their race, whizzing up and down outside the conference windows, inside Shell chief executive Jeroen van der Veer was making some rather bleak predictions about the future of the planet. “Energy demand will double between now and 2050,” he told his 200-strong audience of Shell executives, think-tankers, academics and journalists. Between now and 2050, world population is set to grow from six to nine billion people, who will all want access to transport and electricity. This means the era of easy oil and gas is over, according to van der Veer. “We have only seen the beginning” of carbon dioxide emissions problems, he said.
These are the hard truths about the future of energy supply and demand that Shell says the world needs to tackle, somehow, in the next few years. The company believes that there is no way that CO2 concentrations can be stabilised at 450 parts per million (ppm) – a concentration accepted by many as the tipping point towards catastrophic climate change – while providing what van der Veer calls “reasonable welfare” for the planet’s growing population. Even the mass capture and storage of CO2, on land or under the seabed, will not be enough to steady levels of the gas at this critical concentration level, he says.
The Shell boss, rumoured to be stepping down next year, also has a hard truth for governments. If companies are to have incentives to invest in green technology, international standards on politically sensitive areas such as fuel consumption and buildings insulation will need to be consistent around the globe.
Shell’s vice-president for the global business environment, Jeremy Bentham, echoed van der Veer’s stern words. He presented Shell’s “Energy scenarios to 2050” report, which presents two alternatives for future trends in energy supply and demand, and the climate change impacts of each.
Scramble vs Blueprints
The two outlooks Shell has developed are known as “Scramble” and “Blueprints”. In the Scramble scenario, national governments and interests are pitted against each other, meaning less of the collaboration on energy standards and environmental technologies that Shell says it wants to see. Under the Scramble scenario, Shell envisages “a world in which international relations are mainly a race to ensure continuing prosperity, not the building of a more sustainable international community”. Other concerns under the Scramble outlook include “sluggish” progress on global regulation and technology for energy demand and carbon emissions.
In the Blueprints scenario, however, more international co-operation leads to an improved energy and carbon situation by 2050, with lower carbon emissions, more renewable energy sources and greater energy efficiency worldwide. This leads to “more efficient end-use of electricity and the resulting slower growth in primary energy demand [which] means that the former energy poor enjoy an additional boost in their standard of living made possible by the resulting affordable energy prices”. In contrast, under the Scramble scenario, fuel poverty becomes more prevalent.
While global energy demand under the two scenarios differs, both assume that fossil fuels will continue to make up very large proportions of the 2050 energy mix. The climate impacts of the two scenarios also differ significantly. Under Scramble, by 2050, CO2 emissions could be as high as 40 gigatonnes per year, Shell says. Under Blueprints, emissions are around 25-35 gigatonnes a year, depending on the efficiency of carbon capture and storage technologies.
Shell says of Blueprints: “In the developed world, almost 90 per cent of all coal-fired and gas-fired power stations in the OECD and 50 per cent in the non-OECD world will have been equipped with CCS [carbon capture and storage] technologies by 2050. This reduces overall CO2 emissions by 15 to 20 per cent compared to what they would have been without CCS.”
Blueprints is all about collaboration and pushes the boundaries of accelerated change “to what we think is the most plausible limit”, while Scramble “is at the sluggish level”, Bentham told his audience. Under Blueprints, Shell thinks that biofuels, focused on second-generation fuels, could make up 15 per cent of the total global energy mix.
Bentham believes that the next few decades are critical in efforts to address climate change because of the rapid industrialisation of China, India and other nations. This process is highly energy intensive but, according to current development theories, will eventually give way to more service-based, energy-efficient economies in these countries. Whether this is likely in nations such as China or India in the next century is unknown, but Bentham believes it to be a factor in demand for energy eventually slowing down, should the Blueprints scenario become reality.
Scramble: one to avoid
Under the Scramble scenario, the current and future “flight to coal” as a relatively cheap energy source cannot last forever. According to Bentham, in this scenario, around the mid part of the next decade comes “a triple squeeze” in energy. This is made up of the logistical difficulties of having to move growing volumes of coal around the world. At the same time, conventional oil and gas supplies are likely to plateau because of a lack of investment and for “political issues” (shorthand for oil nationalism or a lack of big oil company interests in major projects).
These two factors could lead to the “demand levers being pulled rapidly”, Bentham said, and knee-jerk reactions by governments, such as reducing car speed limits to save on fuel use, decommissioning inefficient power plants quickly, and changing building regulations. All this, needless to say, is set to make the world a volatile place.
In Shell’s Scramble scenario, second generation (non-food sourced) biofuels will grow rapidly from 2020 onwards. Meanwhile, renewable energy sources, such as wind and solar, will see local growth but will not yet be able to compete with conventional energy in size and scale. The economic conditions of the 2020s will encourage further renewables growth, Shell says, and renewable energy will “rebound” by the end of that decade. The flip side will be that only by then will serious action be likely on global carbon prices as climate change related weather events begin to be blamed on a lack of action during the world’s previous dash to coal sources for energy.
Luckily, Blueprints is better
This rather paints a bleak picture for the future for environmentalists and, indeed, anyone else. But Shell believes that its Blueprints scenario presents a much more positive picture. While the company does not believe that achieving a global balance of 450ppm of CO2 by 2050 or earlier is remotely feasible, Shell says that global energy demand can be met by less-polluting sources than fossil fuels, and can be reduced significantly by technology, driven by both regulation and collaboration between governments.
Bentham spoke of the “political reality” of climate change as a key driver for this scenario of collaboration on energy use. He cited two key examples: the law passed in California in 2006 which mandated a cap-and-trade carbon emissions trading system by 2012; and the recent attempts by politicians in Australia to distance themselves from their nation’s past recalcitrant attitude to the Kyoto Protocol and carbon dioxide emissions regulation.
The Californian approach has influenced other US states, Bentham said, noting that in the US, climate change is now “a federal issue”, with both US presidential candidates saying that they take the threat seriously. Bentham said that the C40 group of cities around the world, which is sharing best practices on transport management and infrastructure development across borders, in both developed and developing economies, is another example of an emerging consensus around the need for collaboration to tackle energy and climate concerns.
Developing countries such as China, and their citizens, are also increasingly concerned about environmental issues and this may drive change towards cleaner economies much faster than in the past, Bentham claimed. China has far more UN-approved clean development mechanism greenhouse gas reduction projects than any other nation.
By 2012 to 2015, under the Blueprints scenario, Bentham thinks that we might see “a critical mass of carbon pricing being applied to a critical mass of sectors in a critical mass of countries”. While this rollout is not global, it begins to influence the choices that people are making in investments. This encourages technological progress such as carbon capture and storage by 2020, and vehicle electrification – by 2050 around 40 per cent of all vehicle kilometres are electric under this scenario. National approaches begin to be harmonised, such as around carbon pricing. This encourages energy efficiency and wind power, while helping electric vehicles come to mass market in the 2020s.
CO2 emissions rise, plateau and then fall by around 2050, under Blueprints. Shell believes that there is no one solution to the global energy and climate conundrum, and that, according to Bentham: “Any technology that is going to be deployed at global scale in the next 50 years is already out of the laboratory.” It’s all about policy and incentive choices, he concluded, “the next five years are crucial”.
A third scenario: no fossil fuels
So what do others make of Shell’s predictions and dire warnings about the future of climate change and energy? Opinions are mixed.
“Shell is living in la la land,” says Mark Lynas, author of climate disaster bestseller “Six Degrees: Our Future on a Hotter Planet”. “They are constructing scenarios where they continue to be relevant as a fossil fuel company.” Lynas points out that the climate crisis is so serious that what he calls the “real world” will not tolerate such a high carbon vision of energy for 2050. “The whole scenario process should be about figuring out realistic outcomes and planning for them, whereas what Shell seems to be doing is deciding what they would most like to happen, and writing it down,” he says, calling Shell’s scenarios a “political exercise”.
Shell’s view that stabilising global carbon emissions at 450ppm is unrealistic is “totally irresponsible”, says Lynas. “If we don’t stabilise at way below 450ppm we’ll see irreversible climate change with several tipping points being crossed as a result,” he argues. “They are obviously saying that the world can go fry and that their profits must come first.” Lynas believes that despite oil company claims that they can innovate around the frameworks set by politicians and prosper in a low-carbon world, the current large energy majors will eventually die off, as newer, hungrier firms replace them with what he calls “disruptive” energy technology.
David Strahan, author of “The Last Oil Shock”, says Shell’s best case analysis – Blueprints – is a “fairly disastrous scenario, because (by their estimation) coal is getting bigger as we go up to 2050”. Strahan notes that NASA’s Jim Hanson believes that if the planet managed to eliminate the emissions from coal-fired power stations by either closing them or capturing all the carbon, then “we squeak in at around 440 parts per million” of CO2. “What’s interesting about [what] Shell [is] saying [is] that it’s the end of the planet” if they are right, Strahan claims.
The carbon capture dream
Carbon capture and storage (CCS) is still largely wishful thinking, Lynas agrees. Right now only a tiny number of pilot projects exist around the world, with none being commercially viable. He is in favour of an upstream cap-and-trade system for carbon, which he says is “much easier to manage than regulating emissions” and should be discussed further. Under upstream trading systems, carbon is measured before consumers can become responsible for emitting it and effectively taxed heavily, creating energy efficiency and renewable energy investment incentives across the board.
While Lynas believes there is sufficient technology to decarbonise power generation by 2050, he thinks it will have to come from renewable sources, with even nuclear a possibility, rather than from fossil fuels. He estimates that future scenarios should factor in a carbon price of €200-€300 a tonne to make renewable energy power generation and transportation a reality by 2050. “We need to eliminate coal from the energy mix,” he says, noting that “nuclear may be a good option for China and India”.
So should companies such as Shell be investing billions into investigating carbon capture and storage technology? Strahan says this will be tough. “They are a commercial company and they do have shareholders on their back, that’s the problem. The real solution to this is for governments to make the cost of emitting carbon properly punitive. It probably needs to be double or triple of the current price of around €25 a tonne, he says. Were this to be the case, companies such as Shell would look at CCS “as a business proposition”.
“It's the spinelessness of government in terms of tightening up the EU emissions trading scheme” that is the problem, Strahan says. “Whatever you think about the oil companies, you can’t expect them to do things that are not in their commercial interest,” he concludes.
Prof Julia King, vice-chancellor of Aston University and author of a recent review for the UK government about the possibilities for lower carbon vehicles, strikes a more moderate tone. “My understanding of the Shell scenarios is that they are possible models of how the world might behave, working from where we are now, rather than taking the target we need to meet and working back from it to find out what emissions reductions we would need to make,” she says. But, she notes, even the co-operative scenario of Blueprints does not get us to 450-500 ppm CO2-equivalent, and includes some “quite ambitious assumptions” about levels of carbon capture and storage by 2050.
“I think the scenarios are a good way of focussing policy makers’ attention on the progress we need to make,” says King. But she notes soberly that even with the considerable co-operation and technology implementation envisaged in Shell’s more positive Blueprints scenario: “We would not deliver the reductions that the climate science indicates we need. It is a useful reminder of the size of the challenge and the urgency.”
Scary future
A bleak message in many ways, but one that Shell appears increasingly comfortable offering – both as a wake-up call to others and to reassure shareholders of the company’s place in the future, after the firm was rocked in 2004 by a massive reserves accounting scandal and struggles to replace oil reserves.
Perhaps the most alarming two facts to emerge from Shell’s scenario planning are the uncertainty around predictions of future energy supply and the potential, or lack of it, of carbon capture and storage technology. No-one knows exactly when “peak oil” – the moment when more of the planet’s oil is out of the ground than left in it – will be reached and what the ramifications for global economics, unrest and politics will be.
Secondly, while many banks and energy firms say 2020 is the earliest when carbon capture and storage will be rolled out, the technology is still at its earliest stages. Unless massive investment in renewable energy is made over the next five to ten years, and if CCS is unable to decarbonise power generation from fossil fuels relatively quickly and on a commercially viable basis, the world will be short of low-carbon power options.
The fight between industry, with their hopeful ideas of carbon capture and storage technology, and those that want to see the whole planet shifting to renewable energy in the next two decades shows no signs of abating.
Whether Shell is right about its Blueprints or Scramble scenarios, or whether a third, cleaner one will emerge, will depend on political will driving economic incentives. If the environmentalists are right, our future on the planet may well depend on the winner in November’s US presidential elections taking a political lead.
Blueprints or Scramble
The peak oil problem
In its “Energy scenarios to 2050” report, Shell is, for the first time, comfortable in discussing the contentious notion of “peak oil” – the moment when oil production flattens out and then heads towards terminal decline, as more oil has been extracted from the ground than is left in it.
Shell predicts that global oil production will peak around 2020. But the company neatly side-steps the debate in its scenarios by predicting in both the Scramble and Blueprints scenarios that the decline rate of global production will be virtually negligible up to 2040.
David Strahan is surprised that Shell’s oil peak estimation is now 2020. “I haven’t heard them say that before,” he says. The world has already reached the beginnings of a global oil peak, he argues. “The facts are stark. The amount discovered has been falling for 40 years. For every barrel we find each year, we now guzzle three. Output is already falling in more than 60 of the world’s 98 oil-producing countries. And global oil production has been essentially flat, at just less than 86 million barrels per day, since early 2005. Serious analysts now forecast $200 per barrel.”
Strahan believes peak oil is coming even earlier than Shell believes and will have a much faster decline rate in production than the company predicts. “Peak oil is this side of 2020”, he says. “Even if you take the most optimistic future discovery numbers that have any credibility and apply a little bit of common-sense you get a peak in 2017”. His fear is that global production will quickly descend to a 4 per cent annual decline rate sometime after that date. “That is the average decline rate of existing oil production capacity.”
This view may even be optimistic, he says. “There will be a period of plateau, it’s just difficult to say how long that will last.”
All major oil companies are struggling to replace their reserves and increase production, Strahan observes. Many are giving more money back to shareholders than they are spending on exploration and production combined, he claims. “They are basically liquidating themselves. Although the high oil price is giving them high profits for the time being, they are in trouble.”
On Shell’s shift in recent years to natural gas, Strahan says this is unlikely to solve the problem of the world running out of oil. He believes supply will be problematic with a European gas peak due soon, with North America already having peaked, and other supplies set to come from places such as Middle East/North Africa and Russia, not known for their good governance or security of supply.
While global peak gas is likely to come much later than oil, Strahan argues that the regional problems, such as Russia’s supply politics, may cause big problems for importer countries in the meantime.
Some policy progress
The Intergovernmental Panel on Climate Change says that unless the planet cuts greenhouse gas emissions by 50-80 per cent (compared to 2008) by 2050, the impact on global warming will be disastrous. Almost all economists seem to accept, meanwhile, that world energy demand is expected to double by this date.
While US climate policy is effectively stalled until 2009, when a new administration takes office, the EU has set some ambitious targets for 2020. These include a reduction of greenhouse gas emissions by 20 per cent from 1990 levels, and a 20 per cent improvement in energy efficiency. The European Commission wants 20 per cent of all energy consumed within the EU to be renewable by 2020.
The Commission has also recently set a target of beginning work on 12 carbon capture and storage (CCS) plants by 2015. This pilot project is set to cost out just how expensive it will be to take carbon out of power stations that use fossil fuels. The council has apparently realised that under the current EU carbon trading incentives, incentives are not great enough for companies to invest in CCS by 2015.
Cars show why energy sources matter
The production “route” has a major influence on CO2 emissions from vehicles:
· petrol from oil sands can have 25 per cent higher CO2 emissions than conventional;
· electricity varies between 5 per cent and 90 per cent of petrol’s emissions depending on energy source;
· hydrogen varies between 5 per cent and 400 per cent depending on energy source; and
· biofuel emissions vary between 10 per cent and 100+ per cent of petrol – but environmental impact may be greater.
Source: The King Review of Low Carbon Cars, March 2008
Useful link:
www.shelldialogues.com/shell-energy-scenarios-to-2050