Business Maverick

Business Maverick

Shell’s Plans to Cut CO2 Emissions Are at Risk as It Spends More on Oil and Gas

Shell’s Plans to Cut CO2 Emissions Are at Risk as It Spends More on Oil and Gas
A logo on hydrogen electrolysis plant pipework in the Wesseling green hydrogen refinery, operated by Royal Dutch Shell Plc, in Wesseling, Germany, on Friday, July 2, 2021. Europe is pinning its green hopes on hydrogen in an unprecedented economic overhaul that aims for the region to reach climate neutrality by 2050.

Shell Plc can no longer depend on divestments to keep up a steady pace of annual CO2 reductions, putting some of its climate targets at risk of not being met.

The London-based oil major recorded a 10% drop in planet-warming emissions across its business and the energy it sold last year as it continued to sell off carbon-intensive assets. But future cuts won’t be able to rely on divestments as new Chief Executive Officer Wael Sawan focuses on delivering value for shareholders and sees the company’s core business in oil and natural gas as key to drive returns.

Shell has a target to halve emissions from its business, known as Scope 1 and 2, by 2030 compared to 2016 levels. So far, the company has achieved about a 30% drop. But now those emissions will start to climb again if it increases fossil fuel spending without scaling up new tools to cut carbon.

The company expects “new investments across our portfolio will increase our Scope 1 and 2 emissions between 2023 and 2030 and that they will exceed reductions associated with planned divestments and natural decline,” it wrote in an annual report published Thursday.

By far the biggest part of Shell’s carbon footprint comes from emissions created when customers burn the fuels it sells. Those, known as Scope 3, account for over 90% of Shell’s total emissions. The company has a goal to cut the carbon intensity of the energy it sells by 20% by 2030 compared to 2016. In 2022, it had so far achieved a reduction of 3.8%.

Shell's Emissions Cuts Have Mostly Come From Divestments | Shell's 2022 annual report shows emissions declined 30% since 2016

Up until now, Shell has primarily cut its Scope 1 and 2 emissions by selling assets like refineries, such as the Deer Park and Puget Sound facilities in the US. Since 2016, divestments have lowered Shell’s Scope 1 and 2 emissions by 22.9 million tons of CO2, out of a total net-reduction of 25.3 million tons in that period. Part of the increase in emissions in the coming years is due to higher production of low-carbon energy sources like biofuels, according to the report.

“As Shell moves along, there’s less low-hanging fruit and it requires more significant investment in new technologies to get carbon reductions,” said Shu Ling Liauw, co-founder of Accela Research, a climate transition research and advisory group.

In order to reach its 2030 emissions goal, Shell plans to rely more heavily on carbon capture technologies. While Shell is one of the most experienced companies in that area, it’s not clear how investment will materialize fast enough to cut the company’s emissions meaningfully this decade. Last year, Shell spent $220 million on carbon capture and storage, known as CCS, and sequestered 0.4 million tons of its CO2. That’s less than 1% of the company’s Scope 1 and 2 emissions.

To make a serious dent in the coming years, CCS would have to scale up considerably. While Shell is involved in various projects in Norway, the UK and the European Union, it’s not clear that those ventures would grow at the pace necessary for the firm to remain on track to hit its emissions targets.

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