Along with the rush to ratify the Paris Agreement and pass the 55 / 55 criteria for entry into force, last week saw the International Civil Aviation Organisation (ICAO) agree on a global Market Based Measure (MBM) system to begin to manage the emissions of CO2 from international aviation. The most recent IEA assessment for the aviation sector (2014 data) puts emissions at 504 Mt CO2, or 1.5% of global CO2 emissions from energy use. This represents a rise of 95% over 1990 levels versus a 58% rise in CO2 emissions more broadly over the same period. Nevertheless, this indicates a considerable efficiency improvement for aviation, as Revenue Passenger Kilometres (RPK) have nearly tripled in the same period. That same IEA report highlights a recent slowing down in global emissions, but the outlook for aviation does not appear to be following a similar pattern. A September market update from Boeing notes that China alone could order over 6,800 planes to a value of $1 trillion in the next 20 years.
As was the case with the Kyoto Protocol, international aviation emissions are not covered by the Paris Agreement. Rather, the aviation industry has spent the last few years negotiating an industry agreement to manage emissions. While there is an important emphasis on efficiency improvements and the longer term application of synthetic fuels, primarily from biomass, the centrepiece of the approach is an offset system utilising the global carbon markets. Collectively the approach will be known as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). This is similar to an approach that the IMO were considering for the marine sector in the run-up to COP 15 in Copenhagen, but didn’t implement.
The CORSIA calls for international aviation to address and offset its emissions through the reduction of emissions elsewhere (outside of the international aviation sector), involving the use of “emissions units”. Two main types of emissions units exist: “offset credits” from crediting mechanisms and “allowances” from emissions trading schemes. Offsetting could be through the acquisition and redemption of emissions units, arising from different sources of emission reductions achieved through mechanisms (e.g. UNFCCC’s Clean Development Mechanism), programmes (e.g. REDD+ – reducing emissions from deforestation and forest degradation in developing countries) or projects (e.g. substituting coal-fired stoves with solar cookers). The CORSIA will be implemented in a phased approach throughout the 2020s.
Offsetting of aviation emissions is really the only practical route forward for the industry, although synthetic fuels will likely play an important role in the decades ahead. But the offset strategy and approach needs to look toward a world of net-zero emissions, as required by the Paris Agreement. Recent scenario work by Shell that looks forward at possible pathways to a net-zero emission energy system sees aviation little changed from today, other than in size (expanding from 7 EJ today to 30 EJ by late in the century) and efficiency. While the overall transport scenario sees significant electrification, for aviation the primary fuel remains hydrocarbon based.
By later in the century hydrogen based jets may have appeared, but such a development remains distant with no current line of sight to such an outcome. Although planes have an operational life of about 25 years, a series, such as the Boeing 747 family, can extend for considerably longer. In the case of the 747 development started in the early to mid-1960s and with the order books seemingly drawing to a close on the 747-8 (despite a recent significant order for 747-8 freighters), the last 747 might leave the skies as late as 2050. That’s 85 years. This is because of the huge development costs for new planes, let alone what it might take for a fundamental shift to hydrogen.
While the offset approach envisaged for the 2020s will use the full range of current emissions trading instruments, as emissions fall globally aviation will need to look to a sequestration strategy – i.e. sinks, to use the terminology of the Paris Agreement. ICAO have hinted at this with the inclusion of REDD+ in the portfolio of measures, but a long term reliance on forestry may not be sufficient to meet their needs.
At the Chatham House Climate Conference held in London very recently, the subject of carbon dioxide sinks was on the agenda. The speakers noted that sinks would be an important part of the portfolio of actions to reach net-zero emissions. Within the sinks, there is a portfolio of approaches as well, with the likely outcome that all will have to be used. This includes direct CCS in conjunction with fossil fuel use, but also a variety of atmospheric carbon dioxide removal technologies (see below).
Coming back to the task confronting ICAO, one speaker at the Chatham House Conference noted that the journey to net-zero emissions cannot rely solely on soil carbon and reforestation approaches. This is simply because we cannot hope to get the biosphere back to the state it was in 200+ years ago and yet go forward with a population reaching 10 billion people and the pressures that will put on the expansion of our agricultural system. Hence the argument for a portfolio approach to CCS.
As ICAO moves forward they will also have to consider a portfolio approach. Current carbon trading instruments will work for now, but they also need to consider early investment in nascent technologies such as BECCS (bio-energy with CCS) and DACCS (direct air capture with geological storage). While industrial CCS has emerged as a scalable technology, offshoots such as DACCS operate at pilot scale. Given sufficient attention from ICAO, these could be at a demonstration level in the 2020s, with the goal of scalability by 2030.
“The New Lens Scenarios” and “A Better Life with a Healthy Planet” are part of an ongoing process – scenario-building – used in Shell for more than 40 years to challenge executives’ perspectives on the future business environment. We base them on plausible assumptions and quantification, and they are designed to stretch management thinking and even to consider events that may only be remotely possible. Scenarios, therefore, are not intended to be predictions of likely future events or outcomes, and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities.
It is important to note that Shell’s existing portfolio has been decades in development. While we believe our portfolio is resilient under a wide range of outlooks, including the IEA’s 450 scenario, it includes assets across a spectrum of energy intensities including some with above –average intensity. While we seek to enhance our operations’ average energy intensity through both the development of new projects and divestments, we have no immediate plans to move to a net-zero emissions portfolio over our investment horizon of 10-20 years.