Testing the limits of transition

Over the past two years, on a timetable similar to that of the IPCC 1.5°C report, the Shell scenario team has been working towards the launch of the Sky scenario, which took place a few months ago. Sky is based around the principal goal of the Paris Agreement, i.e. limiting the rise in surface temperature to well below 2°C. The exact definition of ‘well below’ is open to discussion, but in Sky the outcome sees warming limited to 1.75°C (in 2100 with a 50% chance), which can be interpreted as an 85% chance of being below 2°C.

As discussed at length in the Sky publication, the emissions management task that underpins this outcome is extraordinarily rapid and comprehensive in that it must touch every aspect of the energy system and even extend beyond that into industrial greenhouse gases, agriculture and land use change. While there is a great deal of discussion about energy transitions in society, much of it focuses on the deployment of renewable energy for electricity generation and more recently the extent to which electric passenger cars will permeate the global market. While these are both important sectors, they do not represent a complete picture of the transition or emissions.

In the Sky scenario, electricity is largely decarbonised by 2050 and passenger car sales are almost entirely EV by the same year, but the journey is just beginning in 2050 for other parts of the energy system. For example, 2050 is the first year in which hydrogen appears in the Sky dataset for aviation; up until that point aviation is entirely hydrocarbon based, albeit some of this is in the form of biofuels. Even passenger car gasoline use continues well past 2050 because of the large stock of vehicles in society. These are not easily displaced and a long but shrinking tail of continued use stretches into the 22nd century.

Long tails will be a feature of the energy transition this century and cannot be easily dealt with. Even today in the United Kingdom, it is still possible to see sacks of coal being delivered for home heating, a practice that most people think vanished decades ago. These long tails will add up and in Sky, come the end of the century, continued global coal, oil and gas use is not that different to the 1960s, although it is in steady decline. The difference is that carbon capture and storage, in some form, is used to manage the emissions impact.

At the start of the transition the story has many similarities but turned upside down. For example, solar PV first appeared in the 1970s, even on calculators, but it then took 40 years for solar PV to reach 1% of global electricity generation. In Sky, we don’t see hydrogen appearing in heavy industry as an energy source until the 2050s, because it hardly exists today. In the metallurgical sector, there are plans for a first demonstration of hydrogen smelting but shifting to large scale commercial deployment will likely take 20-30 years, at best.

Against this background comes the IPCC Special Report on 1.5°C (IPCC SR15), released on October 8th in Korea, after the final meeting of the authors. Not surprisingly, it calls for an extraordinarily rapid transition, with emissions falling sharply from 2020 in the P1, P2 and P3 type pathways (IPCC SR15 archetype pathways). The Shell Sky scenario is referenced in the IPCC SR15 report (see chart below) given the success it demonstrates in limiting warming, but is called ‘ a delayed action pathway relative to others’, simply because emissions don’t show a clear downward trend until the late 2020s (more like a P4 pathway). After that, transition proceeds rapidly.

SR15 Chart Including Sky
It is right that the climate science community should call for a sharp reduction in emissions as that is the lowest risk pathway for limiting warming, but such an outcome would require all of the policies in place by 2020 that Sky has posited could develop by 2030. For example, Sky sees carbon pricing implemented globally by 2030 with prices around $40 per ton of CO2 (a range of $25 to $60). In 2018 carbon pricing in some form covers less than a quarter of global activities and the level ranges from $5 to $30, with a few exceptions at higher levels.
Graph 10

The Sky publication also includes a sensitivity which sees the 1.5°C goal reached (i.e. surface temperature warming below 1.5°C in 2100 with a 50% probability). But this outcome is not achieved in Sky by simply speeding up the energy transition; Sky already represents the fastest real-world transition that appears possible today together with a relatively short capacity building period, i.e. the time it takes to implement robust policy frameworks globally. Rather, an additional measure is incorporated in the form of large scale reforestation, which introduces an increasing carbon sink from the early 2030s. The scale of that is significant and equivalent to increasing global forest cover by an area the size of Brazil over the coming decades. The use of such a carbon sink brings forward net zero emissions by about a decade to 2060, or 30 years after emissions start falling in Sky. IPCC SR15 recommends that emissions fall from 2020 and reach net zero by 2050, also a 30-year gap.

The total carbon budget in Sky from 2018 through to 2100, a measure used in IPCC SR15, is 800 Gt CO2. This slightly exceeds the IPCC mid-range budget (the 50 percentile in transient climate response to cumulative emissions or TCRE for 1.5°C, Table 2.2 in the report) of 770 Gt. IPCC SR15 notes that budget estimations contain considerable uncertainty, including uncertainty related to overshoot pathways, of which Sky is one. SR15 notes that if these budgets are exceeded and the use of sinks is envisaged to return cumulative CO2 emissions to within the carbon budget at a later point in time, additional uncertainties apply because the TCRE is different under increasing and decreasing atmospheric CO2 concentrations due to ocean thermal and carbon-cycle inertia. This asymmetrical behaviour makes carbon budgets path dependent in case of a budget and/or temperature overshoot. Although potentially large for scenarios with large overshoot, this path-dependence of carbon budgets has not been well quantified for 1.5°C- and 2°C-consistent scenarios and as such remains an important knowledge gap.

The short story here is that the IPCC SR15 has set out a formidable challenge for society, with an accelerated timetable to minimise uncertainty. While Sky takes a different approach to the feasible rates of transition to that set out by IPCC, it clearly demonstrates that a possible pathway forward exists.


Note: Scenarios 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. Please read the full cautionary note in www.shell.com/skyscenario.