Author: dchone

I work for Shell International Ltd. and I am the Chief Climate Change Adviser for Shell, working in the Shell scenarios team. I joined Shell in 1980 after graduating as a Chemical Engineer from the University of Adelaide in Australia. I have worked in refinery technology, oil trading and shipping areas for Shell. I am a board member of the International Emissions Trading Association (IETA), was Chairman of IETA from 2011-2013 and I am also a board member of C2ES in Washington.

Developing countries hold the key to reaching Net Zero Emissions

dchone September 1, 2023

A guest post by my scenario team colleagues Thomas Akkerhuis and Georgios Bonias

In a few days, leaders from the world’s largest economies will gather in India for the 2023 G20 summit. The G20 Presidency has included Green Development as one of the main themes of the summit with a specific mention on ‘ensuring just energy transitions for developing countries’. At the same time, given the volatility and uncertainty in energy markets, many countries are looking to secure their own energy sources, with fossil fuel extraction as part of plan. Looking forwards, how might the emerging and least developed parts of the global economy respond to the call for green development, net-zero emissions and much lower use of fossil fuels? Looking back, it’s important not to forget that today’s developed economies largely sprang to life on the back of coal, then oil, and later naturl gas, with no CO₂ emission constraints to consider.

A few months ago, Shell published The Energy Security Scenarios, which explore two different pathways for the energy transition, driven by the global shift towards a security mindset.

Sky 2050 – a very rapid transition where global climate security overcomes shorter-term national concerns.
Archipelagos – where national security concerns create ongoing headwinds in an otherwise rapid transition.

To help explore how different countries might navigate through the transition, four different archetypes were identified, with nations behaving in similar ways when they share similar vulnerabilities to energy supply disruption and energy price volatility. In both scenarios, the security mindset leads to aggressively competitive, rather than co-operative, decarbonisation.

The archetypes are:

Green Dream – which can be observed in the European Union. The EU’s wealth enables it to deal with energy price volatility, but its advanced economies and depleted oil and gas resources make it highly vulnerable to energy supply failures. These countries seek security by driving hard to end the use of fossil fuels.
Innovation Wins – which can be seen in countries like the USA and major energy resource holders like the United Arab Emirates. These countries are often self-sufficient in energy so are not vulnerable to supply failures, but their political systems are exposed to swings in the energy price. These countries do not feel so threatened in the short term, but invest heavily in innovation and infrastructure as longer-term solutions to their energy needs and the needs of their energy customers.
Great Wall of Change – which is mainly relevant to China. China is insulated from both supply and price concerns by several factors: the size of its economy, its large coal reserves, and the scale of the investments it is making in its own energy supply and infrastructure. China takes a cautious approach, aware of the need to move away from coal – by far the most emissions-intensive fossil fuel – and carefully monitoring global energy market developments. It looks to use its manufacturing strength to grow its position as a global low-carbon energy powerhouse.
Surfers – which subdivides into Emergent Surfers, like India and Brazil, and Rising Surfers being the world’s least developed economies. The latter includes most countries from the African continent, and they are more focused on establishing the basic foundations for development, such as infrastructure. Surfers countries do not produce significant amounts of energy and so they are vulnerable to both energy supply disruption and price swings. Emergent Surfers quickly adopt new technologies while Rising Surfers focus more on access to energy. Surfers seek out partnerships and try to ride the waves of opportunity created by other archetype groups.

We have used the archetypes to explore how people, wealth and energy are distributed. The Green Dream and Innovation Wins archetypes currently account for 23% of the global population but almost 60% of global energy demand and 63% of the global GDP. On the other hand, Surfers countries make up more than half of the world population but only about a third of the global energy demand and GDP.

The skewness of GDP distribution, favouring Innovation Wins and Green Dream, comes at a cost, being the large contribution to global anthropogenic CO₂ emissions that these countries have made. Based on our analysis of data from 1850 onwards, the cumulative CO₂ emissions for countries in these archetypes are more than 600 tonnes per current inhabitant, while for the Great Wall of Change archetype they are about 140 tonnes. For Emergent Surfers countries the number is just above 100 tonnes of CO₂ and for Rising Surfers around 30 tonnes.

The share of the different archetypes in annual CO₂ emissions has been going through significant changes in recent decades, reflecting the changing dynamics in the global economy. In practice, CO₂ shares are even more skewed. For example, China’s emissions are partially due to product demand in Innovation Wins and Green Dream. The same is true for land use change emissions, where Brazilian deforestation is partially a result of global food demand.

Given that countries in the Great Wall of Change and particularly in the Surfers archetypes are expected to have strong economic growth in the coming years and decades, we looked at the CO₂ profiles that these countries will need to have, according to the Sky 2050 scenario, in order for the world to be at NZE by 2050. Historical data for all archetypes are shown in grey lines and the possible future pathways, based on the Sky 2050 scenario analysis, are shown in colour.

The key message coming from this analysis is that developing countries will need to achieve their projected economic growth following pathways of much lower CO₂ emissions than today’s developed countries did over the last 100 years. If countries in the Great Wall of Change and Surfers archetypes were to follow similar CO₂ emissions pathways as the Green Dream and Innovation Wins countries when reaching similar levels of GDP/capita, then global CO₂ emissions at 2050 would be close to 80 Gt per year, which is double of today’s levels, instead of NZE as is required to stop global warming. Much lower CO₂ pathways can be achieved in three ways:

Use fewer energy services compared to developed economies at a similar level of income.
Use energy services that consume less energy (higher efficiency).
Use energy services that make use of cleaner energy (lower fossil fuel share)

The first is not a viable option and therefore we do not make use of it. However, some economies may appear to follow this pathway, but in reality a modal shift is taking place. For example, shared ownership of vehicles has never been established at scale in the USA or EU, but it could emerge in parts of Africa. However, this doesn’t mean that people travel less. Clean electricity will address both the second and third points: electrified energy services are often much more energy efficient, and when the electricity is clean, that brings the additional benefit of emissions reduction. For the non-electrified parts of the energy system, low life-cycle emission hydrocarbons (such as biofuels) and hydrogen can still address the third point.

So what happens in the two scenarios?

Sky 2050 must, by necessity, embrace an energy system leapfrog for developing counties simply to reach net-zero globally by 2050. But despite national security interests prevailing in Archipelagos, broadly the same trend is followed. For the Rising Surfers group in Archipelagos, per capita fossil fuel use never gets to the levels seen in any of the other archetypes due to the growing availability and falling cost of alternative energy technologies. For example, as Rising Surfers develop in Archipelagos:

Coal never dominates the electricity sector as it has in most other developed regions. This is further supported by the high potential for solar energy production that many countries in the Rising Surfers group have.

The use of hydrocarbon fuels for mobility in Rising Surfers will peak far below the Green Dream / Innovation Wins levels.

The buildings sector in Rising Surfers will switch directly from traditional biomass to clean electricity – skipping phases of coal-fired power and gas-fired boilers.

In theory, the transition is possible given the progress in technology and the lower carbon energy options which are becoming available nowadays. Rising Surfers are well positioned in some important ways. For example, Africa, having less than 30% of the global land area, has an estimated 58% of the global resource potential for solar energy. This is a useful contrast with Innovations Wins and Green Dream who have built their wealth on traditional sources of energy. In Sky 2050, by 2100, almost 30% of global direct air capture capacity is located in these countries, potentially generating huge revenue through removals trade under Article 6 of the Paris Agreement. From an energy demand perspective, their climate will eliminate an important portion of heating demand in buildings sectors which is often provided by direct combustion of natural gas. By contrast, air cooling is already an electricity based energy service. Efficiency will grow due to urbanization trends, with over 80% of the Rising Surfers’ population living in cities in the second half of the century (vs. less than half today).

But here will also be barriers. Although some green technologies are cheaper than their fossil fuel counterparts, many are not, or require significant upfront investment. Building an electricity grid that can handle increasing electrification and the intermittency of solar will be a challenge. It will be critical and fair to have mechanisms through which developing countries can be supported in this alternative pathway and the new energy technologies made widely available as quickly as possible. This will be one of the many challenges faced by the G20 when they meet in India. The world’s ambition to reach net zero emissions by 2050 will depend on it.

Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.

Direct Air Capture is coming fast, sort of!

dchone August 16, 2023

For the people in a scenario team, it’s always exciting when something that you have discussed in your work suddenly starts to appear. It’s even more exciting when it happens in the company that you work for. So it is with direct air capture (DAC). Last week Shell announced it has taken the decision to build a DAC industrial-scale demonstration unit at the Shell Technology Center Houston (STCH), in the USA. With a targeted start-up in 2025, the company aims to prove the technical viability of its in-house developed solid sorbent technology.

Shell’s Direct Air Capture technology discussed

The Shell announcement is but one of several DAC announcements in recent months, with many of the projects in the USA where the Inflation Reduction Act (IRA) is pumping over a billion dollars into this nascent technology. Also last week The U.S. Department of Energy (DOE) announced that DAC projects in Texas and Louisiana to remove more than 2 million tonnes of carbon dioxide per year from the atmosphere will get over $1 billion in federal grants. Two major projects the DOE selected are Project Cypress in Louisiana, run by Battelle, Climeworks Corporation and Heirloom Carbon Technologies; and the South Texas DAC Hub in Kleberg County, Texas, proposed by Occidental Petroleum’s subsidiary 1PointFive and partners Carbon Engineering Ltd (whom Oxy have subsequently announced they are acquiring) and Worley.

I have written about DAC in several posts, but it’s worth revisiting this in the context of these announcements and through the lens of The Energy Security Scenarios. Two scenario stories are presented, Sky 2050 and Archipelagos. They explore the tension that now exists between what world leaders promise on climate change at events such as COP26 in Glasgow and the reality those same leaders face when near term energy system disruption occurs, and immediate decisions must be taken to address the situation.

Archipelagos depicts a global narrative of shifting political winds driving the transition away from fossil fuels. Despite encountering challenges, the pace of the transition accelerates due to heightened security concerns and competition. This scenario envisions a world where energy security takes precedence over emission management.
Sky 2050 explores a world in which long-term climate security is the primary anchor. Society rapidly moves towards net-zero emissions but doing so requires major interventions from policymakers in the energy system.

In the Archipelagos story there is no DAC, at least not until the tail end of the century when it just starts to emerge. This is a story where current efforts come to nothing as other issues take priority – although not without consequence. But in Sky 2050 the technology flourishes and by 2100 it has made a material difference to the temperature outcome. However, it’s not a simple journey. Today there is a lot of discussion around DAC, but it remains a nascent and relatively expensive technology with capture costs of several hundred dollars per tonne of CO₂, although estimates and statements of cost vary widely. The goal is to progressively bring down the cost, perhaps to around $100 per tonne CO₂, but it is nowhere near this level today. So in Sky 2050, even though DAC emerges, nothing truly material happens until 2040, still over 15 years away. This is because new technologies in the energy sector typically take a generation (20+ years) to mature before material change is visible. DAC first appeared at least a decade ago, if not more, and is now only just being turned into the first larger scale projects. Compare this to solar PV, it first appeared in the late 1950s, with the first commercial power generation installation (6 MW) in 1983. In 2022 solar PV produced about 5% of global electricity, 40 years after the first project.

In Sky 2050 the first material appearance of DAC (5 million tonnes per annum globally) is in 2040 and this is for fuel synthesis, not for geological storage and therefore permanent removal. Presumably this is where the business model lies, despite the economic pull from the IRA. Airlines are likely to create early demand for sustainable synthetic hydrocarbon fuel (replacing crude oil derived Jet A-1) due to their need to transition towards net-zero emissions by 2050, but without a replacement propulsion technology. But by the mid-2040s DAC with geological storage (DACCS) has appeared and by 2050 is triple that for synthesis, with the two combined at over 500 million tonnes per annum. While the scale of DAC by 2050 is important at 500 million tonnes, this isn’t the technology that delivers NZE in 2050. It just isn’t big enough by then. NZE in 2050 comes through multiple other channels, with conventional CCS and land use change being the two big differentiators in a world that still uses considerable amounts of fossil fuel (albeit reduced by nearly two thirds from current levels).

Nevertheless, the scale up of CCS will be invaluable for DACCS, laying the groundwork by building the infrastructure for the transport and storage of CO₂. At the moment, the focus is understandably on the capture side of DACCS, but it would be a major lost opportunity if the transport and storage infrastructure was not ready to take advantage of large scale DACCS when it does arrive.

Where DACCS has a major role to play is in the second half of the century. By 2100 this is an industry that has grown from nothing today to 6.6 billion tonnes of CO₂ per year. In gas volume terms that’s like 2.2 billion tonnes of natural gas, which means that the CO₂ gas handling infrastructure for DACCS in 2100 is getting towards the scale of global natural gas infrastructure today. From 2050 to 2100 the DACCS industry removes over 150 Gt of CO₂ from the atmosphere, equivalent to 0.1°C of warming. This is an important contributor to the reduction in warming in Sky 2050 from 1.67°C (peak) to 1.22°C (in 2100).

And with 5.4 Gt of DACCS capacity in place, warming could conceivably be reduced by about another 0.15°C every 50 years after 2100. Direct air capture (and its combination with geological storage) is a technology for the longer term future, even though it will begin to bring more immediate benefits in the fuel synthesis industry in the shorter to medium term. But to build an industry that eventually handles CO₂ on the scale we imagine in Sky 2050 by the end of this century, means starting now. While detractors have been quick to criticise DAC, in part because of a view that resources need to be focussed elsewhere today, fully addressing the climate issue means adopting a range of technologies and pursuing them relentlessly. The emissions problem we have is only partly solved by renewable energy, with the full solution coming when we can combine new energy sources with the management of CO₂ from legacy energy sources. That is where DAC plays a critical role.

Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.

It’s climate target season, but one more target is needed

dchone July 31, 2023

One of the features of an upcoming COP is that the months prior often bring with them a slew of proposals for new global targets and initiatives. This year is no different, perhaps also driven by the extreme heat and precipitation that has been challenging the Northern Hemisphere. In July, COP 28 President, Dr. Sultan al-Jaber, put forward a proposed COP28 action plan in a letter to the Parties. Along with a number of calls for increasingly rapid transformation and improved financing for developing countries, the plan includes the following three specific energy system targets which were also widely reported on in the media:

Reach a global tripling of renewables capacity by 2030.
Doubling of the average global rate of energy efficiency improvements by 2030.
A dramatic scale up of new low-carbon hydrogen production and decarbonization of existing hydrogen production to reach an overall doubling of hydrogen production.

The plan also includes emission reduction targets for the oil and gas industry to achieve by 2030 and includes a call to transform heavy-emitting sectors, including scaling up use of low-carbon hydrogen, carbon capture and storage, and carbon dioxide removal, aligned with science. However, no specific targets are included for these heavy-emitting sectors. This all represents quite a formidable ambition, but to put these three energy system targets into context the recent Shell Energy Security Scenarios provide a useful backdrop.

The scenarios comprise two different stories for the decades ahead, but both are built from the security-focused world in which we currently find ourselves. In Sky 2050, the troubles of the 2020s give way to intense global competition in a race to gain market share in the delivery of clean energy systems. Mutual interest prevails and net-zero emissions is achieved in 2050. But in the second scenario, Archipelagos, distrust, self-interest and security concerns prevail. Although a rapid transition takes place and emissions fall throughout the century, the net-zero goal isn’t realised until early in the 22^nd century. Nevertheless, warming is limited to 2.2°C above the 1850-1900 baseline period.

The Energy Security Scenarios data shows global renewable capacity at around 3,500 GW in 2023, implying a 2030 goal of around 10,000 GW. The 2023 capacity is comprised of 1,200 GW hydroelectricity, 1,200 GW solar PV (commercial at 800 GW and rooftop at 400 GW) and 1,100 GW wind power. There’s also 100 GW of commercial biomass burning, but not everyone considers this as renewable energy. While hydro and biomass show only modest increases over the remainder of this decade, wind and solar increase substantially in both scenarios. In 2023, solar PV looks to be increasing by about 300 GW and wind by 100 GW, although some of this may be related to COVID delayed projects now coming online. With seven full years before the end of 2030, delivery at these scales could mean some 3,300 GW of solar in total and 1800 GW of wind in 2030, but this is well below the goal of some 10,000 GW even with hydro and biomass included. The deployment rate needs to substantially increase and that is exactly what is happening in Sky 2050.

In Sky 2050 and Archipelagos, the growth to 2035 is shown below.

In Sky 2050 the goal is reached in 2030 but, in Archipelagos, it’s not until about 2035. This isn’t about different levels of ambition across the scenarios, but instead represents the very real headwinds that rapid deployment could face, particularly in the circumstances of Archipelagos. Trade disruption is a major outcome of the story, yet there is an important dependency on trade within the solar PV story. The minerals required, the manufacture of the panels, the grid expansion (including across borders) and even the labour required for installation all depend on good trading relationships and the free movement of people for work. For a goal of 10,000+ GW, which might include 5,000 GW of solar PV, the current global manufacturing capacity and installation capability of around 300+ GW per year would have to at least triple to around 1000 GW per year, which means adding 100 GW of new production and installation capability each and every year between now and 2030. The project pipeline for new manufacturing facilities looks robust, with the limitation on deployment in many locations being grid connectivity.

The second goal is the desire to double the average global rate of energy efficiency improvements across sectors. This is quite hard to unpick without further details, but it certainly doesn’t mean ‘doubling energy efficiency’ as reported by some media outlets. The goal could be in relation to the energy intensity of the global economy, which would be measured in energy use per unit of GDP, or on the provision of energy services, i.e. a true efficiency measure, which could be in units such as tonne-km/MJ for road freight. For this discussion I will focus on the former.

In 2022 global energy use was about 4.6 GJ per US$1000 (2016) GDP. This had improved from 5.64 GJ in 2010, meaning an improvement of some 20% or about 1.5% per year. Presumably the ambition means shifting this to 3% per annum. If this were the case then energy use would fall to around 3.7 GJ per USS$1000 by 2030. Both Sky 2050 and Archipelagos are within this range, sitting respectively 0.1 GJ either side in 2030. Apart from general societal improvements in energy efficiency, which have been ongoing for decades (9.5 GJ per US$1000 (2016) GDP back in 1960), the main driver of change in this decade will be electrification of energy services. For example, using gasoline to power a car has a well-to-wheel efficiency of about 25%, but using electricity derived from solar or wind has a turbine-(or panel)-to-wheel efficiency of around 70% or more (losses in transmission and storage of electricity combined with the efficiency of the vehicle itself). This COP28 goal is a proxy for electrification, in all its forms. That means road transport, home cooking and heating and industrial use of electricity for heat. It looks quite possible, even in the slower Archipelagos transition.

Finally there is the goal relating to hydrogen production, which seems very ambitious, but perhaps this depends on how it is interpreted. The letter calls for an overall doubling of hydrogen production, without a year being given. The Financial Times reported this as ‘Double hydrogen production to 180mn tonnes per year by 2030’. This number relates to the current global production of hydrogen which is about 90 million tonnes per year, but most of this sits within industrial processes such as the Haber process to make ammonia. The Haber process starts with natural gas, and hydrogen is an intermediate product in the production. Most global hydrogen production today comes from natural gas, releasing carbon dioxide as part of the conversion process. Some also comes from coal, with significantly increased emissions as a result.

Hydrogen is also produced as a final energy product where it is then sold for other uses, such as in a fuel cell to power a truck or within a subsequent industrial process. This is where the future lies, with final energy green hydrogen replacing fuels such as diesel in trucks, Jet A1 in planes and coal in iron ore smelting. These applications amount to a small production of final energy hydrogen today, perhaps only 100,000 tonnes per annum. So doubling this number wouldn’t be ambitious at all and is almost certainly not what the letter is calling for.

If we use the current overall global production of hydrogen and wish to double that by 2030, then the COP28 target would have the world at 180 million tonnes per year (as the Financial Times noted), which presumably means about 80 million tonnes for new final energy applications such as fuel cells in transport and iron ore smelting. This is considerably in excess of even the Sky 2050 scenario, which sees 10 million tonnes in 2030 and doesn’t reach 80 million tonnes of final energy hydrogen until 2040. In Archipelagos that date moves out to 2055.

The challenge for hydrogen may not be the ability to produce it, given that electrolyser manufacturing capacity is ramping up very quickly. 80 million tonnes per annum of green hydrogen would require some 600 GW of electrolyser capacity to produce. According to the IEA, global electrolyser manufacturing capacity reached almost 11 GW per year in 2022, and based on company announcements, the global manufacturing capacity for electrolysers could reach more than 130 GW per year by 2030. This could deliver nearly 400 GW of capacity by 2030, still short of the COP28 goal but not markedly so. It’s also possible that significant electrolyser capacity could be introduced to replace the existing steam reforming of natural gas for ammonia production and this would certainly reduce emissions; but it wouldn’t create new demand for hydrogen as required by the target.

The real issue for hydrogen as final energy (or a hydrogen carrier such as ammonia which is being looked at for ships) is creating that demand. There is almost none today. There are very few trucks that use hydrogen fuel cells – no planes, no ships and almost no industrial processes (other than those where it is an intermediate product now). In natural gas-based direct reduction ironmaking hydrogen does play a role, though this is in combination with carbon. Pure hydrogen is not currently used in ironmaking applications apart from a handful of pilot plants. The 10 million tonnes of new hydrogen final energy demand in Sky 2050 by 2030 is largely split between industry and road freight. Shipping is only just emerging in 2030 and aviation not until the 2040s.

While the hydrogen goal seems almost misplaced in its ambition or perhaps has simply been misinterpreted, the package of targets still represents an important step to achieve by the end of this decade. But what is puzzling is why the package didn’t include a specific target for carbon capture and storage given that the UAE and Dr. Sultan al-Jaber have discussed the importance of the technology on many occasions. Irrespective of the objections of some environmental groups, repeated analyses by multiple organisations (including the Shell scenarios) show that without carbon capture and storage technology the 1.5°C goal cannot be realised. We also shouldn’t forget that while CCS projects can take a few years to deliver, their scale is significant at 1+ million tonnes CO₂ per year per project once operational.

A substantial but not unachievable goal for 2030 would be to see the construction of 500 large scale (> 1 million tonnes per annum CO₂) CCS facilities. As of late 2022, the Global Carbon Capture and Storage Institute reported 30 facilities in operation, 11 under construction and about 150 in various stages of planning.

Notes from Greenland

dchone July 16, 2023

Over the last 10 days I have been travelling by ship up and down the west coast of Greenland, enjoying the spectacular sights this country has to offer and getting a taste of the long history of human settlement in the region from the excellent museums that have been established in various towns.
Perhaps more than any other place I have visited, the human presence in Greenland appears to have been shaped by climate change; not the anthropogenic changes currently underway, but the natural changes that have occurred over the last 10,000 years.

The original spread of humans form Africa was some 200,000 years ago, but it wasn’t until 15,000 – 20,000 years ago that they crossed the land bridge that existed between what is now Russia and Alaska (lower sea levels) and headed south through the Americas. This was presumably because the Arctic and sub-Arctic regions of North America were still largely covered in glacial ice as the world emerged from the most recent glacial era and into the current Holocene period. As the glaciers receded and North America became what we see today, settlers moved north and eventually into Greenland, arriving there some 4,000 years ago.

From what I saw, Greenland sits on the edge of habitability, with limited areas for any form of agriculture and a hardy population who engage in hunting and fishing to maintain their livelihoods. This has been the case for 4,000 years, but with small variations in climate the population has waxed and waned, sometimes vanishing completely (the Dorset people) and at other times expanding as new settlers arrived (the Vikings) to make the most of slightly warmer periods. There are almost certainly other contributing factors to the changes, but climate appears to be an important one. Living on the edge can be perilous as small changes in conditions can mean that settlements must be abandoned rather than attempting to adapt to the change. This is a story playing out today in some parts of the world as anthropogenic climate change takes hold.

Today Greenland appears as a growing economy, with towns and villages expanding to become small cities, such as in the capital Nuuk. Below are some of the images I captured during my trip.

But there are also signs of a warming climate, such as the recognition that glaciers are visibly retreating and previously sold permafrost becoming unstable and leading to landslides. These are signs that can’t always be captured in a single image, but come from observations by locals and regular visitors over a long period of time. However, one glacier we visited showed real signs of retreat. A debris field of rocks (moraine) sat well in front of the glacier face, implying that these rocks had been deposited as the glacier retreated.

On a day at sea we had perfect weather and were fooled by a Fata Morgana mirage, which appeared to show icebergs floating in the air or appearing highly distorted relative to the actual berg (which we couldn’t see as it was over the horizon).

The energy transition is also making progress in Greenland with EVs starting to appear on the roads and recharging facilities available, at least in Nuuk, the capital.

But the transition may also impact Greenland in another way; the country has perhaps the largest available deposits of rare earth minerals outside China. Metals such as Neodymium are essential for wind turbines. How might a warming climate and a world hungry for rare earth metals impact the development of Greenland?

On the flight back to London we were treated to spectacular views of the ice cap and surrounding glaciers feeding from it.

A rush to renewables isn’t enough; managing fossil fuel emissions is essential as well

dchone June 26, 2023

A guest post by my scenarios team colleague Richard Baker – Senior Energy Adviser

There is widespread consensus that a marked decline in the use of all oil and gas over the coming decades is required if the world is to meet the goals of the Paris climate accord. Any discussion of technology that is perceived as prolonging investment in their usage is invariably greeted with condemnation. Recently, in the run-up to COP28 in the UAE, the incoming COP President, Sultan Ahmed Al-Jaber, was criticized in some sections of the media for stating that the world needs to focus on tackling emissions from fossil fuels rather than simply eliminating their use.¹

But technologies that reduce emissions from oil and gas play a critical role in a transition to net zero and the incoming COP President was correct to address this. To understand why, Shell’s recently published Sky 2050 scenario provides a useful framework. In this scenario, net-zero emissions (NZE) is reached in 2050. Although the temperatures in the scenario rise to 1.7ºC, as modeled by MIT, negative emissions in the second half of the century result in a temperature rise of 1.2ºC above the pre-industrial average in 2100.

Sky 2050 does not make unrealistic assumptions about near-term oil and gas production or a rapid decline in demand for oil and gas. Global demand is yet to start declining and it is difficult to envisage upstream projects already operating or currently under development being paused or canceled. To that end, the Sky 2050 scenario sees demand mostly plateau this decade, but then rapidly decline in the 2030s and 2040s, with oil at 45 mb/d (million barrels per day) and natural gas at 1.9 Tcm (trillion cubic meters) by 2050, which are both slightly less than half of today’s levels. A demand led trend towards zero oil and gas by 2050 isn’t realistic as we are still far from having a complete set of technologies to replace all the uses for oil and gas.

In fact in Sky 2050 it isn’t until 2100 when the world has largely left the era of fossil fuel energy behind, although even then oil and gas are still used for making things, from solvents to plastic water bottles.

While Sky 2050 in 2050 clearly shows a reduction from today, this is nowhere near zero. Instead, Sky 2050 relies on significant use of industrial carbon capture and storage and negative emissions that use a combination of technological and natural sinks to reach net-zero emissions. The technological storage of carbon dioxide is significant by 2050 and beyond; in Sky 2050, the size of the carbon capture utilization and storage (CCUS) industry is ultimately bigger than the natural gas industry today in terms of the volumes of gas handled and direct air capture (DAC) plays an ever more prominent role in the second half of the century.

Yet moves to capture and store carbon dioxide emissions are not universally popular. Some argue that it gives the industry carte blanche to carry on producing at today’s levels. But continuing to invest in the industry, including emission reducing technologies, is not the same as maintaining or growing production.

Reservoir decline rates are hard to quantify as they are rarely left without any intervention to simply decline. Rates of 4-5% are often quoted, but this usually includes drilling additional wells or installing pumping equipment, and the true rate is probably higher. But even using a 4-5% decline rate from now would give production levels of 23-30 mb/d in 2050 for oil and 0.9-1.2 Tcm for gas, significantly below the demand levels modelled in Sky 2050.

This gap will need to be filled by ongoing investment. Objections to new projects often raise the International Energy Agency’s (IEA) landmark Net Zero study as evidence, but the report is usually misquoted. The report does not say that no investment in oil and gas is required, but instead states that “no new oil and gas fields are required beyond those that have already been approved for development” and the required investment levels reported, which average $500 billion per year this decade, are more or less what the industry is currently spending. Even in the 2030’s, the IEA calculation of required spending levels of $300 bln per year is considerable. And the context behind the IEA statement is almost never included. The scenario from which the statement emerges not only requires a huge investment in new energy systems but very importantly, a world making significant efforts to reduce overall energy demand, through important changes in behaviour (e.g. cycling more, not flying etc.), extreme efficiency measures in the built environment and even some energy austerity. Most of that isn’t happening or at best, isn’t happening fast enough or in a sustained way.

Whether the required oil and gas investment could be focused only on existing fields, or if new developments are required, is a matter of debate. A cursory glance around the world today would find no shortage of oil and gas assets with large resources that are struggling to maintain production, even when incentivized by the recent uptick in oil prices. For many countries, geopolitical and local factors are restricting investment, and in some cases the technical expertise previously provided by international oil companies is lacking.

So how is the industry responding? There are two pathways playing out.

The first is that existing fields are attracting investment to maintain production, but there is also some new field development underway. The IEA report also goes on to say that ‘minimizing emissions from core oil and gas operations should be a first-order priority for all oil and gas companies’. Many operators are doing just that, seeking ways to reduce their own production emissions, including the electrification of facilities (and generating that electricity from renewable sources) and aiming to eliminate flaring, amongst others. And there is widespread effort underway to clamp down on fugitive methane emissions with techniques such as drone technology, but particularly from aging infrastructure where such initiatives are helping to identify the worst culprits. The counter argument is that for oil, where 85-90% of most emissions come at the point of combustion in a car, plane, or ship’s engine, reducing intensity in the upstream has a relatively small impact on reducing total emissions. But given that Sky 2050 sees 250 Gt of CO₂e emissions from oil use in the next 27 years, addressing 10-15% of the issue still adds up to 25-40 Gt, equivalent to global emissions from a single year.

The second pathway is the focus on developing carbon capture and storage for the so-called Scope 3 emissions, or the emissions from the actual use of oil and gas. Many such projects are in the pipeline but there is also real innovation emerging. For instance, Occidental plan to inject CO₂ captured directly from the air into reservoirs in a technique known as Enhanced Oil Recovery. The company claims that more CO₂ is injected than is subsequently released when the fuel is combusted, and regulators agree; oil produced via this method will qualify for the low-carbon (45Q) tax credit. For now, it’s the only project under development, but if successful, it may provide a blueprint for others to follow. For gas, where combustion tends to be more concentrated in a power plant or industrial unit, there is significant scope for point source capture and there are many projects in development, although not yet on a par with the scale in Sky 2050.

It’s often said that CCUS is an unproven technology when, in fact, the capture and re-injection of CO₂ have both been practiced for decades. According to the IEA, of the 40 Mt captured in 2021, around 75% was captured from oil and gas operations. The question is whether commercial drivers, including carbon taxes, can help deliver the scale envisaged in Sky 2050. The issue with carbon capture and storage has never been the technology, but always the business model to support the investment.

While in Sky 2050 there will be reduced demand for oil and gas in sectors that can be electrified, like transport, by mid-century there will still be sectors of the economy that are using oil and gas because the alternatives are not deploying at sufficient scale. The demand from these sectors is greater than natural decline alone would allow, requiring further oil and gas investment.

Dr Al-Jaber was right to point out that the production that remains will need to be as low carbon as achievable, while a global negative emissions industry needs to be built. These two parts of a burgeoning carbon management industry will require continuous investment as well as policy support. The challenge for the upstream oil and gas sector is to deliver both and that could even mean a combined production and carbon capture sector that is bigger in the second half of the century than the stand-alone oil and gas production sector today.

^[1] https://www.nytimes.com/2023/05/03/climate/un-climate-oil-uae-al-jaber.html

Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.

Without Article 6 there may be no 1.5°C (or even 2°C)

dchone May 30, 2023

The 58th session of the UNFCCC’s Subsidiary Body for Scientific and Technological Advice will take place in Bonn from June 5-15 and one of the features of the session is further progress in operationalising Article 6 of the Paris Agreement. My colleague, Malek Al-Chalabi, and I thought it would be useful to reflect yet again on the critical importance of this somewhat overlooked corner of the Paris Agreement.

Article 6 of the Paris Agreement is the section that formally promotes cooperative approaches between the Parties, but is widely recognised and is being negotiated as a carbon trading mechanism. The thinking behind Article 6 is profound, but the reality of a working mechanism is taking too long to appear in practice. Article 6 was the apparently the last piece of the Agreement to be completed in December 2015 and we all know that the completion of the so-called Paris ‘rule book’ was extended by two COPs (from Katowice in 2018 to Glasgow in 2021) because of Article 6. Now the fine detail of the mechanisms is trying to find a landing point.

One area that is really struggling, weighed down by constant challenge, is the incorporation of carbon dioxide removals (CDR) within Article 6.4, the project based mechanism under Article 6. A recent information note released by the UNFCCC seems to lean heavily towards land based removals (reforestation, ecosystem restoration, carbon farming etc.) but is particularly scathing on the prospect of engineered removals (direct air capture with geological storage or DACCS and bioenergy production and use with geological storage or BECCS), with statements such as;

Engineering-based removal activities are technologically and economically unproven, especially at scale, and pose unknown environmental and social risks. Currently these activities account for removals equivalent to 0.01 MtCO₂ per year (P15:a) compared to 2,000 MtCO₂ per year removed by land-based activities.
These activities do not contribute to sustainable development, are not suitable for implementation in the developing countries and do not contribute to reducing the global mitigation costs, and therefore do not serve any of the objectives of the Article 6.4 mechanism.

In any thorough analysis of net-zero emissions during this century, such as in the IPCC 6^th Assessment Report, both land carbon management and engineered removals are critical for achieving the net-zero goal, so to simply dismiss engineered removals now because they have yet to scale can only be seen as short sighted. In the recently released Shell scenario Sky 2050, the role of both in 2050 is very clear, as shown below. In 2050 the use of fossil fuels is far from over, so balancing remaining emissions against sinks via various removal mechanisms is critical.

While land-based removals are larger in 2050 than engineered removals, the longer term mechanism for correcting overshoot and addressing atmospheric CO₂ levels is engineered removals. By 2100 fossil fuel use is largely done with so the balancing of 2050 is not really required, but a robust business model will be needed to support ongoing negative emissions through engineered removals as a means of reducing atmospheric CO₂ levels. This will also require a trading mechanism.

Further to the above, there is an almost certain dependency on the structure of Article 6 in the delivery of large scale removals. This is because the countries and sectors that find themselves in the situation of needing removals to balance ongoing emissions or to finance long term negative emissions may not have local access to them, perhaps for reasons of geography. This was highlighted in the Shell Scenario Singapore Sketch released last year. Without Article 6 Singapore cannot reach it’s goal of zero CO₂ emissions, but with Article 6 in place net-zero emissions is achieved. Arguably the very essence and purpose of Article 6 is embraced within the word ‘net’ in net-zero. Eventually, removals become the only type of unit traded under Article 6 or created through the 6.4 mechanism.

The same clear message was also delivered in the IPCC AR6 Synthesis Report where CDR is shown to be vital if the world is to achieve 1.5°C, the more ambitious goal of the UN Paris Agreement. And similar to the case for Singapore described above, not all countries will have the same geographic and geological ability to harness or deploy CDR options or reduce emissions at the same rate, and the majority of countries cannot expect to reduce emissions to zero such that CDR is not needed.

In a previous blog post, we illustrated the importance of trade and how countries and sectors can work together in Article 6. This message can also be found in publication from a variety of organizations, including the International Chamber of Commerce, the International Emissions Trading Association (IETA), the International Energy Agency, and others.

There have been numerous examples that show how trade helps countries contribute to economic growth. This includes the trade of automobiles, medicines, clothing, electronics, and a variety of other goods. Not all countries will be automobile hubs, medicine hubs, clothing hubs, or electronic hubs. Trading allows countries to specialize in certain segments of the economy and trade with others that have other expertise in other goods – and it is a win-win for both countries. There have also been an equally abundant examples of how isolation or trade disputes can disrupt economic growth and progress.

Trading of carbon is a win-win – for economic growth and for decarbonization – and Article 6 has the potential to catalyse both elements. As such, in order to maximize the use of Article 6, IETA has identified the following elements for governments to consider (see the full IETA paper here):

Announce whether and how the country will authorize Article 6 credits and/or accept towards the achievement of its NDC.
Provide a clear strategy and stable guidelines on which sectors, activities and vintages will be eligible for Article 6 credits.
Articulate how the use of Article 6 will help achieve the goals of the Paris Agreement.
Elaborate what policy framework the host country will adopt and how it will interact with the receiving country.
Establish an effective interaction between compliance instruments and the voluntary carbon market (VCM).
Support the emergence of a widely accessible traded market for carbon credits.
Ensure a suitable digital registry or other infrastructure for GHG accounting and reporting is in place.
Address key risks in the activity cycle and identify mechanisms to reduce them.
Emphasize the areas where capacity building is required and the role of international organizations

But more recently, IETA and several other observers have called for the Article 6.4 Supervisory Body to take a more balanced approach to the assessment of removals. The IETA submission can be found here.

Carbon markets have the opportunity to contribute to decarbonization and economic growth. A recent example of this was highlighted at COP27, where the governments of Switzerland and Ghana agreed to the first government to government bilateral carbon trade. More signs of this are taking place, with Japan signing over 25 MOUs and other countries showing a keen interest, like the UAE, Sweden, and others. Further information on how carbon markets can assist decarbonization efforts can be found on a recent episode of the Energy Podcast (Season 5).

With the global stock take taking place in Dubai later this year, Bonn provides an opportunity for policy makers and governments to continue to encourage the use of Article 6 and embrace the role of removals, in all forms, within the 6.4 mechanism. Further government to government trade of carbon will be one of the cornerstones to limiting warming to 1.5°C.

How quickly can a synthetic aviation fuel industry emerge?

dchone May 15, 2023

In late April, the European Parliament and EU Member States reached agreement on new mandates for sustainable aviation fuels through to 2050. Under the final agreement, the percentage of sustainable aviation fuel (SAF) that must be blended with kerosene will start at 2% by 2025, moving to 6% by 2030, 20% by 2035, 34% by 2040, and reaching 70% by 2050. A dedicated sub-target for synthetic fuels derived from green hydrogen will also come into force from 2030. Although the final wording and requirements for these mandates have yet to be released, the headline numbers are clear even if the detail isn’t – starting at 1.2%, the synthetic fuel requirement will be scaled up to 5% by 2035, reaching 35% by 2050.

SAF is going to require a huge effort and should rightly be the immediate focus of attention, largely because of the state of technology and the amount of effort that has gone into preparing the groundwork for a SAF industry. But while the overall SAF target is challenging, given the small quantities produced today, the synthetic fuel mandate looks daunting. In EU parlance, synthetic fuels are renewable liquid and gaseous transport fuels of non-biological origin, meaning liquid or gaseous fuels which are used in the transport sector other than biofuels or biogas, the energy content of which is derived from renewable sources other than biomass. In the aviation industry this presumably means two types of fuel;

Hydrogen as a direct fuel derived from renewable energy sources.
Synthetic kerosene (also known as an e-fuel), produced by combining hydrogen derived from renewable energy sources (via electrolysis of water) and carbon from the atmosphere (via direct air capture or DAC), with the energy required for the capture and final synthesis also coming from renewable sources such as wind and solar PV.

For 2030, hydrogen as a direct fuel is a non-starter given that the planes don’t yet exist and probably won’t do so until 2040 at the earliest, although we might see some small commuter versions before that. So for 2030 and probably 2035, this mandate is really only about e-fuels. The synthesis of such a fuel is discussed in detail in a paper by Kraan et al., An Energy Transition That Relies Only on Technology Leads to a Bet on Solar Fuels, Joule (2019), with the energy schematic they developed shown below. This is to produce one barrel of fuel (5.5 GJ solar fuel on the right of the schematic).

The illustration above presumes feasibility and the availability of a wide range of thechnologies at large scale. In reality, that isn’t the case today. Clearly solar PV and synthesis technologies exist at scale, but Direct Air Capture (DAC) is still to be demonstrated at scale (i.e. 1 million tonnes per annum or more) and hydrogen electrolysis is only just reaching the sort of scale required for synthetic fuel production. As such, the discussion below should be viewed in that context and not just be a question of quickly building the necessary facilities.

In 2023 we can expect EU aviation fuel consumption to be somewhere around 1 million barrels per day, which includes both internal EU demand and international aviation bunkers for flights departing from the EU, for passenger and freight movements. So a 1.2% synthetic fuel mandate means the production of at least 12,000 barrels per day of e-fuel within seven years, or over 4 million barrels (600 kt) produced in 2030.

Jet fuel is mainly carbon in terms of weight, so 600 kt is about 500 kt carbon and 100 kt of hydrogen. This amount of hydrogen (but in practice more is needed) will require multiple 200 MW electrolyser projects, each similar to the project recently announced by Shell in Rotterdam that will produce 60,000 kg per day of green hydrogen, currently Europe’s largest such project. The Shell project will begin operation in 2025 after two years of construction, along with offshore wind capacity built in the Hollandse Kust Noord area.

The 500 kt carbon equates to nearly 2 million tonnes of atmospheric carbon dioxide capture in 2030, which is a scale of capture that doesn’t currently exist in the world. However, Occidental and its subsidiary 1PointFive announced in late 2022 they plan to begin detailed engineering and early site construction for their first large-scale DAC facility with start-up expected in late 2024. Upon completion, the DAC plant will be the world’s largest of its kind and is expected to capture up to 500,000 metric tons of carbon dioxide per year.

However, the provisions of the EU Directive on these types of fuels allows for other sources of CO₂ to be used, but in some cases for a limited time period. Up until 2041 it will be possible to use CO₂ from sources such as industry where allowances have already been surrendered against such emissions. It is also permissible to use the captured CO₂ from the production or the combustion of biofuels, bioliquids or biomass fuels. These provisions mean that an immediate relaince on DAC as a source of carbon for synthetic fuels isn’t required.

Producing sufficient hydrogen and capturing enough carbon dioxide is energy intensive and is just the start. These then must be combined to make the synthetic fuel, which takes even more energy and more hydrogen than the molecular weight of jet fuel points to. For example, a hydrogen based reaction is required to convert the carbon dioxide to carbon monoxide, which is required for the subsequent synthesis reaction. If the facilities designed to do this make use of Fischer-Tropsch technology, jet fuel won’t be the only product. Its yield might be as much as 67% (with the other 33% being lighter and heavier hydrocarbons, but this will require an optimised catalyst), which means that for the above jet fuel requirement the picture becomes more complex and bigger. The required production of synthetic fuels rises to 18,000 barrels per day, of which 12,000 is jet fuel.

The synthesis plants are not simple projects either, although the underlying technology is tried and tested in facilities such as the Shell gas-to-liquids synthesis plant in Qatar. That unit takes natural gas and breaks it down into hydrogen and carbon monoxide (synthesis gas) before recombining these into longer chain hydrocarbon molecules such as for jet fuel. That facility operates on a very large scale, producing some 150,000 barrels per day of product (of which some is suitable for jet fuel use). Building smaller versions is possible, although even the first Shell synthesis pilot plant, built 30 years ago in Malaysia and still operating today, produces 14,700 barrels of oil product per day. Even smaller scale gas-to-liquids is also possible, with Petrobras operating such a unit in a remote location as a pilot for the conversion of associated gas from oil production into useful liquids.

Given the rapid scale up of the synthetic fuel mandate (4x from 2030 to 2035), the sensible approach will be for the EU to build reasonably large from the start. A first facility might be the size of the Shell Malaysia unit (the illustration shows an 18,000 b/d unit but this is still small by global refining standards), but would also require about 3 GW of green hydrogen capacity and three million tonnes per annum of DAC. Apart from the synthesis unit which is arguably smaller than the desirable scale for modern refining, the hydrogen and DAC units are unprecedented in size. However, both hydrogen and DAC are scalable technologies, with the latter currently deployed on a modular basis, and as noted above DAC isn’t an immediate requirement.

Building an 18,000 b/d synthesis facility, 3 GW of hydrogen electrolyser capacity and 3 MT per annum of DAC combined with large scale renewable energy production (say 6 GW of offshore wind) is a formidable project, costing many billion euros and taking years in terms of planning, approvals, financing and construction. Such a project will also stretch the available technologies, given that DAC in particular doesn’t yet operate at scale anywhere. But the EU needs to start at least five such projects over the coming 2-5 years, not just to meet the synthetic fuel mandate of 2030, but also with an eye on the 2035 mandate and beyond.

Uncategorized

Using scenarios to visualize possible EU emission pathways

dchone April 17, 2023

The Shell Scenario Team released The Energy Security Scenarios about a month ago and I’ve been out talking with stakeholders about them in the meantime.

The two new scenarios (see Note below), Sky 2050 and Archipelagos, describe the tension that is playing out between the promises made by world leaders found themselves in at COP26 in November 2021 when there was a collective agreement to limit global warming to 1.5°C above pre-industrial levels and the energy security situation they were confronted with three months later when Russia invaded Ukraine.

In Archipelagos, the security mindset that is dominant today becomes entrenched worldwide. Global sentiment shifts away from managing emissions and towards energy security. Despite this shift, the drive for energy security still includes the greater use of low-carbon technologies but not emission management technologies such as carbon capture and storage. These dynamics translate into global emissions peaking in the 2020s and falling from the mid-2030s but net-zero emissions remains a long way off.

In Sky 2050, long-term climate security is the primary anchor, with specific targets to reach net zero by 2050 and ultimately bring the global average surface temperature rise to 1.5°C by 2100. The war in Ukraine translates into gradual progress in the early 2020s, but that progress gains momentum towards the 2030s. This happens as the need to deliver low-carbon energy infrastructure takes on an urgency of its own, driven largely by security and price concerns. While progress is initially difficult to see, emissions start to fall from 2025 and, by 2040, the goal of net-zero emissions is clearly in sight. The energy system rapidly transforms.

Underpinning both scenarios is a framework of archetype behaviours by countries in response to energy concerns. The EU falls largely into an archetype called Green Dream, where the focus is on shifting rapidly away from fossil fuels and even reducing energy demand. Government takes a strong role in crafting the direction of travel. By contrast, North America sits with other major resource holders in a group known as Innovation Wins, where long term incentive structures unlock a stream of innovation to allow the energy system to find a different way forward. Technologies such as carbon capture and storage flourish.

Both the EU and North America head towards net-zero emissions, but it is the Americans who get there first in Sky 2050. Perhaps more importantly, of the two it is the Innovation Wins countries which deliver a much bigger share of the global need for negative emissions after 2050, because they develop and embrace geological storage and technologies such as direct air capture (in Sky 2050). Negative emissions are the key to managing overall warming by 2100 and open up the possibility for climate restoration in the 22nd century.

By 2050 in the Sky 2050 scenario, for a similar population, North America has deployed twice the CCS capacity of the EU and has seven times as much direct air capture in operation. By 2100 the EU only has as much direct air capture as North America does in 2050, whereas North America is heading towards 1 Gt of capture capacity.

Within the EU, the pathway is more problematic in the Archipelagos scenario. Nuclear starts to decline quickly in the 2030s and 2040s and isn’t replaced and solar doesn’t multiply to the extent that it does in Sky 2050, although it still becomes very big within the energy mix. Fossil fuels decline, but the net-zero emissions goal for 2050 isn’t met, although emissions are more than 60% below 2019 levels by mid-century. However, the EU does modestly outpace North America in terms of energy efficiency in both scenarios.

In Sky 2050 both the Green Dream and Innovation Wins archetypes get to net-zero emissions around 2050, despite very different approaches to the energy transition. But in the Innovation Wins countries there is a broader range of energy possibilities and greater ability to manage atmospheric carbon dioxide simply because they fully embrace the opportunities available through carbon capture and geological storage.

Within the context of the global stories it is possible to do a deep dive into a particular region at a particular point on the scenario timeline and the team has provided a wealth of data in spreadsheet form for those who wish to embark on such a journey.

Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.

Reflecting on the IPCC Synthesis Report through new Shell scenarios

dchone March 23, 2023

After a year of work, with a few hints along the way offered via this blog, the Shell scenarios team launched The Energy Security Scenarios this week. This is the team I am proud to be a member of and our new scenarios offer a very different perspective on the world in a time of challenging circumstances. With an almost identical release date, the IPCC 6^th Assessment Synthesis Report also landed this week. The scenarios also offer a new lens through which to view the IPCC findings.

The Energy Security Scenarios are built on the foundation of a world in which a security mindset is becoming pervasive, be it national security based on military threats, energy security following a year of supply disruption and price volatility, economic security as we watch the banking system being challenged by some defaults or climate security as the global average surface temperature continues to rise and impacts are becoming more visible. How countries respond to energy price volatility and supply disruption is highly variable, but nevertheless a pattern has emerged that ties together disparate responses such as India buying Russian crude oil and the USA pumping billions of dollars into direct air capture. These behaviours form part of an archetype framework that underpins our new scenarios. This foundation also offers some colour to the energy story we tell, with our archetypes classified as Innovation Wins, Green Dream, Surfers and Great Wall of Change.

Two key drivers shape the stories that we explore, notably the call at COP26 in Glasgow to deliver net-zero emissions globally by 2050 and deep cuts in emissions by 2030 and the response to the Russian invasion of Ukraine which has stressed the global energy system over the past twelve months. As a result, two new scenarios emerge which embrace both drivers, but prioritise them differently as the world moves forwards. We look out not just to 2030 or 2050, but all the way to 2100 and even draw one surprising conclusion about what the 22^nd century has to offer. These are stories that describe a world locked in an energy transition not only driven by cooperative change as called for by many, but instead trending towards a world of more intense competition as countries seek to shore up their energy system for the 21^st century. The scenarios are Sky 2050 and Archipelagos. Both scenarios see the energy transition accelerating, but at different paces. In Sky 2050 climate security is the priority, whereas in Archipelagos there is more attention to ongoing energy security.

Highlighting the increasing pace of the transition is the recognition of an inflection point in this decade as fossil fuels begin to lose market share in primary energy, finally shifting away from the 80% role they have played for many decades. The pace in Sky 2050 is about twice that of Archipelagos, but both represent a trend break.

Meanwhile, the IPCC is very focussed on the diminishing carbon budget and the rapidly narrowing opportunities for limiting warming to 1.5°C. In the Synthesis Report they broadly conclude that action will be insufficient to contain warming below 1.5°C in the near term, which points to an overshoot outcome and therefore the need to recover the situation later in the century. This is similar to the pathway visible in Sky 2050, which does see global emissions start to fall in the 2020s and net-zero emissions reached in 2050, but nevertheless the surface temperature rises above 1.5°C in the mid-2030s. However, a burgeoning new direct air capture industry, borne out of initiatives such as the Inflation Reduction Act in the USA, appears in Sky 2050. It grows to such an extent than in combination with extensive change in land management practices, from forestry to farming, as much carbon dioxide is removed from the atmosphere between 2050 and 2100 as has been added from now to 2050. The result is that by 2100 surface temperature warming in Sky 2050 has returned to today’s levels, with the potential for climate restoration during the 22^nd century.

The IPCC make the case that only a drastic reduction in near term emissions can avoid passing 1.5°C, with CO2 emissions needing to fall by 48% by 2030 relative to 2019 levels. These numbers will become higher with each passing day that emissions do not reduce. The table below comes from the Synthesis Report released on Monday and outlines what must happen in the seven years to 2030, then to 2035, 2040 and 2050.

Source: IPCC 6th Assessment Report – Synthesis

In The Energy Security Scenarios we do not see the scope for such large near term action reductions, with Sky 2050 achieving a reduction of around 12% by 2030. In Archipelagos emissions are higher in 2030 than in 2019. Although the Synthesis Report calls for immediate reductions, the IPCC note that of their modelled scenarios, only a small number of the most ambitious global modelled pathways limit global warming to 1.5°C by 2100 without exceeding this level temporarily. The IPCC state the following:

Global warming will continue to increase in the near term (2021-2040) mainly due to increased cumulative CO2 emissions in nearly all considered scenarios and modelled pathways. In the near term, global warming is more likely than not to reach 1.5°C even under the very low GHG emission scenario (SSP1-1.9) and likely or very likely to exceed 1.5°C under higher emissions scenarios. In the considered scenarios and modelled pathways, the best estimates of the time when the level of global warming of 1.5°C is reached lie in the near term.

In the case of overshoot, i.e. temporarily exceeding 1.5°C, they also note that the application of large scale carbon dioxide removal (CDR) technologies and practices is required to progressively reverse the overshoot situation. However, they also note that any overshoot brings with it the added risk of long term irreversible changes in the global ecosystem.

In short, the Synthesis Report paints a concerning picture of the world exceeding 1.5°C and taking on the associated climate risks. While the report makes every attempt to say that the possibility of not doing so still exists, there is little solid content to argue that this is achievable, a finding backed up by the analysis presented in The Energy Security Scenarios. The temperature outcomes for Sky 2050 and Archipelagos are presented below. The assessments were made by the MIT Joint Program using their climate model and also reported with the release of the Shell scenarios. You can also explore the scenario data here.

The Energy Security Scenarios complement the IPCC Synthesis Report well in that Sky 2050 sets out a very clear and unambiguous pathway to 2100, that both recognises the near term prospect of overshoot and the steps to take to more than redress the situation. By contrast, Archipelagos sets out a plausible pathway forward based on current tensions, but also shows that even under trying circumstances the world may find that 2.2°C is now the upper maximum for warming. While 2.2° is not considered safe territory by IPCC, the Archipelagos outcome is well positioned at the lower end of the range of outcomes that IPCC consider, which exceed 4°C in the worst case. Archipelagos is a story of global political headwinds buffeting the transition, but not to the extent that it slows in comparison with today. Quite the opposite – the pace increases as security concerns and competition drive the system away from fossil fuels.

You can find more on The Energy Security Scenarios here, which I would encourage readers to explore. But if you don’t have the time right now, this short video introduction may be of interest.

Finally, an EU foot in the removals door

dchone March 6, 2023

As the EU continues to develop and progress legislation around its 2030 and net-zero emissions goals, one key proposal has surfaced that will be with us for decades to come. It is the EU proposal to create a certification framework for removals – i.e. measuring and certifying the amount of CO₂ that is removed from the atmosphere and permanently stored through some anthropogenic activity. Examples might include direct air capture with geological storage (DACCS) or reforesting an otherwise barren land area (nature base solution or NBS). The proposal includes the very clear reason why it is needed;

The European Climate Law provides for the EU to become climate neutral by 2050. This requires that GHG emissions are significantly reduced, and that the unavoidable emissions and removals should be balanced within the European Union at the latest by 2050, with the aim to achieve negative emissions thereafter. To achieve this objective, both natural ecosystems and industrial activities should contribute to removing several hundred million tonnes of CO₂ per year from the atmosphere. Today and with current policies, the EU is not on track to deliver these quantities: carbon removals in natural ecosystems have been decreasing in recent years, and no significant industrial carbon removals are currently taking place in the Union.

Readers of my previous posts will know that this is something of a pet subject for me and so it is pleasing to see that the EU if finally recognising the importance of removals. The need for a tradable carbon dioxide removal unit is essential for net-zero emissions, in fact it is the essence of the phrase because of the use of the word ‘net’. However, while a first step is important, time is not on the side of the EU, so they will have to move much faster.

In a 2022 post I noted that the revised EU ETS allowance decline rate built into the Fit for 55 framework would take the system to zero new allowances in 2040, but that would almost certainly be ahead of the point in time at which there would be zero emissions in the covered sectors. As such, some form of new allowance would be needed, with the obvious candidate being a carbon removal unit brought in as an external credit. That would make the EU ETS a vibrant carbon removal trading platform, creating a market for carbon removals and establishing a clear price.

But it would seem that the EU is not yet prepared to take such a step. While the certification proposal is important, it lacks one key element, a business model to encourage businesses to use it. The EU appears to be pinning its hopes on voluntary activities, or companies looking to create or acquire certified removals to use for their net-zero commitments. This will happen to an extent, but mainly at the lower cost end of the spectrum such as soil carbon projects, land use change projects and similar. These do form an important part of the EU Fit for 55 framework, but so does the need for DACCS and bioenergy with CCS (BECCS).

The voluntary market and a certification process are no match for the $180 per tonne CO₂ on offer in the USA for DACCS under the Inflation Reduction Act (IRA). In the EU there is the Innovation Fund to help drive technologies such as DACCS, but it isn’t operating on the same scale as the IRA. The Innovation Fund could provide EUR 40 billion of support over 2020-2030 for the commercial demonstration of innovative low-carbon technologies, whereas IRA is around USD 330 billion. And IRA has a specific and clearly defined incentive for carbon dioxide removal, which isn’t the case for the EU Innovation fund, although a DACCS would be considered within the framework. It’s therefore not difficult to guess where the DACCS projects will end up and which country will benefit from the investment. That being said, ETS revenues and other mechanisms could bridge this gap if directed more towards energy technology development and demonstration.

The EU could create demand for DACCS and BECCS on a large scale if it opened the EU ETS up to such units, recognising that they will be needed by 2040, but almost certainly prior to that as the ETS reaches reductions in excess of 80%, a point it will hit around 2035. That is in 12 years. The EU Commission may well have such a move in their future plans, but history would argue that if they don’t start now, time will defeat them. Major changes in direction for the EU ETS take at least 5-10 years to be developed and bed in. For example, the Market Stability Reserve (MSR) started life in about 2011 with proposals for a set-aside of allowances to remove the post financial crisis surplus, then came backloading and finally the first implementation of the MSR and some tweaks a bit later. In 2023 it operates very well.

Given the need for a clear market price signal, i.e. the €100 per tonne CO₂ price now available from the EU ETS, a clear set of implementation rules to support projects, and recognition that a functioning DACCS industry will take at least a decade to establish, if not more, the inclusion of removals within the EU ETS becomes rather urgent. Encouraging the use of Article 6 of the Paris Agreement to facilitate carbon dioxide removal technologies is another area that I have written about and is also relevant to the EU in this context. At the moment, the only signal on offer is an indication of a review of negative emissions and trading in a few years’ time.