Assessing the gap

November 5, 2024

In the weeks before a UNFCCC COP, the UN Environment Programme (UNEP) traditionally publishes its Emissions Gap Report. The report assesses the latest scientific studies on current and estimated future greenhouse gas emissions and compares these with the emission levels permissible for the world to progress on a least-cost pathway to achieve the goals of the Paris Agreement. This year is no exception, and so we saw the Emissions Gap Report 2024 published on October 24th. It makes for sobering reading, with the headline statement being that unless there is an increase in emissions mitigation ambition in new nationally determined contributions (NDC) and that these start delivering immediately, the world is on course for a temperature increase of 2.6-3.1°C within this century vs. 1850-1900. In her foreword to the report, the UNEP Executive Director, Inger Andersen, states that current NDC promises are putting us on track for best-case global warming of 2.6°C this century.

There is no doubt that anthropogenic greenhouse gas emissions are continuing to rise, but given the state of the energy transition, is it reasonable to say the world is on track for 2.6-3.1°C of warming through lack of action?

The answer comes down to ways in which the future is assessed. The UNEP outcome is essentially a projection based on current policy trends, or a forecast derived from what governments have said they will do. They have rightly recognized that current NDCs, which stretch to 2030, do not contain sufficient reductions to lower emissions in line with the 2021 Glasgow Climate Pact (the outcome of COP26, targeting a 45% reduction of CO2 emissions by 2030 relative to 2010 levels). But after 2030, the outcome they project (i.e. 2.6-3.1°C of warming this century) is based on an assumption of only modest ongoing changes in the energy system as an extension of what the current NDCs say will happen in the period 2025 to 2030. This of course gives a rather depressing outlook, and is shown in the top line of the table below taken from the UNEP report.

Note: Unconditional NDCs are those which a country will implement through its own resources, whereas conditional NDCs are dependent on a country receiving financial help from other Parties for implementation.

Of course, it’s not for UNEP to state what specific countries should do, so it’s not a surprise that their projection comes about as discussed. But it’s also not a fair representation of how progress in the energy transition will likely play out. For that, a different tool, other than projections,  is needed. In Shell, we use scenarios, as do many other organisations.

Scenario analysis is a technique that helps businesses and organizations plan for the future by considering the potential impact of current and future events and trends. It’s a valuable tool for strategists and leaders to think about how the world is changing and what that means for society. Scenario analysis involves considering various trends seen in the present and using them to offer different options for future development paths. It’s a forward-looking “what if” analysis that challenges conventional wisdom about the future. When the world is looked at through such a lens, a very different outcome emerges.

In The Energy Security Scenarios published by Shell in March 2023, two alternative futures are presented, namely Sky 2050 and Archipelagos. Both start with the realities of the 2020s, including the lack of progress towards the 2030 ambition within the Glasgow Climate Pact. As time moves on into the 2030s, Sky 2050 takes a normative approach that starts with the desired outcome of global net-zero emissions in 2050 and works backwards in time to explore how that outcome could be achieved. By focusing on security through mutual interest, the world achieves the goal and a global temperature rise of less than 1.5°C in 2100. Archipelagos follows a possible path in a world focusing on security through self-interest. Even so, change is still rapid, and the world is nearing net-zero emissions by the end of the century.

For this discussion, I will just focus on Archipelagos, as it is exploratory in nature rather than goal seeking, or normative. The scenario is built on the foundations of what we are seeing today, which includes a rapid growth in electric vehicle production, a burgeoning solar PV sector, growing use of batteries and the beginnings of a hydrogen economy. But it also builds on the general antipathy towards carbon removals, such as through direct air capture (DAC) of CO2, and it embraces the somewhat divisive geopolitics currently in play, with security being uppermost in the minds of global leaders.

Archipelagos presents us with a challenging geopolitical environment, but not one in which the energy transition just plays out at the current rate. It accelerates as countries seek security, as technologies further mature and as climate concerns grow, albeit not as a primary driving force in society. Energy policies do change, although the focus may not be minimizing emissions, and this is seen in the lacklustre development of the carbon capture and storage (CCS) industry and the collapse of the DAC technology pathway. Oil, coal and gas all peak in the 2030s and demand starts to decline, as shown in the chart above. Both the power generation and passenger road transport sectors change rapidly, but full and comprehensive change throughout the entire energy system takes the best part of a century to unfold.

The above narrative, chart and the century long timetable may look and sound alarming, but an analysis of greenhouse gas emissions in the scenario (performed for Shell by the MIT Center for Sustainability Science and Strategy) shows that warming reaches a plateau of 2.2°C by 2100. This isn’t in line with the Paris Agreement, but not as sobering as the UNEP projection of 2.6-3.1°C either.

Rather than simply project the future based on today’s numbers, scenario analysis points to a very different outcome in which the world is at least nearing the upper threshold of 2°C in the Paris Agreement. Scenario analysis embraces the dynamic nature of the energy system as a variety of policies, technologies and consumer preferences force change. The lesson from Archipelagos is that change is underway and at least by the end of the century fossil fuel use will have been largely phased out (about 15% of energy use vs. 78% now, excluding petrochemicals).

The NDC focus by UNEP is particularly important in 2024, as the Paris Agreement requires that countries update their submissions by February 2025, with a focus on their actions to 2035. The scenario analysis presented above is not designed to encourage complacency on the back of inevitable change, but rather to encourage policy makers to focus on areas where they can make a material difference. While Sky 2050 proceeds faster than Archipelagos in almost every aspect of the transition, there is one stark difference between the two scenarios. Sky 2050 embraces the need for carbon removals, through CCS, DAC and much improved land management.

To reach the goal of the Paris Agreement, including ‘well below 2°C’, society needs to embrace carbon management and the set of technologies and practices that go with it. While the world should not take the rest of the energy transition for granted, it is nevertheless well underway.

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.

Oil, gas(oline) and Route 66

October 13, 2024

Over the last three weeks I have been working my way from Chicago to Santa Monica on Route 66, some 2,400 miles of lost highway which for decades were the lifeblood of American motoring. Route 66 had its beginnings in 1926 as the US started building a national highway system.

As the automobile became more affordable, Route 66 boomed and the towns along the way became thriving stopovers, with motels, gas stations and diners popping up throughout the country. It was a defining era for the US. The era was also a defining period for the oil industry. Towns like Ash Fork, Arizona, which has never had a population of more than 1000, housed a dozen gas stations, several motels and numerous places to eat. The gasoline stations reflected not only the demand for fuel but also the intense competition that was created to supply it.

But with the decision to build the Interstate system, Route 66 slowly vanished and the towns along the highway were increasingly bypassed. The gas stations closed and the motels slowly vanished. Today, a drive along Route 66 is a treasure hunt for what remains, some of it in ruins and some beautifully restored by motoring enthusiasts for the new tourist trade.

But Route 66 isn’t just about the demand for gasoline, it’s also about the supply. The highway cuts through Oklahoma, an important oil producing region of the US and home to one of the major global oil pipeline hubs. Just north of Route 66 between Tulsa and Oklahoma City sits the town of Cushing. It’s perhaps not a place many people have heard of, but it is the delivery point for a West Texas Intermediate (WTI) oil futures contract purchased on the New York Mercantile Exchange. What happens in Cushing can impact the world as was seen in 2020 with the COVID-19 pandemic underway. WTI prices briefly went negative, reflecting the fact that storage in Cushing was effectively full.

But change is underway. Throughout Route 66 in Texas and New Mexico, wind turbines can be seen in their hundreds, and electric vehicle charging stations are beginning to appear in some of the towns along the route, reflecting the new demand from American motorists.

How Route 66 is shaped by the future remains to be seen, but today it still represents a fascinating historical portrait of motoring and the oil industry in the USA.

Can Brazil balance oil and climate ambitions?

September 24, 2024

This post is a guest contribution by Thomas Akkerhuis, Energy Analyst and Richard Baker, Senior Energy Adviser, both in the Shell Scenarios Team.

As the Brazil hosted G20 approaches and thoughts regarding COP30 in 2025, also in Brazil, start to appear, Brazil’s own climate efforts and energy system are becoming headline news. In a recent article, the Financial Times describes the challenge the country faces in balancing two fundamental ambitions: to be a global environmental leader while also growing its position as global player in oil production.

There is natural skepticism over whether balancing these seemingly contradictory positions is at all possible, with the Climate Observatory stating that “you can’t be a leader on the environment and climate and at the same time become a mega-producer of oil.”  Perhaps Brazil is following a very narrow path here, but there are good reasons for doing so.

In June this year the Shell Scenarios Team published a Brazil Scenarios Sketch, which there are now several blog postings about, for example, this one. The Sketch is derived from Shell’s latest Energy Security Scenarios. The Scenarios Sketch shows, among other things, that both ambitions are realistic ambitions for Brazil:

  • Brazil has enormous potential to manage the world’s carbon emissions through land-use change, and it can help decarbonise the world through the production of biofuels. Emerging global demand for this capacity, because of climate change pressures, are important reasons to make use of those opportunities.
  • Brazil has significant fossil fuel reserves, with the potential to develop significantly more. There is an important economic argument for developing them. Today, Brazil has a gross domestic product that is below the global average (per capita basis), which is also more unevenly distributed than the global average (Gini coefficient basis). Many other countries have also built their wealth on the production and consumption of fossil fuels.

The sketch is an in-depth study of potential futures for Brazil’s energy and carbon system, through the lens of two scenarios: Sky 2050, and Archipelagos. Both start with the realities of the 2020s, including the struggle to end deforestation in Brazil. As time moves on into the 2030s Sky 2050 takes a normative approach that starts with the desired outcome of global net-zero emissions in 2050 and works backwards in time to explore how that outcome could be achieved. By focusing on security through mutual interest, the world achieves the goal and a global temperature rise of less than 1.5°C by 2100. Archipelagos follows a possible path in a world focusing on security through self-interest. Even so, change is still rapid, and the world is nearing net-zero emissions by the end of the century but the temperature outcome in 2100 is a plateau at 2.2°C.

The starting point for a deeper look at Brazil’s oil production prospects is the anticipated global demand in each scenario. The figure below shows that evolution through to 2060. Demand in 2030 remains at least at 2023 levels in both scenarios, and two decades later in 2050 when Sky 2050 is at net-zero CO2 emissions, the scenario range is still 40-85% of 2023 levels. While a fuel like coal may dwindle quite quickly in a world targeting net-zero emissions, significant oil demand will be with us well unto the second half of the century.

Global oil demand broken down by scenario and use

Oil has an abundance of uses, and for many of them, a lower-carbon alternative is not yet available (at scale). While the world has seen significant progress in electrification of cars and light-duty trucks, and this trend accelerates in both scenarios, the decarbonization of heavy long-haul road freight is a decade or more behind cars: in 2050, oil demand in the road freight sector has not even halved in Sky 2050 and in Archipelagos has even grown.

Other heavy-duty transport has even more difficulties moving away from oil: for example, airplanes, ships and agricultural equipment. Electrification is often not possible, and alternatives like biofuels and hydrogen are in their infancy. In Archipelagos, oil demand for these purposes grows over the next 3-4 decades. And finally, oil is essential to the chemicals industry – which is an industry that is set to grow as more and more people in developing countries move into middle income lifestyles.

Given that the world will need solid and reliable sources of crude oil for decades to come, how might Brazil fit into this picture? The charts below show Brazil’s oil production in the two scenarios, compared with domestic demand and natural field decline given no further investment. Remember that Brazil already makes significant use of ethanol for passenger road transport and increasing use of biodiesel for trucks.

Domestic demand and production of oil in Brazil in Sky 2050 and Archipelagos scenarios. Natural decline assumed 4.5% per year.

Both scenarios have short term production growth already locked in, driven by the development of the Buzios and Mero fields with investment decisions already made. The difference is what happens towards 2040 and thereafter.

In Sky 2050, natural decline matches falling domestic demand from 2040 onwards, but still allows Brazil to maintain a 3% global market share of oil production. In this scenario, Brazil becomes adept at managing carbon emissions and reaches net-zero emissions around 2040 and ahead of almost every other country in the world. Maintaining its role as an oil producer and growing exports in the near term does not undermine it’s net-zero goals.

In Archipelagos, oil production is a growing contributor to the country’s economy, exceeding domestic demand, and growing market share to almost 7% of global production. In this case, Brazilian oil is sufficiently competitive to squeeze out market share from other countries. However, this does not just happen: the best fields have already been commercialized, and while extensive underexplored coastline has huge potential, it does not come with guarantees. Additionally, even if not for export, ongoing investment and exploration would be needed just to maintain current levels of energy security.

In both scenarios, Brazil is an important oil producer – at least in the next decade, offering an opportunity to support its growing economy. And after that, Brazil will keep producing oil – at least to satisfy its domestic demand, and possibly to grow its global market share. Additionally, in Archipelagos, Brazil becomes a key regional supplier offering improved energy security for the Atlantic Basin countries, security being an overriding feature of the scenario. Both the Energy Security Scenarios and the Brazil Scenarios Sketch show a similar view for oil production growth for the next decade, before more substantial divergence starts.

Not all the country’s pathways in the sketch are so divergent, as can be seen below. In both scenarios, biofuel production will double mid-century, and in both scenarios, the trend of ongoing deforestation will be broken. In both scenarios, for biofuels, a large market is emerging as sectors and countries seek to replace their oil-based fuels with biofuels – such as in aviation. Article 6 of the Paris Agreement provides the possibility for sectors and countries to invest in land-use related projects in Brazil to offset their own hard-to-abate emissions.

Biofuel production and land-use change in Brazil in Sky 2050 and Archipelagos

It is a narrow path for Brazil, but the country can make the most of its oil resources while also developing its biofuel and carbon management potential. Both have wider benefit given the continued global demand for oil and focus on security of supply, but also the growing global demand for lower carbon fuels and carbon removal mechanisms. The only real difference between the scenarios is the mix and timing.

 Sky 2050Archipelagos
OilNow to early/mid-2030s: growth Mid-2030s to 2050: energy securityNow to 2050: growth 2030 to 2050: major exporter
Land-use changeFast turnaround in emissions, an end to deforestation in 2033Turnaround in emissions, net-zero deforestation in 2049
BiofuelsDoubled by 2050Doubled by 2050

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.

The emerging EV wave knows no bounds

September 5, 2024

In June the Shell Scenarios team launched our Brazil Scenarios Sketch, a deep dive into how the energy transition might unfold in Brazil and how the country can become a world leader in better managing carbon. Since then, the team has been busy sharing the scenarios with many groups, both inside and outside Brazil.

The scenario storyline for Brazil features two scenarios, Sky 2050 and Archipelagos. Both start with the realities of the 2020s, including the struggle to end deforestation in Brazil. As time moves on into the 2030s Sky 2050 takes a normative approach that starts with the desired outcome of global net-zero emissions in 2050 and works backwards in time to explore how that outcome could be achieved. By focusing on security through mutual interest, the world achieves the goal and a global temperature rise of less than 1.5°C by 2100. Archipelagos follows a possible path in a world focusing on security through self-interest. Even so, change is still rapid, and the world is nearing net-zero emissions by the end of the century but the temperature outcome in 2100 is a plateau at 2.2°C.

The scenarios stories and findings have been very well received, but one element of the scenarios has led to quite fierce (albeit friendly) debate. Of course, the whole purpose of scenarios is to challenge the status quo and the linear trend thinking that can emerge from it, so this debate was always welcome.

The contentious scenario issue is the speed at which electric vehicles will enter the Brazil market. In both the Sky 2050 and Archipelagos scenarios Brazil is not insulated from a powerful global trend towards electric vehicles (EV), as shown below. By 2050 in Sky 2050 the fleet is nearly 90% electric and in Archipelagos the trend is strongly upward, although by 2050 the fleet is approaching 70% electric. Today, EVs can certainly be seen in Brazil, and I rode in an electric Uber in Sao Paulo, but the numbers are currently small.

In almost every presentation of the scenarios, but particularly those in Brazil, this idea of rapid EV penetration into the Brazil market was challenged, usually in the first audience question. The challenge emerged from the reality of Brazil already having a low carbon footprint vehicle fleet, with sugar cane ethanol dominating the fuel mix today. Typically, the audience was split, with half believing that ethanol was here to stay and the other half agreeing that EVs were the future. However, in one presentation, nobody believed that EVs would make a dent in the market status quo.

So, what’s the story behind our thinking and is Brazil insulated from a global trend towards EVs?

Firstly, it’s important to give some context to the two scenarios, but particularly Sky 2050. That scenario is designed to get to net-zero CO2 emissions globally by 2050 and to do that, all the possible energy transition levers need to be pulled. This includes rapid electrification of the global passenger vehicle fleet, not just to eliminate emissions from fossil fuel use, but also to make biofuels and biofuel feedstocks used for these vehicles available for other purposes, such as sustainable aviation fuels (SAF). Brazil is an important producer of ethanol, so electrification of road transport in the country frees up a considerable amount of biofuel.

However, in Archipelagos, which is a fully exploratory scenario, the same trend of electrification emerges, albeit at a slightly slower pace. The rationale behind this in Archipelagos, but also to attach a plausible narrative to Sky 2050, is one of market forces. There is no indication in Brazil that the government is applying pressure to electrify the vehicle fleet, unlike places such as the EU and UK, so why would it change?

In both scenarios the premise put forward is that the global trend towards EVs is now unstoppable. There will doubtless be hiccups along the way, and we appear to be in a dip now in some markets as purchasing of such vehicles has slowed, but that was equally true for commercial transactions in the dot.com boom in the late 1990s, with the second coming in the 2000s bringing with it a tsunami of change. The EV market has brought with it a number of new entrants, something that the incumbents in the conventional vehicle market were perhaps not expecting. These companies are entering markets such as Brazil; for example, BYD is now establishing electric vehicle manufacturing in Brazil, with production of 150,000 vehicles per year by early 2025. In both scenarios this starts a fierce competition with the incumbents, companies such as VW who has already announced it will be adding $1.83 billion to its existing $1.4 billion investment (totalling $3.2 billion) in its Brazilian business and will be launching 16 new hybrid and electric models over the next five years.

This competitive trend in Brazil takes hold and change accelerates. At the same time, big companies active in Brazil are slowly phasing out their global combustion engine businesses and the flex-fuel combustion engine business in Brazil, while maybe having a bit more staying power, eventually suffers the same fate and comes to an end. For a global player, it becomes too expensive to maintain as a standalone business for one country.

As well as the competitive push, there is a pull from the ethanol producers. Initially there is concern as their market starts to shift, but this spurs the deployment of ethanol to jet fuel conversion technology in Brazil and the Brazilian ethanol producers find themselves making a high value product in strong demand around the world. The airlines need SAF and there isn’t enough global production, hence the pull. The bioenergy business in Brazil shifts as a result. The illustrations below show the shift from 2023 to 2050 in Sky 2050. The same shift happens in Archipelagos, but it isn’t as pronounced.

The change in Brazil is so rapid that the country becomes among the earliest to eliminate oil-based fuels from aviation and move entirely to alternatives, mainly bio-based SAF. In both Sky 2050 and Archipelagos oil-based Jet-A1 is phased out completely during the 2060s. This could mean that as well as the country exporting bio-based SAF, airlines in Brazil could transfer some of the lead they will have in SAF uptake through book-and-claim systems to other airlines around the world.

So that is the passenger vehicle story behind the Brazil scenarios. It’s not a prediction or a forecast, but a plausible outcome for the country given the very visible trends and pressures we can see today.

To complete the story, here’s an AI rendition (thanks to Bing and Copilot) of Ipanema beachfront in 2050, with electric cars traversing Av. Vieira Souto.

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.

In Brazil, land use change looms large

July 19, 2024

The recent release of the Brazil Scenarios Sketch, based around the Shell Energy Security Scenarios, highlights the role that land-use change could play for Brazil to achieve two important outcomes; reaching net-zero CO2 emissions within its domestic economy and becoming an important supplier of carbon removal units into the global economy as the world strives to balance carbon emissions and reach net-zero. In fact, these two outcomes are inextricably linked.

The CO2 emissions starting point from Bazil is shown in the illustration below, with land-use change being the largest component of the story, eclipsing fossil fuel emissions and even exceeding the large bioenergy CO2 loop.

Within the scenarios team in Shell, understanding and accounting for land emissions has become a core component of the modelling expertise that has been developed. It is approaching the level of detail that is used in energy system modelling, although the uncertainty related to land-use emissions is much greater than that associated with energy system emissions. Nevertheless, by using a consistent data focused approach, clear trends emerge, and conclusions can be reached relating to changes of direction.

In Brazil, the 785 Mt CO2 emissions shown above come mainly from ongoing deforestation. However, there are contributions from other ecosystems which are under threat. The breakdown is shown below and illustrates the detail available in the scenarios land-use database, which includes nearly twenty different land-use change types. While the categories are referenced by ecosystem type, the fact that they are shown as net positive emissions means that degradation is underway.

The scenario storyline for Brazil features two scenarios, Sky 2050 and Archipelagos. Both start with the realities of the 2020s, including the struggle to end deforestation in Brazil. As time moves on into the 2030s Sky 2050 takes a normative approach that starts with the desired outcome of global net-zero emissions in 2050 and works backwards in time to explore how that outcome could be achieved. By focusing on security through mutual interest, the world achieves the goal and a global temperature rise of less than 1.5°C by 2100. Archipelagos follows a possible path in a world focusing on security through self-interest. Even so, change is still rapid, and the world is nearing net-zero emissions by the end of the century but the temperature outcome in 2100 is a plateau at 2.2°C.

Both scenarios incorporate significant shifts in land-use policies and practices in Brazil. These are partly driven by government and incentive structures, but also driven by necessity and the recognition across society in Brazil that the threats emerging from ongoing deforestation, such as biodiversity loss and changes in South America rainfall patterns are unsustainable in the shorter term.

In Sky 2050 there is global recognition that Brazil holds the keys to net-zero emissions for many countries, in that the potential for natural carbon removals coming from Brazil can balance ongoing emissions in scores of economies. This leads numerous countries to invest in actions in Brazil to end deforestation, an essential first step towards delivering credible carbon removal credits from reforestation. In the scenario Brazil still overshoots its 2030 goal to end deforestation but has certainly achieved the goal by 2035. By then reforestation activities are becoming extensive with some 4 Mha of land under project management.

In the second half of the 2020s in Sky 2050 the agricultural sector adopts sweeping reforms, driven by a clear financial incentive structure underpinned by both domestic and international demand for soil carbon credits. The use of biochar in farming is taken up, together with changes in cropping and grazing. By 2030 these three new practices are drawing down 34 Mt of CO2 per year, or about 10 Mt of carbon added to the soil, which in turn means improvements in farm output. The carbon credits produced by the farmers are sold into the domestic emissions trading system or transferred out of Brazil to other countries via Article 6 of the Paris Agreement. In 2030 farm income is bolstered by well over $2 billion as a result.

Biochar use has a long history in Brazil. Analysis of soils has revealed that more than 2,000 years ago, Amazonian Indians used to bury stable carbon in the soil. A mixture of broken pottery and various other organic materials has maintained the high fertility potential of these areas to this day. Biochar production is a technique through which carbon from biomass is transformed into stable carbon that can be captured in the soil. In addition to this long-term carbon sequestration role, biochar is also beneficial to soil performance as it improves the retention and diffusion of water and nutrients. Biochar is a soil additive produced through pyrolysis, a process that involves heating biomass waste (manure and agricultural residues) at high temperature in an oxygen limited environment.

By 2050 in the Sky 2050 scenario, Brazil is drawing down nearly 700 Mt of CO2 through nature-based removals, with reforestation and agricultural biochar practices accounting for well over half the amount. But changed grazing and cropping practices as well as forest management and agroforestry also play important roles. The role of carbon markets acting as a conduit for international financing of domestic actions in Brazil cannot be understated. Without a global demand for carbon removals, the nature-based project investment required and incentives paid out to farmers cannot emerge on the scale necessary for Brazil to make all the changes that the scenario imagines.

In the Archipelagos scenario self-interest prevails globally. As a result, Brazil is not presented with the same level of partnerships or the major global demand for carbon removals. The result is that the country doesn’t end deforestation, although by mid-century the practice has been halved and the net-CO2 impact is zero as reforestation and forest management activities balance the losses still being seen. Agricultural practices do change in Archipelagos, but with the global voluntary market being the primary driver of change rather than a mixture of voluntary and compliance markets, progress is slower than Sky 2050. However, the same endpoint is eventually reached, albeit one to two decades later.

In both Sky 2050 and Archipelagos the changes that Brazil can deliver in land-use practices mean that net-zero CO2 emissions in the country is quite possible, coming a decade either side of mid-century with Sky 2050 delivering the outcome more rapidly. In both cases fossil fuel emissions have been reduced by some 20% when net-zero CO2 emissions is achieved, but that reduction is far from being the major contributor to the outcome.

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.

Brazil: Leading the world to net-zero emissions

June 24, 2024

As the world strives to get to net-zero emissions, Brazil can play a formidable role in helping to enable such an outcome, but it won’t happen without the broad recognition of carbon removal credits and a trading capacity to shift the credits between countries.

I have recently been in Rio de Janiero, Sao Paulo and Brasilia participating in the launch of a new analysis by the Shell scenario team that is focused on Brazil and looks in depth at the energy transition in the country, but also the enormous potential for managing carbon dioxide on a scale that is globally relevant. That analysis or country Scenarios Sketch, Brazil: Leading the world to net-zero emissions (in both Portuguese and English), builds from The Energy Security Scenarios, using the detailed country level data for Brazil that we in Shell have available from our World Energy Model.

Brazil is both unique and fascinating from a carbon cycle perspective, given the size of the rainforest, the large agricultural sector, and the important role that both bioenergy and hydroelectricity play in the country today.  As such, this Scenarios Sketch is entirely different to all the others we have worked on, in that it draws heavily on our land carbon analysis work and required a deep dive into the Brazil bioenergy sector.

The emissions starting point for Brazil is unlike any other country. Fossil fuel CO2 emissions, primarily from oil, are 453 Mt per year, but significantly less than land use CO2 emissions of 785 Mt per year, largely coming from ongoing deforestation in the Amazon region. Fossil fuel CO2 is also surpassed by the bioenergy system, although that system is effectively carbon neutral. Total CO2 emissions are around 1.3 Gt per year, but total greenhouse gas emissions are just over 2 Gt per year, with the addition of methane and nitrous oxide mainly coming from the agricultural sector.

The Brazil Scenarios Sketch incorporates two scenarios, Sky 2050 and Archipelagos. Both start with the realities of the 2020s, meaning that the energy system and future energy policy landscape are showing real signs of change, but also recognising that an insufficient amount of progress has been achieved on the scale required to reduce emissions substantially by 2030. As time moves on into the 2030s Sky 2050 takes a normative approach that starts with the desired outcome of global net-zero emissions in 2050 and works backwards in time to explore how that outcome could be achieved. By focusing on security through mutual interest, the world achieves the goal and a global temperature rise of less than 1.5°C by 2100. Archipelagos follows a possible path in a world focusing on security through self-interest. Even so, change is still rapid, and the world is nearing net-zero emissions by the end of the century but the temperature outcome in 2100 is a plateau at 2.2°C.

In the context of Brazil, while the energy transition takes some interesting twists and turns, the initial focus in Sky 2050 is on ending deforestation. In the scenario this is achieved in the early 2030s through a concerted government effort, in combination with the existing efforts through the voluntary carbon market. Government-to-government partnerships flourish and support the effort as countries outside Brazil recognise it is in their interests to see deforestation end such that Brazil can move into a phase of bona fide carbon removal through land-use change.

This achievement sets the scene for significant reforestation efforts driven by carbon markets, as the global demand for carbon removals ramps up and compliance markets, such as the EU Emissions Trading System, open their systems to an inflow of removals from outside their domestic boundaries. The important dynamic that results from ending deforestation is a leap in confidence that land-based credits from Brazil now represent true carbon removal and questions on additionality, that have hampered the avoided deforestation credit market, are put to rest.

Not content with land-based removals, in Sky 2050 Brazil sets about developing a CCS industry,  starting with the many ethanol plants in the Sao Paulo region where the prospects for geological storage of CO2 look good. The fermentation of sugar to produce ethanol releases CO2 in pure form which can be captured and geologically stored. Further, the combination of bioenergy production or use with carbon capture and storage (BECCS) delivers permanent removal of CO2 from the atmosphere.

In Sky 2050 in CO2 terms, by 2040 Brazil is already in a net-drawdown position, with a complete turnaround in land-use emissions and a CCS industry well established and storing over 50 Mt CO2 per year.

As the transition proceeds in Sky 2050, Brazil also reaches net-zero greenhouse gas emissions by 2050. But doing so requires considerable investment in CCS and mechanisms to incentivise landowners and the agricultural community to adopt new practices and change behaviours. In Sky 2050 a good proportion of these investments and incentives come through the carbon market, both from the domestic emissions trading system and projects channelled through Article 6 of the Paris Agreement. Importantly, Brazil has sufficient space in its carbon budget to allow for international trading of removal credits.

Picturing Brazil from an emissions trading perspective in the early 2030s, it might look like the illustration below. There are many potential counterparties, but the illustration imagines the EU ETS and the aviation sector as two potential partners. In Europe the EU ETS (I) will reach a point of zero new allowances by 2040, so by the 2030s industrial concerns could already be feeling the pressure given the lack of immediate abatement opportunities. In the aviation sector in the 2030s, technical solutions (e.g. SAF, e-fuels, hydrogen) for abatement will take decades more to fully implement, so carbon removals are the only short to medium term option.

By 2040, say, Brazil could be supplying significant volumes to these counter-parties but not compromising its own net-zero ambitions. A similar story could emerge domestically through the implementation of the planned emissions trading system.

Importantly, trade in carbon removals can bring investment and income into the Brazilian economy. But much of the story depends on a fully functioning Article 6 and a willingness by regions such as the EU to make use of it. To date, the signs pointing to such an outcome have been limited, despite some effort by the Article 6 negotiators at UNFCCC meetings.  

The Brazil Scenarios Sketch provides many energy and greenhouse gas insights into a vibrant country with an interesting story to tell. You can find that story here.

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.

Normative or exploratory – how should scenarios be developed?

June 10, 2024

In a time when there is much being written about limiting warming to 1.5°C, the so-called normative scenario has come of age. These emerge from a class of scenario analysis where a principal outcome is predetermined, rather than the traditional exploratory scenario which finds an outcome as a result of applied societal and geopolitical trends. In the case of 1.5°C scenario analysis, the story-line and findings are determined by the need to achieve net-zero emissions by 2050 and to limit cumulative CO2 emissions to some specified amount, which is the 1.5°C carbon budget. A further constraint is applied when a scenario with no or limited temperature overshoot is created. In that case the carbon budget would be rigidly enforced such that future atmospheric CO2 removal technologies and practices cannot be applied to correct an excess in shorter term CO2 emissions.

A no-overshoot 1.5°C normative scenario with a fixed carbon budget delivers a prescribed pathway that must be followed in order to achieve that same outcome in the real world; a recipe of sorts. However, picking and choosing certain parts of the pathway and calling for their implementation as policy approaches may be somewhat perilous; it could ignore inter-dependencies that the scenario requires for the outcome it achieves. Such is the case for the call to place a moratorium on new fossil fuel projects.

A new paper from researchers at University College London and the International Institute for Sustainable Development explores ways in which fossil fuel extraction can be curtailed, with their analysis opting for the development of a social-moral norm against completely new fossil fuel projects rather than an attempt to limit extraction from exiting projects or shut existing extraction sites down. The paper was recently discussed in a Financial Times article.

The researchers assess a range of 1.5°C scenarios compiled for the Intergovernmental Panel on Climate Change’s (IPCC’s) Sixth Assessment Report (AR6). For these particular scenarios the demand for oil, coal and gas can be met from fields and mines already in production or under development. The scenarios that they assess are the C1 scenarios (limiting warming to 1.5°C with low or no overshoot), including only those scenarios that do not exceed IPCC feasibility and sustainability thresholds on carbon sequestration. Such thresholds effectively exclude scenarios dependent on high levels of carbon sequestration technologies, such as carbon dioxide removal (CDR), which the authors argue are unproven at scale and which, if they failed to materialize, would pose a risk to the achievability of the 1.5° goal. While a tight limit on future CDR deployment can be a valid scenario assumption, it is a questionable assumption in the real world, given that society is now so close to the 1.5°C threshold.

In any case, the scenarios chosen by the researchers, like the IEA NZE Scenario, make some highly challenging assumptions about the energy system to meet the net-zero, no overshoot and carbon budget constraints imposed within them. These assumptions include reducing the demand for energy services such that fossil fuel demand falls even faster than would be the case based on substitution alone. The IEA had to make the same assumptions in its own NZE 2050 scenario and states the following on its website;

Clean energy technologies are deployed at unprecedented speed in the NZE Scenario, but many CO2-intensive energy assets will still be in use in 2030. Reducing their emissions or replacing them depends on scaling up novel or complex low-emissions solutions and deploying them around the world, and that will take time . . . . . . In the absence of energy demand reductions from behaviour change, achieving the same emissions reductions in end-uses would require ramping up low-emissions technologies at staggering speed. In aviation, the use of sustainable aviation fuel would need to increase more than twice as fast as in the NZE Scenario . . . . . . In road transport, the use of more EVs would require an additional 1.3 million tonnes of critical minerals by 2030 – roughly the amount of critical minerals used in the EV sector today . . . . .

Examples of the assumed IEA behavioural changes come from every sector. In the buildings sector, they include adjusting space heating and cooling temperatures. In the transport sector, they include more public transport and reduced car use in cities, eco-driving on highways and switching from planes to trains or videoconferencing.

As already noted, these behavioural changes mean that oil, gas and coal demand fall even faster than would be the case for a mitigation or substitution only story, which in turn allows the scenario to meet the carbon budget and no-overshoot constraints. This also means that the need for new fields and mines for fossil fuel production is reduced, to the extent that the scenario designers can then make the claim that no new fossil fuel production facilities are required.

We then come to the UCL/IISD report. Within the paper there is no mention of the need to see a long list of behavioural changes emerge across global society; rather, it launches into an analysis and discussion about the policy framework that should be implemented to limit development of further fossil fuel resources. The authors reach the conclusion that state and non-state proponents of ambitious climate action should engage in policy and advocacy aimed at diffusing and institutionalizing a social-moral norm against new fossil fuel projects. The researchers note that a social-moral norm is a standard of appropriate behaviour that is expected of an agent with a particular identity.

The problem with this argument is that it tackles the result of energy demand, rather than the cause. Simply shutting off supply will of course limit fossil fuel use, but the outcome could be very disruptive and have unintended consequences, such as limiting energy access to those most in need. If the solution to the carbon budget problem involves curtailing energy service demand, then surely the social-moral norm that the authors should have argued for is around limits on energy service use. This is basis for the so-called Flygskam in Sweden, a word that literally means “flight shame”. The movement discourages people from flying to lower carbon emissions. Japan used such a mechanism quite effectively after the Fukushima nuclear accident to encourage higher temperatures in buildings in the summer, therefore lowering the need for energy for air conditioning.

But shaming and aggressive persuasion aren’t always welcome and may have a limited duration before reversion kicks in. The Sierra Club argued in a 2023 article that climate-obsessed travelers should ditch the guilt and support efforts to cut aviation’s carbon footprint. They saw three problems with the shaming approach – it puts the burden on individuals, rather than accelerating the systems changes that will cut carbon from flight; it simply won’t scale as flying is a large and growing sector, and we live in a diverse, interconnected, and increasingly mobile world; finally, other solutions do exist and need to be scaled rapidly. The article concludes that society needs to support the kinds of policies and investments that will allow fossil-fuel-free travel. But then the aforementioned IEA issue of speed of deployment crops up and the carbon budget is under threat once again.

While the arguments put forward in the UCL/IISD paper are cogent and thought through, they do over-simplify a complex problem. In fact, there isn’t a simple solution to the 1.5°C issue, even though many argue that there is. Perhaps the root of the problem is a gospel like belief in extreme normative scenarios that only deal with the period from now to 2050, rather than attempting to understand the alternative solutions and outcomes that full century exploratory scenarios can highlight.

The Shell Energy Security Scenarios offer such insight. Sky 2050 is a blend of normative and exploratory, in that it does meet the goal of net-zero emissions in 2050 and does adhere to a 1.5°C carbon budget, but it explores the possible outcomes more holistically, embracing near term stubbornness (for change) in the energy system, land use reform, future industrial removals and carbon credit trading, all part of a world also transitioning rapidly towards a new energy system. Archipelagos is an exploratory only scenario. It recognizes the accelerating rate of the energy transition as multiple pressures are placed on it, including climate action, supply disruption and price volatility. Both scenarios extend their analysis beyond 2050 and chart a course through the second half of the century, a necessity to fully understand where the energy system is ultimately headed. The often used end-point of 2050 for energy system scenario analysis is now too near for such scenarios to offer an appropriate solution set for the Paris Agreement goals.

You can find The Energy Security Scenarios here.

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.

‘Phantom’ carbon credits or a transparent attempt to innovate?

May 9, 2024

In the past week, a story published by the Financial Times based on a report from Greenpeace claimed, inaccurately, that Shell had benefited from selling “millions” of Canadian carbon credits that were not traceable to a direct emission reduction. In fact, the carbon credits in question come from the gold standard for managing CO2 emissions, a carbon capture and geological storage project (CCS). There is a story to be told about this, but it isn’t the one you’d have read in this weekend’s article. It’s also a story that involves me.

The story dates back to the early 2010s as Shell (and its JV partners) was planning the construction of a first CCS facility both for Shell and Canada, but also one of the first of a handful to be operating in the world. The Shell-operated project is known as Quest (current Shell interest 10%), and since startup in 2015 it has been storing about 1 million tonnes per year of CO2 in a safe geological formation deep below the prairies in Alberta.

First, it’s crucial to understand the nature of CCS projects. They take years to be planned, engineered and constructed before capturing CO2 on a large scale. But they don’t come with an obvious business model that provides a return to investors, such as through the sale of a product or the provision of a service that is in high demand. Instead, innovative policy mechanisms and regulatory measures are needed to underpin a CCS project. This remains true in 2024. While some governments recognise the need and are rising to the challenge, the deployment of CCS technology is significantly behind the pace and scale needed to realise 2050 net zero targets, largely because of the absence of sustainable long term business models. The technology itself is well proven and ready to go.

Two main business models exist today; in the US there are tax credits ranging from $80 to $180 per tonne of CO2, depending on the exact nature of the project. In the EU there is the EU Emissions Trading System (EU ETS) and its prevailing carbon price that has reached as high as €100 in recent times. Even these robust mechanisms aren’t always enough for projects, but in the late 2000s there was far less in play to underpin CCS, so project developers and government policy makers had to get creative, which is what happened.

In 2008, a solution that had emerged in the EU in which I was involved used emissions allowances from the EU ETS as a source of funding for CCS projects. The idea targeted the notionally ‘spare’ allowances in the ETS New Entrant Reserve and 300 million of these were earmarked for sale for CCS funding (sadly, as the ETS carbon price collapsed to around €3 this mechanism never delivered as intended). In Canada, Shell brought this concept to the attention of Alberta policy makers, and they decided to use their own carbon credits in a related way.

At the time Quest was being considered, Alberta introduced its Specified Gas Emitter Regulation (SGER), which established a CO2 emission performance benchmark for large emitting facilities. The benchmark would decline by a set rate each year. Parties had to comply by either reducing emissions, buying “credits” from companies that had performed better than their benchmark, purchasing offsets from pre-approved programs, or else paying a fee into a technology fund. The regulation is now known as TIER, but the core concept remains the same. Quest was issued credits under Alberta’s CCS Protocol which could be used to comply with the regulation.

In 2011, the carbon price was low with an uncertain outlook, making the development of Quest uneconomic. To address this, the Government of Alberta and Shell agreed on a mechanism that would support the project in the initial phases, with the government issuing a second CCS credit for a maximum period of 10 years, or less if the project reached cost neutral status. Quest reached that milestone in 2022. There were limitations on how the additional credit could be used, including that it should primarily be used for regulatory compliance by affiliate company facilities. Then, as now, only the holder of the Base credit has the right to claim an emission reduction. Accordingly, these additional credits were not counted when determining Shell’s corporate greenhouse gas emissions.

To return to the claim in the Financial Times article, all the additional credits that Shell earned were used only to meet our own environmental obligations in Alberta. We did not sell them to any other company. Additionally, this program was not a secret. The government of Alberta described the mechanism in a 2011 press release and Shell acknowledged the same mechanism in the official project close-out report published by the Government of Alberta in 2016.

At the very least, Quest is an important proof of concept for Canada and the world, and it issues an annual knowledge sharing publication, which serves academic institutions, industry and regulators. But it’s much more than that: without innovative fiscal and regulatory frameworks in place that enabled the Quest investment, 8.8 million tonnes of CO2 that have been captured and stored by the project would otherwise have been released into the atmosphere.

For that reason, it is great to see more structural incentives, like Canada’s proposed Investment Tax Credit and Alberta’s proposed Carbon Capture Incentive Program, which could support the next wave of CCS investments. But it is also sad to see conceptual and innovative funding ideas, to get critical carbon management technologies up and running, facing undue criticism .

Cautionary note | Shell Global

Temperature, tensions and two scenarios

April 18, 2024

Just a year ago the scenarios team in Shell published The Energy Security Scenarios, a look at the world through the dual lenses of climate change and rising security concerns. Today, the two scenarios seem more prescient than ever as ongoing events continue to reinforce these two very separate directions of travel.

The two scenarios are Sky 2050 and Archipelagos. Both start with the realities of the 2020s, meaning that the energy system and future energy policy landscape are showing real signs of change, but also recognising that there is little in place on the scale required to reduce emissions substantially by 2030. As time moves on into the 2030s Sky 2050 takes a normative approach that starts with the desired outcome of global net-zero emissions in 2050 and works backwards in time to explore how that outcome could be achieved. By focusing on security through mutual interest, the world achieves the goal and a global temperature rise of less than 1.5°C by 2100. Archipelagos follows a possible path in a world focusing on security through self-interest. Even so, change is still rapid, and the world is nearing net-zero emissions by the end of the century but the temperature outcome in 2100 is a plateau at 2.2°C.

In recent days multiple events have reminded us of the stark realities we are collectively facing. This starts with the temperature. Copernicus, the EU climate change service, announced that March 2024 was warmer globally than any previous March in the data record, with an average surface air temperature of 14.14°C, 0.73°C above the 1991-2020 average for March and 0.10°C above the previous high set in March 2016. The month was 1.68°C warmer than an estimate of the March average for 1850-1900, the designated pre-industrial reference period, and the global-average temperature for the past twelve months (April 2023 – March 2024) is the highest on record, at 0.70°C above the 1991-2020 average and 1.58°C above the 1850-1900 pre-industrial average. The world is currently tracking above 1.5° and has been for several months. One data service, Berkeley Earth, also reported that 2023 was the first 1.5°C calendar year and others have subsequently reported a non-calendar year twelve month period being above 1.5°C.

Following on from the temperature announcement, the Executive Secretary of the UNFCCC, Simon Stiell, speaking at various events and then repeated on X (previously Twitter), said we have “two years to save the world“. He was referring to the two important COPs in 2024 and 2025 where nations will attempt to significantly step-up climate finance (COP29) and then submit new Nationally Determined Contributions (COP30), both in response to the recent global stocktake (COP28) and with the COP29 financial promises in hand.

The global security situation doesn’t require a reminder from me, but it has arguably deteriorated over the past twelve months. The recent exchanges between Iran and Israel are a reminder of the essence of the Archipelagos scenario, where mutual interest prevails and shorter-term geopolitical security challenges continually disrupt the focus and collective effort required to deliver net-zero emissions in 25 years.

Both Sky 2050 and Archipelagos see coal use declining rapidly by 2040 (much sooner for Sky 2050), but in Archipelagos shorter term concerns and the recent disruption in the global gas market see coal demand rising.

Unfortunately, the Archipelagos trend may also be playing out in reality. Coal capacity is continuing to rise despite the pledges and promises made at Glasgow and the statement in the Glasgow Climate Pact which called for ‘accelerating efforts towards the phase-down of unabated coal power’. A new report from Global Energy Monitor and others highlights the recent growth trend for new facilities. The report notes that 2023 saw the highest net increase since 2016 in operating coal capacity. The increase is primarily driven by a surge in new coal plants coming online in China (47.4 GW), and lower retirements in the United States (9.7 GW) and Europe (5 GW) compared to recent years.

But the eventual trend, even in Archipelagos, is that solar PV and wind are installed at such a rate that coal is outpaced and rapidly forced out of the mix. The turning point in both scenarios for a global decline in fossil power generation is this decade.

There are positive changes as well, although one comes as a bit of a shock. It is clear that there is a genuine global uptick in interest in the family of carbon  capture and storage technologies. This includes the considerable funding incentive under the US Inflation Reduction Act (up to $180 per tonne of CO2 for direct air capture with storage), venture capital funding flowing into direct air capture (DAC), projects in China and the Middle East, renewed interest in Japan and the final investment decision on key hub projects, like Porthos in Rotterdam. But the surprise (and shock) came with the release of the EU Commission plan for a 90% reduction in emissions by 2040, which included references to perhaps 150-200 million tonnes per annum of CO2 storage (but even more CO2 captured due to the need to supply carbon for e-fuel production). This is required in just 15 years, which makes it more than a challenging target, perhaps formidable is the word. It is coming from an organisation that has tried hard to raise interest in CCS over many years, but after initial efforts in 2008 fell foul of the financial crisis, nothing much has happened. Suddenly, the EU needs 200+ projects by ‘tomorrow’!

Another feature of The Energy Security Scenarios that is worth a second look is the development of national archetype responses to the energy security challenges that countries are confronted with. Different nations respond to energy security concerns in different ways. To be able to reflect these differences in behaviour, we produced a set of four archetypes, which reflect the ability of countries to secure their own supply of energy and to cope with energy price volatility.

  • Innovation Wins can be seen in countries like the USA and major resource-holders such as those in the Middle East. These countries are often self-sufficient in energy so are not vulnerable to supply failures, but they are susceptible to swings in energy prices. They invest heavily in innovation and infrastructure as longer-term solutions to their energy needs and the needs of their energy customers.
  • Green Dream can be observed in the European Union. The EU’s wealth makes it relatively able to deal with energy price volatility, but its advanced economies and depleted energy reserves make it highly vulnerable to energy supply failures. These countries seek security by driving hard to reduce energy use, increasing energy efficiency and massively boosting renewable generation.
  • Great Wall of Change is mainly relevant to China. The size of China’s economy, its large coal reserves and the scale of the investments it is making in its own energy supply and infrastructure insulate it from both supply and price concerns. It looks to use its manufacturing strength to build its position as a global low-carbon energy powerhouse.
  • Surfers are countries that tend to be vulnerable to both energy supply disruption and price swings. They seek partnerships with others and try to ride the opportunities created by the actions of other archetype countries. These can be dynamic, fast-moving economies with much to offer, but still need strong ties with others to shape their actions.

One year on and The Energy Security Scenarios appear to be as relevant as ever. Please do take a second look, or for new readers, a welcome first look. You can find it here. And do explore the timeline!

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.

Seeing the forests and the trees

March 19, 2024

I was fortunate to be in Brazil recently and as part of the trip I visited the offices of Carbonext1 in São Paulo, one of the leading companies in the voluntary carbon market space, in this case currently focused on avoided deforestation projects. They are engaged in projects that, in total, are conserving between 1.5 and 2 million hectares of Amazon rainforest. The rainforest itself covers an area of some 670 million hectares, but much of this land isn’t necessarily under immediate threat. Rather, the strategic focus of the company is along the southern border of the rainforest, in effect creating a line of defense against further encroachment northwards. In exchange for their efforts, the company, like many others, sells carbon credits into the global voluntary market, which are then used by all sorts of entities for carbon offset purposes.

This latter practice of selling credits on the back of avoided deforestation has drawn criticism, but particularly by a small number of prominent media outlets which almost seem to have set themselves the task of ending the voluntary carbon market. While it might be fair to debate the philosophical issues around avoided emissions being an offset for actual emissions, the criticisms that are made are more often aimed at the credibility of the projects themselves, rather than how the project carbon credits might be used. The argument that is put forward is that there is no guarantee the trees don’t get chopped down at some later time, or that a similar level of deforestation will just happen somewhere else, such that in reality nothing is truly avoided. But none of this chimes with what I saw when visiting the company’s offices. The capacity that now exists to manage these projects and tackle the issues associated with avoided deforestation inspired me.

When we entered their main office, we were presented with large monitors displaying satellite images of the southern regions of the Amazon, with the company projects almost looking like a string of fortifications that you might have seen had satellite images of the Maginot line been available in 1939. But the next step we saw was truly impressive. Zooming into a particular project, it was suddenly possible to see details of the individual projects, almost down to the tree level. An AI system is used to monitor the project images and as new satellite images are received from the likes of the European Space Agency, differences are instantly highlighted. For example, on one project a red alarm was flashing on the fringe of the project border because the tree cover had started to decline over the last few days. This had already been acted on and it was found that an adjacent landowner had started clearing part of the preserved rainforest. As a result of the detailed monitoring, this activity was flagged and the landowner was immediately contacted by someone in the vicinity of the project. It was ascertained, at least in this case, that a genuine error had been made by the landowner regarding the location of the border. The land clearance was stopped, and the damage was contained to a tiny fraction of the overall project.

The attention to detail and the systems in place to monitor individual projects with a granularity that was probably impossible just a few years ago is impressive. It ought to give everyone confidence that a genuine effort is underway through the voluntary carbon market to limit further land clearance in the Amazon rainforest. But I do wonder if the journalists writing the disparaging articles have done their own due diligence into the current state-of-the-art technologies used to monitor forest cover and manage avoidance projects. From what I saw, it’s difficult to believe they have.

Moving out from an individual project, the totality of the effort is also impressive. A bit like the Maginot line, the string of projects is creating a crucial buffer defense against further clearance, ensuring that the other problem associated with avoidance credits, i.e. different trees just get chopped down somewhere else, doesn’t materialize, or is at least limited. But also like the Maginot line, there is the real possibility of breakthrough because the buffer isn’t big enough or there are gaps in it. In 1939 the Wehrmacht famously bypassed the fortifications that had been built and invaded France through Belgium. And here lies a potential problem in Brazil as well, but I would argue that the fault lies not with those developing the string of projects along the edges of the rainforest, but with those criticizing their efforts. By undermining the efforts of the project developers that are creating the buffer, they could also be undermining the buffer itself as new investors and potential buyers for the offsets shy away. This may then limit future project development, leaving gaps in the effort, which in turn may become weak spots in the overall programme. This string of events then snowballs, creating further criticism (always easier than providing support or offering constructive criticism) which in turn may further limit investment and new projects. It’s time for this to stop.

None of the above is meant to argue that everything rests on the back of voluntary carbon credit companies and their projects, it doesn’t. The Brazil government are clearly stepping up their efforts as well, for example by challenging illegal land clearance. But these voluntary market projects are often taking land that can be legally cleared and providing an incentive to landowners not to do so. All these efforts add up to the critical first steps required to end deforestation in the Amazon, so we need the voluntary carbon market acting in this space as much as we need the Brazil government to limit illegal land clearance. Both are important. Allowing the voluntary market to prosper and invest heavily in avoided deforestation will facilitate the creation of a true and complete line of defense. The end result is that deforestation stops, and everyone’s collective attention and efforts can then turn to reforestation, which also means carbon removal from the atmosphere rather than continued addition.

  1. Note that Shell has a minority stake in Carbonext. ↩︎