{"id":11168,"date":"2016-11-04T08:06:32","date_gmt":"2016-11-04T12:06:32","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/royal-dutch-shell-oil-and-gas-for-environmental-sustainability\/"},"modified":"2016-11-04T08:06:32","modified_gmt":"2016-11-04T12:06:32","slug":"royal-dutch-shell-oil-and-gas-for-environmental-sustainability","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/royal-dutch-shell-oil-and-gas-for-environmental-sustainability\/","title":{"rendered":"Royal Dutch Shell: Oil and Gas for Environmental Sustainability?"},"content":{"rendered":"

Large oil and gas conglomerates have historically been the target of social criticism given their role in the production of carbon based fuels.\u00a0 Royal Dutch Shell, as one of the top ten largest companies in the industry, has been no exception.\u00a0 While their recognition of climate change as a serious global issue is public and certain, the question remains whether they are doing enough.\u00a0 While this question can most certainly be asked in the light of social responsibility and morality, I shall seek to assess this question based upon the likelihood of success.\u00a0 More specifically, is Shell doing enough to retain long term business success while supporting global efforts to reach greenhouse gas (GHG) emission reduction targets?<\/p>\n

The Paris Agreement, ratified by 97 global parties and taking effect November 4 (today), agrees to hold the increase of global average temperature to well below 2\u02daC above pre-industrial levels.\u00a0 This requires a significant reduction in the global levels of GHG emissions, likely to be achieved by governments using carbon emissions trading systems and further incentivizing the use of clean renewable energy sources.\u00a0 This is expected to lower demand for fossil fuels.<\/p>\n

Royal Dutch Shell demonstrates a corporate awareness of the shifting future of global energy through its \u2018Shell energy scenarios to 2050\u2019 report.\u00a0 Identifying the critical human conundrum of the day as \u201cmore energy, less carbon dioxide,\u201d Shell simplifies our potential futures into two potential scenarios of survival:\u00a0 Scramble, or Blueprints.\u00a0 In the Scramble scenario of the world, global policy makers do not respond sufficiently to the threat of climate change, leading to decisions favoring growth and cheap energy consumption.\u00a0 Energy use is predicted to shift to coal, resulting in severe climate shocks that force the world to evolve into use of biofuels, and ultimately renewable energy sources.\u00a0 In the Blueprints scenario, grassroots efforts originate out the recognition of the need and potential benefit of energy innovation.\u00a0 Local efforts eventually drive national and then international alignment, with carbon capture and storage (CCS) being applied to all fossil fuel energy generators while alternative renewable energy plants scale up.\u00a0 Neither scenario is an ideal or perfectly smooth transition to a sustainable global economy, leading the report to introduce the principle of TANIA: There Are No Ideal Answers.\u00a0 Former CEO Jeroen van der Veer notes in his foreword that in Shell\u2019s perspective, the Blueprints scenario offers the best path towards a sustainable future, urging for \u2018clear thinking, huge investment, and effective leadership\u2019.<\/p>\n

However, despite all this forward thinking and strategic analysis, it is not clear that Shell has been able to embrace change at the rapid pace necessary for its own forecast.\u00a0 Based upon the Shell 2015 annual report, the business has made incremental investments towards CCS technology.\u00a0 Renewable energy projects remained largely absent from the portfolio as of yearend 2015.\u00a0 In May 2016, a shareholder meeting resulted in a 97% vote rejecting a proposition to invest profits from fossil fuels into renewable energy projects.\u00a0 Shell\u2019s net income attributable to shareholders dropped a steep 87% from 2014 to 2015 due to low oil prices coinciding with rising production costs. CEO Ben van Beurden addressed the challenges of switching to renewable energy sources while maintaining the current business model and satisfying investor demands for consistent dividend payouts: “If collectively we find a way to stay within the 2 degree (Celsius limit), we will still need significant investment in oil and gas…I am talking about up to a trillion dollars every year.\u201d\u00a0 Based upon this, it seems that renewable energy and CCS solutions will remain a minor portion of the business, pending future investor interest or changes in financial incentives.<\/p>\n

In May 2016, Shell organized its renewable energy investments into a separate business unit, titled \u2018New Energies,\u2019 receiving an annual investment budget of $200 M.\u00a0 This business unit covers investments in biofuel, hydrogen fuel, wind and solar energy.\u00a0 Its CCS joint venture, Quest, received C$865 M from the Canadian government and started operations in Alberta in 2015.\u00a0 Since start-up, Quest has reduced CO2 emissions by 315 kilotonnes.\u00a0 Shell has the potential to continue innovating in CCS technology as well as renewable energies, but has clearly demonstrated a lack of willingness to scale up these efforts unless investors are able to forego payouts, or financial incentives in the sustainability space improve.\u00a0 This bodes poorly for Shell\u2019s long-term dominance in the energy space, as their own energy scenarios have forecasted.<\/p>\n

Word count: 731 words<\/p>\n

Sources:<\/strong><\/p>\n

Royal Dutch Shell plc. 2015 Annual Report. [http:\/\/reports.shell.com\/annual-report\/2015\/], accessed November 2016.<\/p>\n

Sustainability Report<\/em>. Royal Dutch Shell plc Sustainability Report. The Hague, The Netherlands, April 2016.<\/p>\n

Shell energy scenarios to 2050<\/em>. Shell International BV Corporate Report. The Hague, The Netherlands, 2008.<\/p>\n

Bousso, Ron. \u201cShell CEO warns renewables shift could spell end if too swift.\u201d Reuters<\/em>, May 24, 2016. [http:\/\/www.reuters.com\/article\/us-shell-agm-climatechange-idUSKCN0YF1YP].<\/p>\n

Gensler, Lauren. \u201cThe World’s Largest Oil and Gas Companies 2016: Exxon Is Still King.\u201d\u00a0 Forbes<\/em>, May 26, 2016. [http:\/\/www.forbes.com\/sites\/laurengensler\/2016\/05\/26\/global-2000-worlds-largest-oil-and-gas-companies\/].<\/p>\n

Smith, Geof<\/p>\n

\"Figure<\/a>
Figure 1: CCS<\/figcaption><\/figure>\n

frey. \u201cShell Looks for a Hedge Against Climate Change.\u201d Forbes<\/em>, May 16, 2016. [http:\/\/fortune.com\/2016\/05\/16\/shell-new-energies-climate-change\/].<\/p>\n

United Nations. Paris Agreement.<\/em> Paris: United Nations, 2016.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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