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Financial Times: States should create a climate for change

By JEROEN van der VEER
The writer is chief executive of Royal Dutch Shell

Published: January 24 2007 02:00 | Last updated: January 24 2007 02:00

Systemic changes are needed in order to promote effective action to tackle carbon dioxide emissions. Society needs more energy as much as it needs better ways to reduce the negative environmental effects of its production and use. Governments have a crucial role in ensuring that consumers and industry respond effectively.

In order for market forces to work we (paradoxically) need more regulations. Governments must urgently provide the rules that can foster lower carbon dioxide emissions. These regulations must encourage both investment in new technologies and energy -conservation.

The European Union’s newly proposed energy policy includes many welcome ideas and sets ambitious goals for reducing emissions over a relatively short period. But experience has shown that aggressive targets mean little unless EU member governments provide incentives and rules that make them achievable. Policies need to accelerate society’s search for CO2 solutions and greener fossil fuels.

These fall into two broad categories: standards and market mechanisms. Both will be necessary to trigger innovation and technology development. Indeed, in some cases setting standards now to take effect after a period of up to 10 years can speed up the emergence of new technology.

One approach could be to toughen regulations on the energy efficiency of everything from buildings to consumer appliances. This would help to encourage conservation. Japan, which has promoted conservation through a variety of rules since the 1970s energy crisis, provides a good example of how effectively they can influence consumption. Japan used the equivalent of 2.8 tonnes of oil per person in 2004, compared with 5.4 tonnes per person in the US, according to the International Energy Agency.

Policymakers the world over should make wider use of flexible market mechanisms such as the capping of carbon emissions and trading of credits that has occurred under the European emissions trading scheme since 2005. While Europe’s CO2 market is a good start, trading needs to become global in order to be truly effective. Only once widespread trading has established a clear cost for emitting CO2 will companies routinely incorporate it into calculations for big investments such as power plants and refineries that often have a lifespan of 30 years or more.

Governments can partner with industry on large-scale projects to capture and store CO2 from sources such as power plants. Indeed, power generation offers one of the biggest opportunities for limiting emissions. Generation is now responsible for 41 per cent of global energy-related carbon emissions, according to the IEA. That could rise to 44 per cent by 2030, as electricity takes a bigger share of energy consumption.

Unlike vehicles, power plants are stationary, making it easier to capture the carbon they emit. The technology exists to inject that CO2 into the ground where it can safely be stored. Shell and other oil companies have injected naturally occurring CO2 into oil wells for decades to coax out crude.

We are currently exploring a project with Statoil and the Norwegian government to capture CO2 from a power plant on the Norwegian coast and inject it into oil wells in the North Sea. Other approaches, such as storing CO2 in vast underground saltwater deposits, also show promise, but much work remains to improve the technology and bring down costs.

Under Europe’s current carbon trading scheme, companies that undertake projects to capture and store CO2 receive no credit for the reduction in emissions. That must change. Public funding would also help to make this technology more viable. Unless governments and industry work more closely together, there will be little incentive to undertake projects – and the practice of capturing carbon will likely develop at a crawl. Biofuels made from plants and organic waste also have the potential to lower transport emissions. Today, however, many are made from food crops such as corn and sugar cane that require lots of energy to produce. Although these fuels can reduce emissions, second-generation biofuels made from non-food sources could offer even greater reductions.

At Shell we focus on second or even third-generation biofuels that squeeze more litres out of fewer acres. We believe that laws to promote the use of biofuels should reward ones that deliver the most CO2 savings and that reduce costs.

Companies such as Shell clearly have an important role to play. Our own energy efficiency improvements are already delivering CO2 savings of about 1m tonnes a year. We are already one of the world’s largest distributors of biofuels. Since 2000, we have invested more than $1bn (£503m) in alternative energy sources such as wind, solar and hydrogen. Our aim is to turn one of them into a substantial business over time.

But no single company or industry can effectively address the challenge of global climate change. If governments provide a sound regulatory framework, companies can better help to “attack CO2”. Likewise, if governments fail to play their part to address the problem, lawmakers and society at large should not look to industry to solve it alone.

The writer is chief executive of Royal Dutch Shell

Copyright The Financial Times Limited 2007

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1 Comment on “Financial Times: States should create a climate for change”

  1. #1 Jay Draiman
    on Jan 25th, 2007 at 01:15

    MANDATORY RENEWABLE ENERGY – THE ENERGY EVOLUTION –R11

    In order to insure energy and economic independence as well as better economic growth without being blackmailed by foreign countries, our country, the United States of America’s Utilization of Energy sources must change.
    “Energy drives our entire economy.” We must protect it. “Let’s face it, without energy the whole economy and economic society we have set up would come to a halt. So you want to have control over such an important resource that you need for your society and your economy.” The American way of life is not negotiable.
    Our continued dependence on fossil fuels could and will lead to catastrophic consequences.

    The federal, state and local government should implement a mandatory renewable energy installation program for residential and commercial property on new construction and remodeling projects with the use of energy efficient material, mechanical systems, appliances, lighting, etc. The source of energy must by renewable energy such as Solar-Photovoltaic, Geothermal, Wind, Biofuels, etc. including utilizing water from lakes, rivers and oceans to circulate in cooling towers to produce air conditioning and the utilization of proper landscaping to reduce energy consumption. (Sales tax on renewable energy products should be reduced or eliminated)

    The implementation of mandatory renewable energy could be done on a gradual scale over the next 10 years. At the end of the 10 year period all construction and energy use in the structures throughout the United States must be 100% powered by renewable energy. (This can be done by amending building code)

    In addition, the governments must impose laws, rules and regulations whereby the utility companies must comply with a fair “NET METERING” (the buying of excess generation from the consumer at market price), including the promotion of research and production of “renewable energy technology” with various long term incentives and grants. The various foundations in existence should be used to contribute to this cause.

    A mandatory time table should also be established for the automobile industry to gradually produce an automobile powered by renewable energy. The American automobile industry is surely capable of accomplishing this task. As an inducement to buy hybrid automobiles (sales tax should be reduced or eliminated on American manufactured automobiles).

    This is a way to expedite our energy independence and economic growth. (This will also create a substantial amount of new jobs). It will take maximum effort and a relentless pursuit of the private, commercial and industrial government sectors commitment to renewable energy – energy generation (wind, solar, hydro, biofuels, geothermal, energy storage (fuel cells, advance batteries), energy infrastructure (management, transmission) and energy efficiency (lighting, sensors, automation, conservation) (rainwater harvesting, water conservation) (energy and natural resources conservation) in order to achieve our energy independence.

    “To succeed, you have to believe in something with such a passion that it becomes a reality.”

    Jay Draiman, Energy Consultant
    Northridge, CA. 91325
    Jan. 25, 2007

    P.S. I have a very deep belief in America’s capabilities. Within the next 10 years we can accomplish our energy independence, if we as a nation truly set our goals to accomplish this.
    I happen to believe that we can do it. In another crisis–the one in 1942–President Franklin D. Roosevelt said this country would build 60,000 [50,000] military aircraft. By 1943, production in that program had reached 125,000 aircraft annually. They did it then. We can do it now.
    The American people resilience and determination to retain the way of life is unconquerable and we as a nation will succeed in this endeavor of Energy Independence.

    Solar energy is the source of all energy on the earth (excepting volcanic geothermal). Wind, wave and fossil fuels all get their energy from the sun. Fossil fuels are only a battery which will eventually run out. The sooner we can exploit all forms of Solar energy (cost effectively or not against dubiously cheap FFs) the better off we will all be. If the battery runs out first, the survivors will all be living like in the 18th century again.

    Every new home built should come with a solar package. A 1.5 kW per bedroom is a good rule of thumb. The formula 1.5 X’s 5 hrs per day X’s 30 days will produce about 225 kWh per bedroom monthly. This peak production period will offset 17 to 24 cents per kWh with a potential of $160 per month or about $60,000 over the 30-year mortgage period for a three-bedroom home. It is economically feasible at the current energy price and the interest portion of the loan is deductible. Why not?

    Title 24 has been mandated forcing developers to build energy efficient homes. Their bull-headedness put them in that position and now they see that Title 24 works with little added cost. Solar should also be mandated and if the developer designs a home that solar is impossible to do then they should pay an equivalent mitigation fee allowing others to put solar on in place of their negligence. (Installation should be paid “performance based”)

    Installation of renewable energy and its performance should be paid to the installer and manufacturer based on “performance based” (that means they are held accountable for the performance of the product – that includes the automobile industry). This will gain the trust and confidence of the end-user to proceed with such a project; it will also prove to the public that it is a viable avenue of energy conservation.

    Installing renewable energy system on your home or business increases the value of the property and provides a marketing advantage.

    Nations of the world should unite and join together in a cohesive effort to develop and implement MANDATORY RENEWABLE ENERGY for the sake of humankind and future generations.

    Jay Draiman
    Northridge, CA 91325
    Email: [email protected]

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