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BBC News: Firms ‘need clear climate policies’

James Smith, UK Chairman, Royal Dutch Shell Plc: Google image

(James Smith, UK Chairman, Royal Dutch Shell Plc)

James Smith 

Fossil fuels are going to remain the main source of power in an increasingly energy-hungry world for decades to come, says James Smith in this week’s Green Room. However, he urges governments to urgently provide polices to encourage investment in cleaner technologies.
Long-term thinking has never been more important in the energy industry.

Energy companies routinely invest billions of dollars in mammoth projects that often have life spans of 30 years or more.

If we are to plan effectively, we must have an idea of where current trends will take us. At Shell, we see these trends as “hard truths” because they are inescapable and, in some cases, unpleasant.

The first hard truth is the acceleration of global energy demand. By 2050, the world’s population could reach more than nine billion, compared with today’s 6.6 billion.

Energy demand is growing even faster than population growth. Developing countries, China and India in particular, are entering the energy-intensive phase of their development where people buy their first computer or car.

To illustrate the speed of change, there are 40 million cars in China – that’s three for every 100 people. By 2020, forecasts suggest that figure will grow to 150 million. Fuelling these cars will require an additional two-to-three million barrels of oil per day – the equivalent of Germany’s current consumption.

Oil addiction

The second hard truth is that fossil fuels will continue to be the main source of energy for decades to come. 

Fossil fuels presently meet about 80% of global energy demand, whereas biofuels, wind and solar energy currently supply less than 1%.

Even with heroic efforts to increase the use of alternative energy they would still only provide around 30% of predicted global energy demand by 2050.

The third hard truth is that production of “easy oil” (oil and gas that are relatively easy to extract) will not keep pace with the growing demand.

At a time when demand for energy is surging, more and more of the world’s conventional oil fields are going into decline. Many of the world’s future resources are located in the Arctic, or offshore in deep water.

Much is in the form of oil shale and oil sands – so-called “unconventional” oil. All of these are more energy-intensive, difficult and costly to develop.

The fourth hard truth is that carbon dioxide (CO2) emissions are set to rise even faster than demand for energy, unless we take quick action.
Yet, as I’ve said, most of the world’s growing energy needs will continue to be met by oil, natural gas and, especially, coal.

To secure future energy supplies and become less dependent on imports of oil and gas, countries will exploit their domestic coal reserves.

This is true not only for China and India, but also for the US, where more than 50% of electricity is already generated by burning coal.

In the 27 member states of the European Union, about 35% of electricity is currently produced by coal-fired power stations. Using coal more cleanly – by gasifying rather than burning coal – is therefore vital in the battle to reduce CO2 emissions.

Smoke signals

These hard truths present society with significant challenges. Governments must urgently provide policies that encourage investment in new technologies and energy conservation.

These policies fall into three broad categories: regulations for energy efficiency; putting a price on CO2 emissions; and targeted incentives to speed up the development of promising new technologies.
Governments need to formulate the right policies at an international level to ensure a relatively smooth transition from a high-carbon global economy to a low-carbon global one
To see the potential impact of tougher regulations on the energy efficiency of buildings, vehicles and consumer appliances, simply look to Japan, which in 2004 used the equivalent of 2.8 tonnes of oil per person, compared with 5.4 tonnes per person in the USA, according to the International Energy Agency.

A good way to put a price on CO2 and to force reductions is to implement a “cap-and-trade” system. Such a system puts a cap on the CO2 emissions a company is allowed to emit; and the cap gets reduced over time.

It creates a carrot and a stick scenario – If companies exceed the cap, they have to pay for additional emissions rights.

But there is an incentive to reduce emissions below the cap because a company can sell the benefit to those companies that couldn’t reduce their emissions so much. So it’s putting the market to work to get emissions down in the most efficient way.

The EU’s Emissions Trading System (ETS) deserves to be supported and strengthened so there is confidence in a long-term market in carbon. And the benefits will grow if the system can be extended internationally.

Targeted government support will be necessary to help develop early stage technologies, especially Carbon Capture and Storage (CCS), which is a technology driven by climate change concerns, rather than by customer demand.

What the world wants are energy sources, every one of which is clean and cheap and always available. But no single energy source meets all three criteria.

So companies like Shell must work to make a diversified mix on energy sources fit for the world’s purpose. That purpose is enough energy to support economies while avoiding the damage of climate change.

That is why Shell has such a broad range of technology developments, from clean coal, to making oil sands less carbon intensive, to later generation biofuels that make biofuel from crop waste, to wind, to thin film solar and to hydrogen.

No single company or industry can meet the challenge of satisfying the world’s rising demand for energy while simultaneously reducing CO2 emissions.

In the next two years, governments need to formulate the right policies at an international level to ensure a relatively smooth transition from a high-carbon global economy to a low-carbon global one.

Companies, through their commitment that climate change should be tackled and through their technologies, need to earn the right to a seat at the table where those policies are being defined.

James Smith is UK chairman of Royal Dutch Shell plc

The Green Room is a series of opinion pieces on environmental topics running weekly on the BBC News website

Monday, 8 October 2007 and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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