INSEAD Knowledge, France: Shell CEO van der Veer: Carbon dioxide regulation necessary to make the markets work

Royal Dutch Shell CEO, Jeroen van der Veer
 
If governments do not intervene, industries will meet the growing demands for energy in the cheapest way possible, and carbon dioxide (CO2) emissions will increase. That puts Jeroen van der Veer, CEO of Royal Dutch Shell plc, one of the world’s leading petroleum companies, in an odd position: a leading capitalist campaigning for more government regulation.

“What is the role for government? What is the role for Shell? What is the role for our consumers?” asks van der Veer. “If you don’t specify that, nothing will happen, and in 10 years you will say, ‘We didn’t make the goal.’ And that would be bad news, because I think CO2 is a serious problem.”

Van der Veer has made the issue a top priority, working as the Energy Community leader of the World Economic Forum energy industry partnership in 2007-2008, and this year he was chair of the Energy Summit in Davos.

The problem is that the earth’s population will grow by 50 per cent in the next 40 years, to 9 billion people, and after 2015, easily-accessible supplies of oil and gas will probably no longer keep up with demand. Even if solar power, wind power, biofuels and nuclear energy are fully developed in that time, the demand for energy will be so high that “oil, gas and coal – a combination of fossil fuels – will still grow in absolute terms,” says van der Veer. “Maybe not in percentage, but people will use more of it.”

Reining in CO2 emissions is a complex issue that will require rules that encourage both energy conservation and investment in technology to capture carbon dioxide.

More than half the energy generated every day is wasted, so reduced consumption has a dramatic effect on production. The average car uses about 20 per cent of its petrol to move, and the rest is lost as heat. During an aircraft’s take-off, 92 per cent of the energy is wasted as heat. Only 35 per cent of the energy in burning coal becomes electricity in a power plant.

Some conservation initiatives are well established in mature economies, such as fueleconomy standards for cars. Other schemes, such as a cap on carbon dioxide production under which CO2 over-emitters could buy credits from companies that didn’t use all their energy allotment, are in early days.

“People like myself have to work in close cooperation with Brussels, the government,” to get a good trading scheme off the ground, says van der Veer. If companies can count on a reasonable CO2 price for the coming 10-15 years, he says, they will invest capital to reduce energy use.

“You can only do that if you start to make policies and have mechanisms in place on how this trading system can work,” he says. “If we don’t get good trading systems off the ground, then our industries … will emit more CO2. … We will contribute to the problem.”

Persuading people to use less energy, and so waste less, won’t be enough to stop carbon dioxide from increasing in the atmosphere, says van deer Veer. Carbon capture will be required.

“We do research” at Shell, he says. “If we can find something to do with CO2 which is now unknown, say if we could make building materials of it, that would be great news.”

And there are existing technologies, such as storing carbon dioxide in the ground, that are already understood, but they are not economic. Because CO2 capture and storage adds costs and yields no revenues, government support is needed to make it happen on a scale large enough to affect global emissions. At the least, argues van der Veer, companies should earn carbon credits for the CO2 they capture and store.

“People always think … the market will solve all of it,” says van der Veer. “That of course is nonsense.”

Only governments, he says, have the power to make energy so important that people have to make choices. Companies and non-governmental organisations (NGOs) can make suggestions, but governments make decisions. If they create the right rules and incentives and don’t create barriers, argues van der Veer, the global market will direct money and brainpower to the best solutions. The alternative is a global market failure, and future generations would pay the price.

http://knowledge.insead.edu/EBSShellCarbonDioxideRegulation080303.cfm?vid=31 

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