Shell has presented two contrasting visions of what the world could experience as it responds to the dual challenge of energy security and energy transition.
While both point to a decline in fossil fuels, governments are facing difficult choices in either case.
The first Shell scenario, called Archipelagos, sees concerns about national energy security outweighing global climate goals when it comes to policy decisions, albeit with an increasingly important role for renewable energy to boost that energy security.
In this scenario, low-carbon energy still scales up, but not at a pace or with the degree of international collaboration that would allow the global community to meet Paris climate goals.
Under this first scenario, average global temperatures are expected to rise to about 2.2 degrees Celsius above pre-industrial times by the end of the century. The concept of net zero emissions would be on the horizon, but not yet achieved.
The second scenario, Sky 2050, takes global conditions last year as a baseline and shows how fast the world needs to move to reach out Paris agreement goals.
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This scenario sees the world gradually focusing on climate security as a matter of priority for younger generations, with countries and industries competing to switch to clean energy quickest.
Although net zero emission targets will still reached by 2050 in this scenario, the global temperature will still increase by more than 1.5 degrees Celsius.
Technologies such as direct air capture would then be used to return the temperatures to a lesser increase, and more so than other types of carbon capture associated with fossil fuel production.
The UN’s Intergovernmental Panel on Climate Change (IPCC) report last year set a carbon budget — a total amount of carbon dioxide emissions the world can produce before we go above our temperature goals.
Shell says that based on our current trajectory, it will be nearly impossible to stay within this limit.
The company expresses a vital need to scale up both carbon capture and direct air capture to remove the carbon dioxide from the atmosphere and store it underground.
A new IPCC report published this week claims that we are approaching the point where it will not longer be possible to stay under the targeted 1.5 degree Celsius limit and agrees that carbon dioxide and direct air capture will be necessary to make this happen, if it is scaled up quickly.
Fossil fuel retreat
Under both Shell scenarios, fossil fuels lose ground in the energy mix to renewable energy.
Archipelagos sees an even stronger use of fossil fuels to meet immediate energy needs resulting in higher short-term energy prices worldwide, with price rationing having a major effect in balancing global supply.
A dwindling appetite for oil and gas production would affect investment and force government action to ensure money flows.
Energy security problems and failure to arrest the rise in global temperatures would lead to social unrest and the prospect of the early, and possibly forced, closure of fossil-fuel assets later in the century as solar, wind and hydrogen begin to dominate.
“Net-zero emissions comes late, and the process of getting there is painful, with society split and some investments ultimately failing,” is the bleak conclusion.
The decline in fossil fuel use starts in earnest after 10 to 20 years, under the Archipelagos scenario.
Better, but hard work
The Sky 2050 also poses difficult choices in order to bring society rapidly to net-zero emissions.
The scenario is described as requiring major interventions from policymakers in the energy system. This includes action such as the forced retirement of fossil-fuel assets, punitive carbon prices, the rapid introduction and scaling up of early-stage technologies and significant energy conservation through efficiency and even economic austerity.”
Similarly governments may have to consider restricting choices, such as limiting the selling of internal combustion engine vehicles and limiting meat consumption, and forcing through the construction of wind turbines and power lines in places where many citizens do not wish to see them, such as sites of natural beauty.
“No government today has such a comprehensive mandate,” the report observed.
The report comes during a time that oil and gas exploration and production is increasing, despite the International Energy Agency’s recommendation that there be no new oil and gas leases.
The report said shifting from the Archipelago scenario to the Sky 2050 scenario would require policies to accelerate the commercialisation of decarbonisation technologies and the demand for such products.
Longer term it would require policies to drive low-carbon choices, including carbon pricing mechanisms, as well as mandates in some sectors, such as ending the sale of internal combustion engine cars.
Shell stresses these scenarios are not predictions, but simply possible outcomes based on data and reactions to energy and climate security.
“The value to Shell of producing scenarios is to help senior management think about the long-term challenges the business could face. In this way, the thinking in Shell’s scenarios may influence the company’s strategy — as one of many inputs — but that is as far as it goes: scenarios are not expressions of Shell’s strategy, they are not Shell’s business plan and they do not necessarily reflect the thinking or behaviour of the business,” the report states.