- The tension in the global energy transition is between providing energy that is required for people to attain a higher standard of living while lowering greenhouse gas emissions to tackle climate change.
- A sectoral approach to decarbonizing the global economy is a new and effective way to address this challenge and to apply policies that are unique to a given sector, supply, or demand of energy.
- The pace of progress towards a low carbon future also creates a socioeconomic challenge, and countries must work to create equitable and inclusive solutions to the energy transition.
Canada can be a leader in innovation, clean tech and responsible resource extraction if the government sets policy frameworks to enable action; businesses produce low carbon products, services and business models; and consumers demand those products and services. There is a tremendous opportunity to create a cleaner and more just economy that is better for the environment while driving economic growth.
What are the major forces and drivers, as well as uncertainties and constraints, that are currently defining our global energy system?
Energy is a very personal thing. It affects every part of society and of the economy, and there are a number of drivers that affect how the energy system evolves over time in particular geographies.
The two main trends that I see in this context are initially around reducing greenhouse gas (GHG) emissions. Getting the emissions from energy use and production down is a key objective that will drive the shape and size of the energy system in the future.
“To me, the conundrum is: how do you balance that more energy is required for people to attain a higher standard living with the fact that we need to reduce these emissions coming from energy to address and tackle climate change?”
The other side is the fact that energy is a key enabler of economic growth and development in countries that are emerging and developing, and so how do you balance that? To me, the conundrum is: how do you balance that more energy is required for people to attain a higher standard living with the fact that we need to reduce these emissions coming from energy to address and tackle climate change?
In what ways has the pandemic impacted your scenarios?
We have just released a scenario called “Rethinking the 2020s” and it explores three different pathways by which countries can come out on the other side of the pandemic, and three different society priorities in terms of how a country chooses to recover. The three scenarios are called health, wealth and security.
Now, health is very much focused on sort of prioritizing health outcomes and making sure that the pandemic protects health in the longer term. This is about putting in place new social norms such as social distancing, new business models that help support this new way of living, and new ways of working and collaborating to deal with this unprecedented situation.
In that kind of scenario, you find that there is a lot of support and public recognition and appreciation of the public good, of taking society forward together, that no one is left behind and everyone benefits. In this environment, you have a green recovery focus of government where they look to invest in green infrastructure to support jobs and the economy in the short-term.
The second scenario is wealth, and that very much focuses on getting economic activity back—so opening up and managing the pandemic. In some sense, you have to live with the pandemic, and you manage that to the minimum while opening up the economy. This is very much around making sure business returns to its conventional norms pre-pandemic, bringing back growth and jobs in conventional sectors rather than the new green sectors.
The third scenario is security, and this is quite interesting because it is about countries becoming inward looking; focusing on local problems, local issues, and local solutions to get out of this pandemic. Here it is about the pockets of action around the energy transition when it suits and meets national targets. Overall, the kind of coordinated action you need in order to achieve Paris Agreement objectives does not materialize in this scenario, it does not coalesce to become enough to get us on that trajectory.
“I think more can be done and we can double down on that in a way that helps really move the needle on the energy transition while helping the economy to recover from the pandemic.”
For us, there are three different pathways and it really depends on societal choices towards which one you go towards—and I think there is an opportunity here for Canada. The pledge is to get net zero emissions by 2050, and there are some moves from what I can tell in terms of allocating recovery money towards moving the oil and gas sector in a more sustainable direction and linking the recovery money to some environment outcomes.
I think more can be done and we can double down on that in a way that helps really move the needle on the energy transition while helping the economy to recover from the pandemic.
In its recent scenarios work around the Paris Agreement, Shell has focused on cities. Why cities?
We think cities are key to the consumer of energy. Today, in energy consumption, two-thirds of the world’s emissions come from cities and that is just from consuming energy. It becomes really crucial to think about what kind of energy is suitable for consumption in this urban context and how to supply it in a way that allows for maximum efficiency and the best use of that energy.
If you look at urbanization trends, today about 55% of people live in cities and by 2050, the United Nations expects 7 in 10 of us will be living in cities. Not only is it a big chunk of emissions today, it is a growing area of emissions over time. For us at Shell, it is quite interesting to see what kinds of energy we need and how we supply it in an urban context
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The conversation about energy, sustainability, and responsibility often focuses on the energy sector itself—but what about other sectors?
This is the approach we are taking, and it is a different approach to how we have operated in the past. Decarbonizing the global economy is a huge challenge and a sectoral approach is one way to break it down into a pathway we can assess and think about how to make change.
We started thinking not just about the supply side—how energy is supplied—but also about how energy is consumed, and that takes you to the sectoral approach, because how people consumer energy in their home, versus their car, versus businesses that are running and producing things, is very different depending on what energy is needed in those different sectors.
At the same time, the kinds of policies you need to help sectors decarbonize are also different. It is not a one-size-fits-all.
Finally, what we realized is the technologies and fuel solutions that you want in these sectors are different. You might be able to electrify buildings but how do you electrify air travel? You need to have a different kind of solution to decarbonize aviation versus buildings.
“Decarbonizing the global economy is a huge challenge and a sectoral approach is one way to break it down into a pathway we can assess and think about how to make change.”
For us, the sectoral approach is a way of disaggregating this really tough problem into thinking about concrete action, particularly in sectors where Shell is active.
Some of these sectors we are active in are what they call the “harder to abate” sectors—so there is not an obvious solution today in terms of how you decarbonize that sector. This is shipping, aviation, road freight, and heavy industry like steel or chemicals—and electrification is not necessarily the solution, and the solutions you do need are not quite cost competitive with fossil fuels today.
For us, the sectoral approach is that we have to think about supply and demand a little bit separately, especially in terms of technology, policy and people’s preferences. That helps us to unpick the problem and come up with solutions.
The other aspect of this is that for us as a supply company, it is no longer enough for us to think about how to supply what is needed—whether that is low carbon electricity or whether it is hydrogen or biofuels.
We cannot think about supply just from our perspective and draw the boundary around us—we have to think about who is going to adopt it. If these are not cost competitive solutions, how are we going to get the demand side willing to take a chance on solutions—working with the supply side, us—to start driving down some of these costs?
“We cannot think about supply just from our perspective and draw the boundary around us—we have to think about who is going to adopt it.”
For us, the story is not so much how do we supply more of the low carbon energy, it is also about how we build up the demand for that energy.
It is also infrastructure. You can build up all of the supply and demand you want, but if the supply is not able to move to match demand, you are not going to get very far. Infrastructure here becomes really important, whether it is electricity grid infrastructure to connect renewable rich places with where the demand centres are in cities, or it is producing hydrogen and moving it where it is needed.
How can we stimulate more productive energy conversations in Canada that are also inclusive?
Our scenarios have focused a lot on energy system changes—what you need to begin, how much electrification, how much hydrogen—and it is quite technical.
More and more, we are finding that you cannot move away from the socioeconomic aspects of transitions. If you think about it, getting to the goal of the Paris Agreement is 30 years away, 2050, which is not long in terms of system transformation. If you want to make progress at that pace it is not just a technical question, it becomes a societal question and the need to bring society together to support that transition. Otherwise, you are just going to be held up at different points, and you are not going to have the speed that you need to make the change. This is something that is coming up quite strongly in our scenarios work in this energy transition and in the context of 2050.
Increasingly, we are seeing a trend that you have to take all of society with you. Firstly, at a very pragmatic level, you need that to make progress—but people are also seeing this as an opportunity to address the inequality and inequity agenda while trying to address climate change.
“Increasingly, we are seeing a trend that you have to take all of society with you.”
For me, a lot of the transition is not just technical, it has to be equitable and fair. That is important both in terms of the speed of the transition as well as in righting the inequalities of the past. That is quite fundamental to all of this.
The question around youth is hugely interesting in a scenarios context because we look out 20, 30, to 40 years. Today’s youth are going to be the leaders in 10 to 15 years, so why not harness their enthusiasm? What you see from survey evidence is that youth are much more tuned in to social good and environmental justice so why not harness that enthusiasm and energy now while they are being formed into the leaders of tomorrow? There is a huge potential there to really make progress in a way that is fair and just to all.
Do you have any particular pitch for Canadians on what is required to thrive along the energy transition?
The thing to be aware of is that the energy transition is underway—it is not something that needs to start or something in the future—it is here, it is happening, and we now believe it is inevitable. You can argue about what timeframe it would happen over, but the ball is rolling, and the momentum is going that way.
Now Canada has made a pledge to be carbon neutral by 2050. That is an amazing target, and it puts Canada in a small club of countries that have chosen to do that. It is a huge opportunity to show global leadership not only on the environment, but also on economic growth; a different, cleaner model of economic growth.
Canada has the opportunity to lead on innovation, cleantech, and responsible resource extraction. Apart from the fossil base that Canada has, it also has lots of renewable and low carbon options and opportunities to build on.
“Canada has the opportunity to lead on innovation, cleantech, and responsible resource extraction.”
It is a bit of a myth to say it is environment versus growth—you can develop a new paradigm where you deliver both. Canada has that opportunity right now in pursuing its target.
It is not a government thing. It is not a business thing. It is not a consumer thing. You need all three pulling together in the same direction. You need government setting up policy frameworks that are enabling action; you need businesses coming in producing these low carbon products, services, and business models; and you need consumers providing the pull, demanding low carbon products and services. You have that virtuous cycle being created around action.
Canada and the world are both well-placed to achieve the goals of the Paris Agreement and to decarbonize in line with that. That is sort of the pitch that I would give: this an immense opportunity not just in a technical sense but in a societal sense to deliver this agenda in a way that benefits all.