The Importance of Collaborative Sectoral Decarbonization

How aligned are industries in sectoral decarbonization? 

What is common across all industries and all sectors, which we also find at Shell in different areas, is that in order for decarbonization to really become a success, different parts of the value chain and different actors need to come together. Very often, we are dealing with questions of infrastructure, technology, and technology variations, but also incentives, where, for example, the regulator comes in.  

What collaborations are needed among stakeholders to drive sectoral decarbonization and what is the role of regulators?  

First of all, something that we have really seen emerging over the last couple of years is societal momentum. Societal momentum is absolutely an indispensable condition without which nothing can happen. We see it very clearly with the Paris Agreement, but also with global legislation in different parts of the world and entities such as the European Union (EU). That is really the starting point for everything: a societal determination and political will to drive change. The change, as we all know, is massive in every respect. It touches consumers, original equipment manufacturers (OEMs), infrastructure providers such as ourselves, energy companies, and more. It is a monumental undertaking that we are talking about, but it can be done and that is the key message. 

“Societal momentum is absolutely an indispensable condition without which nothing can happen.” 

What needs to happen for decarbonization to be successful is that these players that I just mentioned come together and work together. The regulator must be clear about the important role that it plays. The regulator should create a level playing field for technologies but also create an incentive to decarbonize, which will then enable OEMs, customers, and also infrastructure providers and energy companies like ourselves to work together to provide carbon dioxide (CO2) or zero emission solutions. 

How far can regulations and incentives go to drive decarbonization? 

It will go a long way, because we are talking about economically minded actors in all of the sectors.  Every consumer, at the end of the day, is economically minded, as is every company and participant in those different sectors. We should not be forgetful of that. We should be mindful and clear about that because it can work to the advantage of decarbonization if we get it right. That is exactly where the regulator comes in.  

“A tax on CO2 is an absolutely necessary way to internalize some of these negative effects and these costs that exist with carbon.” 

It is obvious that the emission of CO2 has a massive negative effect on society, as we all know and as science proves, and therefore, a tax on CO2 is an absolutely necessary way to internalize some of these negative effects and these costs that exist with carbon. Through internalizing them, we also create incentives for OEMs, infrastructure providers, and end customers to make the right decisions that will allow for the development and the use of zero or at least lower emissions in first stage technologies. A practical example would be if the cost of hydrocarbon or hydrocarbon fuels increases. Conversely, other technologies—be it liquefied natural gas (LNG), biofuels, or hydrogen—will become more cost competitive. This will allow the investment in and the further development of those technologies. The regulator is playing a very important role in this. 

One thing I want to add to this piece is that given the players involved, which in many cases are multinational OEMs or other multinational companies that work across a number of different geographies in order to accelerate some of this, the ability to scale is critical for the acceleration of change. The ability to scale also depends on the regulators, such as the EU, being determined to speak with one voice and provide clarity around what it wants to do.  

“For decarbonization to be effective in Canada, the regulator must not just act at the provincial level, but also at the federal level.” 

Canada is a large market in its own right, which is at the same time made of different provinces. For decarbonization to be effective in Canada, the regulator must not just act at the provincial level, but also at the federal level, where a level playing field can be set that then allows solutions to be scaled up. 

What unique sectoral decarbonization opportunities exist for Canada? 

One thing that comes very clearly to mind when I look at Canada are sectors such as mining, forestry, and agriculture. If I look at my own area and my own business, which is in commercial road transport, we know that a good 35% of goods in Canada are actually transported by road. If I take all of that together, at first glance there seems to be some real opportunities in this combination of sectors. In the agricultural sector, the by-products of the sector could become feedstock for things like biofuels or other green fuels. It is a very exciting space, and I am very happy to see that Shell in Canada is already moving into territories such as building hydrogen sites. I see some really good initiatives like the smart transport initiative that are really going in that direction. Those would be some of the top-of-mind ideas for sectoral decarbonization in Canada. 

“In the agricultural sector, the by-products of the sector could become feedstock for things like biofuels or other green fuels.” 

We have invested in two biofuel projects in Canada, one of them in Quebec, where we really want to create this loop that I was alluding to earlier, where we have agricultural by-products that we can turn into biofuels. Biofuels are a fascinating space, because in the short-term, they build on an existing technology: the internal combustion engine technology, which the OEMs have already developed and almost perfected. It is out there, it is in the market, and the infrastructure to serve them is in the market. What we need to get right is lowering the CO2 footprint of fuel, which is where the bio component can come in. Making better and more intelligent use of agricultural by-products and waste is an extremely important process that we are pioneering in Canada. 

If biofuels is on the short-term horizon—as something that we can get our heads and hands around today—then hydrogen is on the horizon but further away. We can already see how a hydrogen economy could develop, but it is something that is a little further out there, because the technology on the OEM side still needs to be developed and fine-tuned further. It exists in principle at the moment but it needs more work for developing and fine-tuning it. We are probably looking at something like a five to 10-year horizon as opposed to a two to three-year horizon on the hydrogen side.  

“If biofuels is on the short-term horizon—as something that we can get our heads and hands around today—then hydrogen is on the horizon but further away.” 

There is a very strong case for hydrogen becoming a key building block of a no carbon future, particularly if we factor in an abundance of renewable energy, which is currently being built up and which will play a key role in making hydrogen a really competitive no carbon fuel. 

Why is it important for road transport to decarbonize and where is Canada in achieving this? 

Road transport makes up between eight to 10 per cent of the planet’s CO2 emissions, which makes it one of the biggest sectors in terms of CO2 emissions. That is something that we all need to get our heads around. I see it as a fundamentally important recognition and starting point for what the magnitude of the task is ahead of us. It is not only that it is big today; road transport along with economic development, as we have seen in the past, will continue to grow. Some people say it will even double by 2050, which means that if we continue on the trajectory that we are on now, emissions would further increase by 60% if we do nothing. 

“Road transport makes up between eight to 10 per cent of the planet’s CO2 emissions, which makes it one of the biggest sectors in terms of CO2 emissions.” 

That is clearly a call to action for the entire sector because, with everything we know about global warming and the accords of the Paris Agreement, this is not something that we can allow. We need to decrease emissions significantly: by 80% by 2050 and by 30% by 2030. We have a clear task ahead of us that we need to get to in the road transport sector. That really drives this entire decarbonization effort. It makes road transport such an exciting area to work in because it is a vital part of the economy for all of us. We all depend on it wherever we live and whatever we do. We all depend on goods being moved back and forth, but we also know that it has a significant CO2 footprint, so we need to act with urgency. 

If we want to do this in the most efficient and fastest way, because the planet demands urgency, we have to do it together. Coalitions and different stakeholders of the so-called value chain need to come together, such as truck manufacturers, logistics companies, shippers, customers, big consumer goods companies, infrastructure and energy providers, and regulators. We have to come together to understand that we all hold pieces of the puzzle and we can only solve that puzzle in the fastest way if we get together and put those pieces together in concerted joint actions. That is the big headline that I would like to pull out of that report. 

Canada, from what I see, is very serious in this space. We are talking about $1.5 billion in investments in low and no carbon technologies that was in the recent climate plan of the Canadian government. We were talking earlier about some of the initiatives in the transport space, so it is very good to see that this momentum is there. We talked about some of the opportunities in the biofuel space, which we have a big interest in, to be translated into offers for road transport customers. We talked about the opportunities and the piloting of sites, and we are talking about Alberta initiative’s on the hydrogen side. There will be many more initiatives. 

If you had 30 seconds to pitch to someone to decarbonize Canada’s industries, what would you say? 

Let us bring together the companies, actors, and individuals with accountability in the decarbonization space and have them commit to specific actions for lower carbon emissions. Give us a target and clarity on rules and incentives. With coalitions emerging around that, we will be able to drive change. I am absolutely convinced of that. Society, and I am deliberately not saying just governments because it has been society and not just governments, in the era of COVID-19, has really gone beyond what anyone ever thought possible even a year ago. If we take that mindset and that spirit of delivery, with everyone chipping in to help deliver a common and larger goal, we can make decarbonization a reality in many sectors—even in sectors where we think it is impossible or very difficult. We will be able to do it and I am absolutely sure of that.