Cutting greenhouse gas emissions while keeping the lights on for a growing global population is a huge but critical challenge. We have to believe it is a challenge we can meet.
International delegates gathered this week in New York City for a United Nations climate summit designed to “catalyse climate action” and “raise political ambition”.
The summit’s rhetoric may have been high-minded but its agenda was suitably pragmatic. One clear sign of that pragmatism was its interest in carbon pricing.
At first sight, carbon pricing – imposing a cost on carbon to encourage polluters to cut their greenhouse gas emissions – can look like a fiddly response to the challenge of climate change. An accountant’s solution to a scientist’s problem. But in reality, it is one of the best tools we have.
Well-implemented carbon pricing systems – including the kind of market-based mechanisms favoured by Shell which allow organisations to buy and trade carbon permits – have the potential to promote low-carbon technologies and encourage energy efficiency. Typically, they are also flexible, fair and relatively cheap to run. In fact, done properly, carbon pricing tackles emissions at the lowest possible cost to consumers and with the lowest impact on economies.
Carbon pricing offers a means to some urgently needed ends. We face a real and growing threat from climate change. As things stand, it will take a major coordinated effort to limit global warming to close to 2°C. That’s the point beyond which we expect to feel the more serious effects of global warming.
Just as important, however, is the need to meet rising demand for energy. Energy powers economies. Without energy, our lives would be almost unrecognisable. The increasing global population, a rising appetite for goods and services in emerging economies and rapid urbanisation are putting increasing pressure on energy supplies.
These are the main reasons the International Energy Agency (IEA) believes demand for energy could double by 2050 compared to 2010.
Renewables are clearly going to play an increasingly significant role in the global energy mix. But we are still a long way from being able to rely on them. The US energy information administration estimates that 11 per cent of today’s global supply comes from renewable energy sources such as hydropower, biofuels, wind, geothermal and solar. But it also estimates that, even by 2040, that share may have increased to only 15 per cent. Shell’s scenarios, for their part, project a figure as high as 25 per cent by 2050.
That would still leave traditional sources like oil and gas (plus nuclear) meeting about 75 per cent of energy demand.
So carbon pricing is essential if the world is to reduce greenhouse gas emissions. Effective carbon pricing would encourage the greater use of cleaner-burning natural gas as a fuel for power generation.
According to US environmental protection agency figures, a partial shift from coal to natural gas between 2005 and 2012 helped to reduce the US power sector’s greenhouse gas emissions by 15 per cent.
Carbon pricing, together with appropriate government support, could also accelerate carbon capture and storage (CCS), the technology that can capture carbon emissions at power stations and other large plants and store them safely deep underground. Shell is helping to pioneer this technology at cutting-edge projects in Canada and Scotland. CCS could be a real game-changer, with the potential to remove up to 90 per cent of carbon dioxide emissions from power generation.
There’s much to do if we are to build a lower-carbon, higher-energy future. For Shell’s part, we wholeheartedly support the World Bank’s call for a carbon price to be applied throughout the global economy. Carbon pricing is one vital step, but there is a long road ahead.
To build the energy future we need, government, business and civil society must work together.
With the right approach, one characterised by pragmatism, it can be within our reach. And, as the chief executive, I am determined that through our production of natural gas and our efforts to advance CCS, for example, Shell will continue to play our part.
Ben van Beurden is the chief executive of Royal Dutch Shell
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