Memorandum submitted by Shell
Shell shares the widespread concern that the
emission of greenhouse gases (GHG) from human activities is leading
to changes in the global climate and we are actively participating
in the international debate, as well as managing and reducing
GHG emissions in our own operations and helping our customers
to reduce theirs.
Shell recognises that a major change in energy
infrastructure and the way energy is used will be needed over
the coming decades if society is going to address climate change.
This is a global problem that needs global solutions. No single
solution will deliver this major change.
What is the likely outcome from the meetings in
Nairobi in November? Will the Parties to the Protocol be able
to maintain whatever momentum they possessed at Montreal in 2005?
We do not think it is appropriate for us to
comment on specific government initiatives in such detail or on
the actions of specific governments within such initiatives. However,
we do have a view on the direction that the discussions could
take in order to facilitate an outcome. We have outlined our view
in response to the next question.
What is the likely shape of an agreement post
2012 which will (presumably) include at least all those currently
signed up to the Protocol? To what extent will the current stance
of the United States of America and other countries not signed
up to the Protocol influence the discussions concerning any post-2012
framework?
The issue of climate change arises primarily
from our production and use of energy. As such, the end solution
lies with energy policy, the approach we take to it globally and
the priorities we adopt.
We can start to influence change in our energy
system with policy directed specifically at CO2 mitigation,
through energy efficiency measures and upstream carbon management.
However, broader frameworks will be required for a full solution.
The existing international framework will need to expand in two
key directions:
1. Technology development to introduce change
into the energy system;
2. The development of markets to foster the
more rapid deployment of these technologies than would otherwise
be the case.
image here
This two-tier approach is illustrated in the
above figure. Specific elements of an expanded international framework
would include:
— At the global level, the establishment
by 2010 of a quantifiable long-term (50 year) goal for the management
of global GHG emissions.
A long-term international goal will give business
the confidence that investments in carbon mitigation will continue
to generate value over time. The goal will also set the scene
for future action and give global markets the opportunity to establish
future carbon supply-demand patterns, which in turn will underpin
robust market approaches. The long-term goal also becomes a point
of reference for the development of national energy and climate
policy. The goal would be structured in terms of global carbon
emissions per annum and needs to be in place by 2010.
— Encouraging the development of leading
edge technologies through partnerships and incentives and developing
an approach to mitigate the risks for large-scale new technology
programmes and projects.
A number of new technologies will be required
to mitigate future carbon emissions. The risks associated with
activities where carbon mitigation is a key deliverable (eg CCS,
hydrogen from renewable sources etc) are linked to cost and the
uncertainty of there even being a future market or demand for
such a service. Two approaches can be utilised to overcome such
risks.
1. Direct incentives for technology programmes:
(a) At the international level, cooperative
clean development networks can be established between nations,
such as the Asia-Pacific-Partnership for Clean Development and
Climate (APPCDC). These networks need to set aggressive targets
for investment in, and commercialisation of, key mitigation technologies
through funded R&D, pilot demonstrations and near-commercial
full-scale demonstrations.
(b) At the national level, policy can
encourage the development of new technology through R&D assistance,
capital allowances for new low or zero carbon infrastructure (eg
national CO2 pipelines, bio fuel manufacturing facilities)
and early take-up incentives and consumer education programmes
designed to bring new products and services into the market more
rapidly (eg product certification and CO2 labelling
programmes).
2. Managing long-term carbon-market risk:
The carbon-market risk of a new technology
project could be mitigated through a mechanism that underwrites
the existence of a long-term market for the associated carbon
reductions. An approach could potentially be developed as a special
case under the existing project mechanisms.
— Modifying the existing international
framework such that it builds progressively (bottom up) from local,
national, sectoral or regional programmes, but which contribute
to the quantifiable long-term international goal. This includes
allowing industry sectoral participation across multiple facilities
or technology platforms at national level and across national
boundaries and enhancing the GHG project mechanisms to cater for
sectoral projects.
The existing international framework, the Kyoto
Protocol, is broadly a "top-down" approach. By contrast,
energy production and use patterns develop largely "bottom
up" from local and national policies coupled with the availability
and security of energy resources. Aligning the international climate
change framework with existing approaches to energy access and
security issues would offer greater scope for encompassing the
large-scale changes needed in the global energy system. The revised
framework recognises that energy and climate policy must, in the
first instance, be set at national level. Signatories to the long-term
international objective would be expected to develop national
programmes (eg renewable energy targets, economy wide cap-and-trade
etc) or encourage industry programmes (eg sectoral performance
or energy efficiency benchmarks), which are in alignment with
the agreed global carbon trajectory. In addition, cross-border
industry sectoral programmes would be developed.
National and sectoral programmes need not be
based on carbon allocation, but the framework could offer carbon
currency conversion. A carbon emissions change can be derived
from a programme based on renewable targets or designed to drive
energy efficiency. These programmes could then be voluntarily
linked into an international carbon market, provided they meet
eligibility criteria for entry (eg does the policy measure recognise
the international goal and represent a realistic and tangible
contribution to GHG reductions). A programme (be it sectoral or
national) introduced into the international framework that meets
necessary criteria as determined by an overseeing body, becomes
eligible for an allocation of tradable carbon allowances or is
treated as a project and granted tradable reduction units. How
any such carbon units are subsequently allocated to the industries
involved in the sector becomes a function of national policy.
— Components of the Revised Framework
The international framework expands from the
Kyoto Protocol of 2008-12 and consists of the following elements:
— The long-term goal—discussed
above.
— National/Industry Sectoral
Programmes—To accommodate national interests and promote
inclusiveness nations can introduce individual "wedges"
or sectors of the economy into the international framework—eg,
xx GW of renewable energy by 2050, xx mega tonnes of CCS by 2050.
This allows flexibility to introduce segments by part rather than
the whole nation entering all at once.
In addition, industry sectoral
programmes would be accommodated. A sectoral programme might be
structured around an energy efficiency goal, a "best available
technology" objective or a direct reduction in CO2
emissions. Importantly, a sectoral programme could cross national
borders.
Some nations may develop national
policy to the extent that the entire economy can enter as a single
"wedge" or "sector".
— Projects—In the
revised framework the project mechanism remains, but the definition
of a project is broadened considerably such that a whole wedge
or sector in one nation or across several nations could become
an eligible project. Importantly, projects can be done in any
signatory country. Projects are typically done in sectors not
covered by a specific programme that may already be part of the
framework.
— Technology Cooperation—technology
development is a key to success, but so too will be the rapid
transfer of technology between nations as an enabler of the large-scale
deployment required. Global cooperation through an international
framework will be required to achieve this level of technology
transfer.
— Carbon Market Participation—this
allows international trading between parties, sectors and projects.
Carbon currency in the form of allowances or reduction units for
projects is issued at the international level against specific
national or sectoral commitments (but subject to scrutiny). This
drives projects and delivers the carbon price signal that is the
basis for future investment and establishing the lowest cost abatement
opportunities. By example, the USA might enter the scheme once
it has a domestic trading scheme up and running with its own long-term
targets. It would receive a national allocation equivalent to
the objective of the trading scheme over the same period.
Many nations with developing economies
and rapidly expanding energy demand (eg India, China, Brazil)
may enter the scheme with a rising emissions profile, but with
a policy programme in place that delivers a relative improvement
over time against some metric, such as population, GDP or similar.
For any given compliance period (eg five years), emissions projections
would be translated at the beginning into an absolute value for
that period for allocation purposes. For reasons of economic development,
the allocation would increase from period to period, but would
represent a relative improvement in CO2 emissions against
the metric.
Industry sectoral programmes would
also be candidates for optional inclusion in the trading framework,
either as a single project or as a national sector with allowance
allocation.
— Check-back—the attainment
of the long-term goal requires significant international cooperation.
A regular process of check-back at the international level will
be required to follow the development of national responses and
assess the likelihood of collective success in achieving the goal.
What should be the position of the UK Government
and of the EU in the discussions? Is the UK Government and the
other governments of the EU in a good position to show leadership?
Having taken a leading role for the period 2005-12
the EU should spend effort in ensuring that there is follow-through
in other countries, to ensure that EU companies do not maintain
an unfair burden. The EU needs to find a bridge to the United
States, even if it means compromising on some closely held beliefs
on the shape of the future international framework. A joint EU-US
approach to the issue will be much more persuasive in working
with China, India, Brazil and the broader G-77.
September 2006
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