In an exclusive interview with EURACTIV, a top executive with Royal Dutch Shell, Europe’s largest oil and gas company, has set out a verdant stall for EU carbon market intervention, binding emissions reductions targets in 2030, and robust environmental criteria for biofuels.
But Graeme Sweeney, Shell’s special CO2 adviser, will also antagonise some environmentalists by opposing energy efficiency and renewable targets for 2030, accusing the EU of unfairly singling out tar sands, and advancing a low carbon strategy including gas, over one centred on renewable energy.
Sweeney had just held talks with European Commission President José Manuel Barroso arranged by the Prince of Wales’ EU Corporate Leaders Group, in which he called for more than one billion carbon allowances to be set aside from the EU’s Emissions Trading System (ETS) to raise carbon prices.
“That was the key quantification,” he said, speaking at Shell’s offices in Brussels' EU Quarter. “The commission are clearly aware that that’s the size of the task and they are positively inclined to work to achieve it.”
At around €6 per tonne, today’s price of carbon is too low to incentivise green investment but the EU has pledged to review the rules of its cap and trade scheme by the end of June.
Analysts blame a massive over-supply of credits, uncertainty over the climate investment outlook after 2020, and an economic recession which has prevented a growth in emissions needing to be offset.
Shell, which has put a hypothetical internal price of $40 a tonne on its carbon, prefers the UK system of a carbon price floor to the EU’s ETS. But as Sweeney put it, “if we reform the ETS so that we put in a reserve price at auction, that’s a carbon floor price isn’t it?”
Many observers believe that Shell’s support for a strong carbon price is motivated by its heavy investment in carbon capture and storage (CCS) technology, which the International Energy Agency says should provide 19% of the carbon dioxide emissions reductions needed for decarbonisation by 2050.
Funding for a trial period for the experimental technology has collapsed due to recession and is desperately in need of incentives, according to Sweeney.
“The carbon price as it currently is, cannot sustain a demonstration phase for CCS,” he said. “If we are to reconcile those [decarbonisation] goals, we will need to do a very substantial deployment of CCS from 2030 onwards.
In the meantime, “it is clear that the member state contribution [to funding the technology] needs to rise,” he added.
Such views are anathema to BusinessEurope, the European employers’ confederation.
Asked who BusinessEurope were speaking for, “it must be obvious that it can’t be all of European industry,” Sweeney replied. “They take their view on the basis of whatever processes they use internally to derive them.”
This kind of talk will be music to the ears of environmentalists trying to build alliances with progressive business actors. Sweeney, who until last month was an Executive Vice President at Shell, welcomed the 'progressive' tag.
The 2030 debate
“I think the target for 2030 should be explicitly binding,” he said, while declining to give a figure. “It should be expressed as a required reduction in the CO2 content [of emissions].”
But if that goal to entice clean energy investment were established, there would be no need for separate energy efficiency or renewables targets to achieve it, he thought.
"We need a decarbonisation agenda which has legitimately different ways of stimulating growth in the early stages,” he said.
Shell this year expectd to produce more gas than oil for the first time – “a substantial change in the nature of our portfolio,” Sweeney noted – and proposes gas-with-CCS as “a pathway to create decarbonisation now.”
This dovetails with the UK government’s position that nuclear and gas power should be given parity with renewables in Europe’s energy mosaic, despite concerns over nuclear safety and CO2 emissions from gas.
Last month, Shell drew criticism in the UK for refusing to build offshore North Sea windfarms because it could not “make the numbers work”, a decision that Sweeney oversaw.
“I think it was about appropriateness,” he sighed. “I think that the lessons we learned building NordZee Wind meant that it was clear to us that others would do this better.”
The centrepiece of Shell's decarbonisation plans is a $12 billion joint investment in Brazilian sugar cane ethanol, one of the biggest in the world. In the EU context, the energy giant calls for a science-based and meritocratic biofuels policy.
“Volume targets don’t meet all of the [decarbonisation] goals,” Sweeney said. “You should be rewarding those that produce the highest levels of greenhouse gas emissions reductions and those whose sustainability practices improve the overall standard.”
“We clearly believe that sugar cane ethanol is one of the best performers,” he further clarified.
But suspicions linger that Shell’s positioning – on the ETS, renewables, CCS and biofuels – owes more to self-interest than the planet’s future.
They may not be dislodged by Sweeney’s call for the EU to abandon attempts to classify oil from tar sands – also known as oil sands – as more polluting,
“It seems to us that any process which singles out any particular [energy] source or process for systematically different treatment from that accorded to everything else is flawed,” he said, repeating an argument used by the Canadian government.
“It’s not a level playing field,” he said.
The debate around Shell's real environmental credentials will continue.
With a turnover of some €90 billion in 2010, the EU's Emissions Trading System (ETS) is the world's largest carbon market. Around 80% of it is traded in futures markets and 20% in spot markets.
The ETS aims to encourage companies to invest in low-polluting technologies by allocating or selling them allowances to cover their annual emissions. The most efficient companies can then sell unused allowances or bank them.
After a series of VAT "carousel" and "phishing" frauds in 2009, the European Commission proposed tighter security measures. But a number of member states declined to implement them because they said they could not afford to. One Commission official pointed out that tens of thousands of euros spent on security could prevent millions of euros in losses.
- End of June 2012: EU pledged to announce results of ETS review
- 2020: Deadline for EU's 2009 climate targets to be met