David Hone Group Climate Change Adviser Shell International Limited

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David HoneGroup Climate Change AdviserShell
International Limited
Putting the Cost of Carbon in Perspective
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What is the cost of carbon?
Quoted market indicators
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. . . and for Shell in Europe in the EU-ETS?
Annual Group emissions 30-40 million tonnes
Assumed emission reduction 5 Potential
allowance deficit 1.5 2 million p.a. Liability
at 15 25 m - 30 m
Note This is an assumed position and does not
reflect any actual numbers from NAPs
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. . . . but does this matter?
Impact on a typical EU refinery at 15/tonne of
CO2 and assuming 90 of allowances are granted
for free.
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Shell Introduced Carbon Costs in 1998

• Group-wide minimum
• Full cycle economic impacts

Minimum Developed Countries
Cost of emitting Carbon
Minimum Developing Countries
0
Time
1st Kyoto commitment period
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. . . and the practice has matured since then
First use of carbon costs in Shell. Applies to
all major projects.
Regional variation adopted for Europe.
Prices and timing adjusted and approach expanded
to most projects
1998 1999 2000 2001 2002 2003 2004
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Factor 4 and Energise Rollout
Energise A one year energy services programme
that identifies and implements operational
improvements in energy efficiency, realisable
within 1 year and with minimal capital
investment. Factor 4 A workshop based process
for identifying breakthrough reductions in
energy, land use, water, and waste. These
generally involve design changes and capital
investment.
Frederica refinery pilot
Energise - 4 year rollout across refineries
Energise Chemicals rollout underway
Energise Factor 4
Further development varies by business
Initial Shell Centre building pilot
Brent Delta EP Pilot
Woodside LNG GP Pilot
NORCo CH Pilot
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What is the impact of carbon cost?
. . . but the reductions achieved per dollar
invested are already starting to decline.
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What does 15/tonne CO2 actually mean??
Assuming that only 10 of emissions are targeted -
On a tank of petrol, about 20 cents. Impact
Consumer none!
On a new car (lifetime emissions), about
100. Impact Consumer minimal. . . . but
could underwrite nearly 1 billion per annum in
RD for a GM sized manufacturer.
In a typical refinery, about 2-3 million per
annum. Impact Modest emission reduction
programme and follow-on investments (5
efficiency improvement)
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. . . but it is not the same for everybody!
UK Company Car Scheme (17,500 vehicle)
Equivalent CO2 cost 1700 / tonne
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What does 1500/tonne CO2 actually mean??
Assuming that only 10 of emissions are targeted -
On a tank of petrol, about 20. Impact Consumer
some, but this difference already exists
between the EU and USA in taxes!!
On a new car (lifetime emissions), about
10,000. Impact Consumer some, but many SUVs
already cost 10-20,000 more than smaller
vehicles.
In a typical refinery, about 250 million per
annum. Impact No longer a viable venture to
operate, might as well shut down and sell the
allowances!
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Factors influencing the cost of carbon
State of early action by industry
Status of Kyoto II negotiations
Industry CO2 burden share in economy
Government ability to influence transport and
domestic emissions
Industry permit allocation
Consumer confidence
Advent of new consumer technologies and products
Change in industrial output
Cost of carbon in Europe
Consumer activity
Advent of new manufacturing technologies
Industry abatement opportunities
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Observations on the cost of carbon

• The arrival of large emitter trading schemes
  (e.g. EU-ETS) is well suited to help industry
  contribute to GHG reductions.
• But the consumer marketplace is another playing
  field altogether.
• However, an overall reduction in GHGs cannot be
  delivered by industry alone. . . eventually
  consumer emissions need to be tackled as well.
• Single system approaches which tackle all
  emissions together are probably not viable.
• A layered approach may be necessary to deliver
  across the board reductions.

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Shells Business Value Driven Programme
Reduce own Emissions
CO2 Reduction Technology
Use Market Mechanisms
Support inform policy public debate
Carbon Costs
Reduce Customers Emissions