Royal Dutch Shell PLC introduced some of the most stringent targets for cutting emissions among large oil companies, laying out a plan to gradually increase low-carbon offerings and carbon offsets in its pursuit of net-zero emissions by 2050.
The Anglo-Dutch major said in a Feb. 11 strategy update that it would aim to cut its net carbon footprint, an intensity metric that includes most of Shell's own emissions and those generated by its products, by 6% to 8% by 2023, compared with 2016. The company then plans to reduce its emissions intensity by 20% by 2030 and 45% by 2035, before reaching net zero in 2050.
Shell set a long-term net-zero target in 2020 alongside many other integrated oil majors. But the company is setting itself apart from some of its peers by including both the emissions generated by its customers and those from oil and gas produced by others and sold through Shell's trading and marketing arms.
In announcing the new targets, Shell CEO Ben van Beurden tried to toe a line between shareholders increasingly pressuring oil majors to adopt more climate-conscious strategies and those worrying that Shell and its peers are venturing far outside their area of expertise.
"We expect to radically transform Shell over the next 30 years," van Beurden told journalists on a call, while adding that the traditional fossil fuel business would still finance the company's transition "well into the 2030s."
"In this future, upstream would [still] play a role for a long time to come," van Beurden said.
The company had previously said it would cut its net carbon footprint by at least 3% by 2022, 30% by 2035 and 65% by 2050, with the remainder left up to its customers. More than 90% of Shell's emissions are so-called Scope 3 emissions generated when its products are burned.
While oil companies have faced criticism for focusing on intensity metrics for carbon reductions, which allow for rising oil output if it is balanced out across the portfolio, Shell emphasized that its net-zero emissions target will eventually cut its absolute CO2 output to zero by midcentury.
Shell said it also plans to put its climate plan to shareholders for an advisory vote on the company's progress each year, starting in 2021. The move is a first among big oil companies and van Beurden said it will see Shell "increasingly set the agenda" on the issue.
Adam Matthews, director of ethics and engagement for the Church of England Pensions Board, one of the investors that has lobbied Shell on its emissions targets, said in a statement that the advisory vote was "a major step for climate accountability."
Power player
Shell said emissions from its operations and its own oil production already peaked in 2018 and 2019, respectively. The company's oil output will now fall by up to 2% per year through 2030, although higher natural gas production is expected to make up the difference. By comparison, rival BP PLC plans to reduce its oil and gas output by 40% by 2030.
In the near term, Shell said it will still invest $8 billion annually in its upstream business, around $4 billion in gas and up to $5 billion in chemicals. But as much as $6 billion will go toward the company's growth businesses — $3 billion in marketing and between $2 billion and $3 billion in renewables and energy solutions. That renewables investment is broadly in line with what France's Total SE expects to invest in green power this year, for example.
Analysts at Jefferies said Shell's announcement amounted to no significant change in strategy, aside from the higher emissions targets.
"How this will be achieved remains partially unclear, based on the limited low-carbon growth targets provided," they said in a note.
While other oil majors like BP and Total have set clear ambitions for growing their renewable energy capacity, Shell shied away from setting any volumetric targets. Van Beurden said that, rather than becoming a large-scale owner of wind and solar farms, the company would prioritize becoming a major seller of low-carbon electricity.
Shell wants to double the amount of electricity it sells each year to 560 TWh by 2030 and serve 15 million customers in its renewables and power business by 2035. At the same time, it plans to increase its electric vehicle charging points from 60,000 to about 500,000 by 2025, while also putting an emphasis on hydrogen, biofuels and new carbon capture and storage facilities.
"We want to be a leading power player in the world — that hasn't changed. But the focus will be very much on selling clean power," van Beurden said.
Shell already sells electricity from some offshore wind farms where it is only a minority shareholder, which CFO Jessica Uhl said is one model that the company could seek to replicate.
"You don't need to put that much capital at play to get access to the electrons," she said.