Shell to boldly go and speed up emission cuts as Dutch court ruling bites

Oil and gas major Shell has pledged to take some ‘bold but measured’ steps to accelerate the reduction of carbon emissions from its operations following a recent, historic ruling by a Dutch court, ordering the company to speed up its energy transition efforts.

On 26 May 2021, a Dutch court ordered Shell to deepen its carbon emissions cuts in a ruling described as the first-of-its-kind. The case was unique in that it was the first time for a court to order a company to comply with the Paris Climate Agreement.

In the ruling, the judge ordered Shell to reduce its carbon emissions by 45 per cent by 2030 compared with 2019 levels. The court also decided that Shell was responsible for emissions from customers (scope 3) and suppliers.

Disappointed Shell immediately reacted to the ruling by saying the company would appeal it. However, it is important to mention here that the court’s decision applies immediately and should not be suspended pending an appeal.

Shell CEO, Ben van Beurden, on Wednesday released a follow-up statement, setting out how he believes Shell should rise to the challenge.

Voicing his disappointment, van Beurden questioned the court’s decision to single out an energy company to reduce its carbon emissions as well as the implications of the ruling. He also confirmed that the company would appeal the court’s ruling “that I believe does not help reduce global CO2 emissions”.

Nevertheless, he said that he feels a determination to rise to the challenge.

“We all know we must urgently tackle climate change and achieve the goal of the Paris Agreement for countries to limit global warming to 1.5 degrees Celsius. The court ruling has not changed the fact that Shell is more determined than ever to play its part and lead in this global challenge”, Ben van Beurden said.

As explained by the CEO, the court’s decision does not mean a change for Shell, but rather the acceleration of its already published strategy to become a net-zero company by 2050.

“We have set rigorous, short-term reduction targets along the way to make sure we achieve net-zero. But now we will seek ways to reduce emissions even further in a way that remains purposeful and profitable. That is likely to mean taking some bold but measured steps over the coming years”, Ben van Beurden said.

Shell published its energy transition strategy back in April 2021 and put it to a vote of shareholders at its Annual General Meeting in May 2021, winning the support of 89 per cent of shareholders.

The oil major has also proposed linking its directors’ pay more closely to the group’s climate performance and severing the link between bonuses and liquefied natural gas (LNG) production volumes.

It seems that the timing was crucial here as the court did not consider these moves by Shell because the hearing that led to the ruling took place several months before the strategy was published and before major investors demonstrated their support at the AGM.

Shell’s energy transition strategy entails investments in lower-carbon energy, including electric vehicle charging, hydrogen, power from wind and solar energy, and biofuels. As a reminder, Shell has recently taken its second wind farm at sea into operation and, together with Eneco, is on the verge of building its third. The wind farm is located in the Dutch North Sea.

Shell is also participating in a Dutch carbon capture and storage project named Porthos, for which the government has allocated almost half of its 2021 annual budget for sustainable projects.

While Shell believes that its total absolute carbon emissions will come down from their 2018 level and that its oil production peaked in 2019, the company still expects to continue providing energy in the form of oil and gas products both to meet customer demand and to maintain a financially strong company.

Reuters said in a report on Wednesday that Shell’s acceleration of the energy transition strategy would likely lead to a dramatic shrinking of its oil and gas business.

However, the CEO said the company needs the financial strength of oil and gas products to keep attracting investments. Speaking of investments, a CEO of another oil and gas company has recently warned that depriving the oil and gas sector of new investments as the energy transition unfolds could result in big spikes in oil and gas prices in the next few years.

Shell CEO acknowledged that the energy transition is far too big a challenge for one company or even a continent and that society, governments, and companies need to work together to tackle it. He also pointed out that in order to achieve the change the world needs, we need to address the demand for carbon-based energy, not just supply.

“Society needs to take urgent action on climate change. But a court ordering one energy company to reduce its emissions – and the emissions of its customers – is not the answer”, van Beurden stated, adding that, for companies to invest successfully, they also need bold, clear, and consistent government policies and regulations.

“We may disagree with this order, but we will continue to embrace the leading role we must play in helping to develop a low-carbon energy system. This is another challenge we will rise to”, he concluded.