Transcript Shell GHG emissions - World Environment Center

Investing in a carbon
constrained future.
WEC Gold Medal Colloquium
Aidan Murphy
Shell International - London
cost of carbon 0699PPT
A. MURPHY– CLIMATE CHANGE
Why is CC important to Shell?

Group emissions 101 million tonnes (2000)
Reduction of >11% since 1990.
Shell Group Capex $62bn over past 5 years.

Carbon Constraints a material business risk:


– Operations - 20 - 30 year lifetime
– Markets - Product & supply chain advantage

An influence on our strategic environment
A critical issue of public policy for the Group
cost of carbon 0699PPT
A. MURPHY– CLIMATE CHANGE
Climate Change Action Program
A Compass for the Group
Reduce own
emissions
Measuring
Reporting
Better business
decisions
C.D.M
Cost of
Carbon
($)
Reduce customer’s
emissions
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A. MURPHY– CLIMATE CHANGE
Use market solutions
Kyoto Mechanisms
Emission Trading
Shell GHG emissions
million tonnes
CO2 equivalent
Emissions without
control measures
160
120
80
-11%
-10%
2000
actual
2002
target
40
-16%
0
1990
baseline
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A. MURPHY– CLIMATE CHANGE
2003
projection
Climate Change Action Program
A Compass for the Group
Reduce own
emissions
Measuring
Reporting
Better business
decisions
C.D.M
Cost of
Carbon
($)
Reduce customer’s
emissions
cost of carbon 0699PPT
A. MURPHY– CLIMATE CHANGE
Use market solutions
Kyoto Mechanisms
Emission Trading
The Business Case

Emerging costs of Carbon

Managing the business risk
Business Preparedness

– Credible management of GHG emissions
– Sensitising the company to the issues.
– Development of competencies (tech, mkt, ops)

Steering the Portfolio
SOURCE OF FUTURE COMPETITIVE ADVANTAGE
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A. MURPHY– CLIMATE CHANGE
Emissions Trading
Shell Canada
NAM
Netherlands
Moordyk
Netherlands
Pernis
Netherlands
Expro,
North Sea
Dear Park
Texas
Harburg
Germany
Stanlow,
UK
Godorf
Germany
Berre,
France
Norco
Louisiana
Cressier
Switzerland
Fredericia
Denmark
Reichstett,
France
Annex 1 Countries
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Gothenburg
Sweden
A. MURPHY– CLIMATE CHANGE
Geelong,
Australia
STEPS Emission Abatement Supply Curve
and Cumulative Investment
$/tC (indicative)
mln $
Carbon Index - figures indicative
10
100
9
90
8
80
7
70
mln $
6
60
$/tC
5
50
4
40
3
30
2
20
1
10
0
0
0.0
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0.5
1.0
1.5
2.0
2.5
Million tonnes CO2
A. MURPHY– CLIMATE CHANGE
3.0
3.5
4.0
Current Range of Carbon Cost Estimates
UK Car Levy
Examples
US$/tonne Carbon
Macro Economic
Studies
200+
Sweden &
Norway offshore
OECD, API
100
Norway onshore
Coal to wind
50
Add’l US$/ boe
25
20
10
6
Danish Levy
5
UK Carbon
Levy
40
Coal to Gas
fuel switching
(existing capacity)
Micro
Economic
Studies
30
20
10
Current
Quality
Offsets
4
NAM in 2008,
3
IPCC, World
Bank
2
Shell
Annex 1
(1st
est.)
NAM today
1
Recent Trades*
0
0
+ NPV
Selected En.Efficiency
New build CCGT,
ind. cogen.
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A. MURPHY– CLIMATE CHANGE
Specific Policy Scenarios
for Carbon
US$/tC
1. $40/t C
Constrained Annex 1 trading
Limited CDM due to tough
additionality tests
Effective national policies
40 –
20 – Uncertain prices
2. $20/t C
Widespread permit trading
Abundant low
CDM/JI offsets successful
cost abatement
Clear CO2 price signals
Kyoto muddles through
5–
3. $5/t C
Governments only squeeze
2012+ so hard (US$ 2 per barrel in
carbon costs)
Kyoto collapses & nothing follows
2004
Implementation
of National Policies
2008
Start of
1st Kyoto
Commitment
Period
A. MURPHY– CLIMATE CHANGE
–
–
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–
–
2001
COP-6
Kyoto Rules
Agreed
(IPCC TAR)
4. No cost for carbon
No US ratification/action
Kyoto replaced by patchy
nati’l / regional programs
Base Case Carbon Cost Levels for Modeling
US$/tC
40
20
Standard
Minimum
levels*
Expected
national carbon
cost levels (if
known)
15
10
5
1st Kyoto Commitment Period
0
2000
COP-6
(Rules Set)
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2005
2008
‘Demonstrable progress’
for Annex 1 countries
required
EU program in place
A. MURPHY– CLIMATE CHANGE
2010
2012+
‘The market clears’
- Low hanging fruit gone
- First technology switching
options
GHG Management Program Summary
Yr 0 measures
US$/tonne
Program Key Facts:
Carbon
GHG reductions: X mtpa/Y%
Capex: US$mln
Opex: US$mln
PVCS*: +US$mln
VIR*: +b.p.
40
35
30
Pre-2005 measures
Wait & see - 2005+ or 2010+
In reserve (if US$40 C)
* Compared to business as usual
25
20
15
Early mover
offset
opportunities
10
Offsets (market
price)
In project
retrofits
Project
Design
changes
5
eg.
Alternative
Energy
0
0
-5
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1
In project
operational
measures a,b,c
1.5
2
2.5
3
3.5
Cum.Carbon Reduction/Offset
Mtpa C
A. MURPHY– CLIMATE CHANGE
Project Investment Process
High grading of portfolio
Projects sanctioned
1
2
3
“Economic” projects
not done
Projects
pass screening
Project screening
Investment criteria
Risk analysis



Country risks
Project risks







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NPV
Capital efficiency
Net income
ROACE
IRR
Payback period
Valuation of follow on options
+ others
Strategic Implications – Portfolio
Effects
1
2
Capital constraints &
financing options:
projects sanctioned
5
4
“Economic” projects
not done
Impact of cost of
carbon at the
margin
3
6
Project screening threshold
(ROACE)
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7
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