COLUMN | Target zero: Shell, China, Friends of the Earth, and Saudi Arabia [Offshore Accounts]

A coal-fired power plant in China’s Zhejiang province (Photo: Imperial College London/Grantham Institute)

Last week saw a legal ruling against Royal Dutch Shell in the district court in The Hague regarding the company’s efforts to reduce its carbon emissions. Shell must reduce its carbon emissions by nearly half by 2030, the judge ruled.

Donald Pols, director of Friends of the Earth Netherlands, described the judgement as “a monumental victory”. Shell called it “a disappointing court decision,” and has promised to appeal against the outcome.

“A stark warning for Big Oil”

The appeal process will likely take some years. In the meantime, the judge did not enforce compliance on the company. But Friends of the Earth has said it will go back to the court if it sees no sign of Shell increasing its carbon cuts whilst the deadline looms.

“Today was a stark warning for Big Oil,” commented Bess Joffe of the Church Commissioners for England, which manages the Church of England’s investment fund.

Shell already had its own plan to cut the carbon intensity of the fossil fuel products it makes and sells by 20 per cent by 2030, using 2016 as a baseline, and then the company planned to move to a full net-zero emissions target by 2050.

The Anglo-Dutch giant has already stated this plan will result in its oil production declining by between one per cent and two per cent each year, after peaking in 2019 (here).

Not good enough, Shell

The Dutch court ordered that this wasn’t enough. Judge Larisa Alwin ordered that the energy company has to fast-track the cuts to its carbon emissions this decade. The judge ordered Shell to ensure its net carbon emissions were 45 per cent lower in 2030 than in 2019.

She said that this would have “far-reaching consequences” for the Anglo-Dutch company, and that the company’s existing climate change mitigation strategy was not concrete enough, because there was a human rights obligation on the company to take further action.

This is a ruling that might set a global precedent for legal action against the oil and gas industry more widely, certainly in rich western countries, and it grabbed a lot of headlines. The case will certainly embolden other environmental activists to take the major oil and gas companies to court to try to compel them to reduce their fossil fuel production.

“This ruling has negligible chance to survive appeals,” said Per Magnus Nysveen of energy consultancy Rystad Energy, quoted by NBC (here). Mr Nysveen rather misses the point that the time and cost of litigation will distract the company’s management, likely lead to further claims against Shell elsewhere, and act to swing public sentiment against the company and the other oil majors.

But even if it is upheld on appeal, does the Dutch ruling really make any difference?

Sell the high carbon output as quick win?

One quick and simple solution would be for Shell to sell its higher carbon assets. This would enable it to comply with the Friends of the Earth target and the Dutch court ruling. Shareholders would get cash for the carbon-heavy assets, as BP enjoyed a big windfall when it sold a stake in its Oman assets to PTTEP of Thailand in February (here).

Rystad Energy has argued that Shell could simply sell the 14 per cent of its portfolio which is responsible for 45 per cent of Shell’s direct emissions. This would create instant compliance for Shell without any change to the levels of carbon being emitted into the atmosphere whatsoever.

Forcing Shell to sell wouldn’t stop the pollution being produced, of course. One of the biggest trends of the last decade has been the oil majors selling assets in the North Sea to privately-owned companies like Perenco, or private equity owned players like Chrysaor (now Harbour Energy), and even China’s state-owned CNOOC.

Forcing Shell to sell would be a Pyrrhic victory, but it looks like the most likely outcome.

A drop in the ocean compared to Moscow and Riyadh

Whilst Shell may seem like a major oil producer, and really is one of the largest publicly listed energy companies in the west, it actually only produces just under two million barrels of crude oil a day. This compares to global crude production of just over 93 million barrels at the moment (IEA report here), down from a peak of around 100 million barrels a day before the Covid crisis dampened demand.

To put Shell’s production into context, Saudi Aramco produces just under ten million barrels of oil a day, and has reserves of 260 billion barrels (this includes its gas reserves, for pedants, as per Reuters here). Russia is also forecast to produce an average of around 9.6 million barrels of crude every day this year (here).

Certainly, Shell is a beacon of environmental good behaviour and corporate ethics compared to Saudi Arabia and Russia, whose governments have both assassinated their political opponents, jailed numerous dissidents, and launched wars on their neighbours just in the last decade.

I would rate Shell’s CEO Ben van Beurden as a paragon of ethics compared to his state-appointed peers at Saudi Aramco, Lukoil, and Rosneft. There is no guarantee that any company that buys assets from Shell will be as responsible. Or that it will be accountable to the Dutch courts in any way.

Oil already fuels global corruption, internal conflict and/or despotism in numerous oil producing countries, including Azerbaijan, Kazakhstan, Nigeria, Angola, Iran, Venezuela, Libya, Iraq, and the Gulf states themselves. Forcing western oil companies to divest their oil assets will not improve the governance of those countries, nor will it stop those blighted lands selling, refining and burning their oil.

Missing the point…

If a Dutch court rules that Shell should totally stop all its oil production tomorrow, shut in the wells and fire all its staff, the oil market would barely blink and carbon emissions would hardly budge at a worldwide level.

Pinning the blame for climate change on Shell and its western peers completely misses the point, even aside from the fact that the consumers of the oil (such as car drivers, plane passengers, buyers of anything shipped by road or sea, and people living in houses with oil heating) are responsible for the pollution, rather than the company itself.

The Netherlands doesn’t even rank in the top twenty countries for carbon emissions worldwide in total, or per head (here).

Which country produces the most carbon emissions in the world?

The biggest polluter is China

China. China accounts for 28 per cent of global emissions, and is the single largest polluter in the world (here and here), followed by the USA with 15 per cent of global emissions, then Russia and India. Together, these four countries account for more than half of all global carbon output.

Even in a scenario where all the western oil majors stopped production of all hydrocarbons tomorrow, the world would still be on a pathway to serious climate change, courtesy of Chinese steel and cement production, Chinese, Indian and other Asian coal-fired power stations, and Saudi, Russian, and other Opec oil production.

What of the coal?

Shell does not produce any coal. Nor does BP, nor Chevron nor ENI nor ExxonMobil nor Equinor nor Repsol nor even Cairn Energy, whose offices in Edinburgh have been the scenes of several ecological protests. None of these other oil and gas companies hounded by Greenpeace and Friends of the Earth are responsible for the most serious and harmful pollution in the world.

Two wrongs don’t make a right, but surely environmentalist should target the worst polluters first, wherever they are based, rather than some of the more responsible producers?

Coal is filthy (and not in a good way)

Coal produces twice as much carbon dioxide when burnt per unit of energy produced, compared to natural gas. Coal burning also produces a toxic litany of heavy metals, particulates, and other harmful pollutants.

Coal burning is ecologically damaging and environmentally unsustainable; we set out the reasons here. Converting every coal-fired power station in the world to natural gas would immediately save 15 per cent of global carbon emissions, according to the IEA (here), more than the entire carbon output of the United States as a whole.

“Coal-fired power plants were the single largest contributor to the growth in emissions observed in 2018, with an increase of 2.9 per cent, or 280 Mt, compared with 2017 levels, exceeding 10 Giga tons for the first time,” the IEA noted.

In fact, one of the main findings of the IEA’s report into how the world could achieve net zero by 2050 was that all coal-fired power stations would have to be shut down by 2040.

“Coal-fired electricity generation account for 30 per cent of global CO2 emissions,” the IEA added. “The majority of that generation is found today in Asia, where average plants are only 12 years old, decades younger than their average economic lifetime of around 40 years.”

China is the major coal-burner

China burned four billion tons of coal in 2020, according to Reuters (here), and under Xi Jinping’s rule it is expected to burn even more this year.

Think of that number. Four billion tons burnt in China every year; that is half a ton of coal annually for every man, woman and child on the planet, last year, this year, and next year.

Half of the world’s coal is burnt in China, according to an excellent analysis by The Council on Foreign Relations here. Worse, internationally, “China is the largest financier of fossil fuel infrastructure. Through its massive Belt and Road Initiative (BRI), China has built or is planning to build hundreds of coal-fired power plants in countries around the world. More than 60 per cent of BRI-specific energy financing has gone toward nonrenewable resources.”

This is terrible for the environment, but you barely see any protests in China itself against the carbon spewed out in the People’s Republic. Such protests are illegal and the protestors are stifled. The emissions in Shenyang, Dalian and Guangzhou will impact the whole planet, but we don’t see any pressure from international activists to pressure China to change its destructive and horribly polluting energy policies.

If the Dutch court rules that Shell has an obligation to consider the human rights of those impacted by climate change, then the Chinese government must have the same duty of care, but an obligation that is, by my rough estimate, two hundred times larger than Shell’s.

What are Friends of the Earth doing?

Friends of the Earth does not seem to be filing any lawsuits in Beijing or Shanghai to compel the world’s largest polluter to reduce its pollution by 45 per by 2030, as they demand of Shell. Nor do we see Extinction Rebellion activists gluing themselves to the sides of coal trucks on the railways bringing in coal from Inner Mongolia or Xinjiang or North Korea. I guess London Underground trains are more adhesive, and the consequences are less.

China produced 3.84 billion tonnes of coal domestically in 2020, the most since 2015, and imported “only” 300 million tonnes. Even if Greenpeace was able to blockade Chinese ports to prevent the world’s largest importer from discharging millions of tons of the world’s most polluting fossil fuels from bulk carriers at its ports, this would barely make a dent on Chinese pollution, as most coal is domestically produced.

Focusing on Shell in the Hague is a complete distraction. China needs to change its behaviour and act as a responsible world leader, rather than the world’s largest polluter by far.

Winter Olympics: name and shame 2022 in Beijing

There are opportunities for consumers and activists to press home this message. Major brands are rushing to sponsor the Winter Olympics in Beijing in 2022. It seems strange that the International Olympic Committee does not consider national carbon emissions and sustainability as a criteria for hosting the event.

How can burning four billion tons of coal a year and generating over a quarter of the world’s carbon emissions from less than 20 per cent of the world’s population be considered sustainable?

Xinjiang is arguably a smaller crime than China’s coal burning

There has been much outcry on alleged human rights abuses in Xinjiang, with several western parliaments accusing China of genocide of the Uighur Muslim minority. But nobody seems to bat an eyelid at the ongoing environmental crime of China’s massive carbon footprint from burning coal.

The corporate sponsors seem not to care. They include Airbnb, German insurer Allianz, tyre maker Bridgestone, The Coca-Cola Company (perhaps “Coca-Coal” would be more appropriate), wind turbine manufacturer General Electric, Intel, Panasonic, Procter and Gamble, Samsung Electronics, Toyota and Visa (see full list here). I don’t see the sponsorship helps their reputations.

Activists threaten to boycott the British Museum because BP has sponsored an exhibition, but holding the Games in China, which produces the most pollution of any country in the world by far, is fine? Even per head, China is the thirteenth larger producer of CO2, producing more than France, Italy and the UK, and every other developing country except Iran and Kazakhstan.

Where are “the professional violinists draped in green costumes [who] performed inside the Great Court at the British Museum [to protest BP] alongside a ‘choir of fire’ wearing orange and yellow outfits with headdresses of paper flames”? Surely, they should be outside every Chinese Embassy and the IOC headquarters?

Conclusion: Shell is small fry

If activists are going to continue to pursue Shell and the western oil companies through the courts protesting that they should stop their carbon emissions, the logical conclusion is that they are also going to have to compel autocratic regimes like China, Russia, and Saudi Arabia to significantly change entire economies as well.

Blaming Shell and ExxonMobil and BP is easy. Big Oil is not going to arrest protestors, jail them under spurious anti-protest laws in horrific conditions for indefinite periods, or harass them, as the governments in Beijing, Riyadh, and Moscow routinely do.

Ultimately, averting the climate crisis will require more than lawsuits in The Hague. It will require consumers across the world to change their behaviour, and governments everywhere to say no to burning coal, and to transition away from burning oil and gas over the next generation.

Gesture politics are futile. Friends of the Earth may think it has won a great victory in court in The Hague, but its impotence in the face of China shows the magnitude of the problem they face.

Four billion tons of coal a year: remember that statistic when you hear big oil being denounced. There’s a bigger environmental problem than Shell: China.

Background reading

If you enjoy irony, you will love the Saudi Aramco statement of values here: “Our behaviour is what defines us — as a company, as employees, as people. Everything we do is anchored by our values: integrity, excellence, safety, accountability, and citizenship. Our values are the foundation of Our Code of Business Conduct and the way we do business.”

Lovers of irony will also enjoy Beijing’s efforts to claim that the 2022 Winter Olympics will be green – see China Daily here: “Beijing 2022 has released a WeChat mini program to encourage and guide the public to practice a green and low-carbon lifestyle, allowing users to record their low-carbon contributions.” In a country where over 50 per cent of all electricity is generated by coal, the single largest source of pollution on the planet, good luck with that!

On Sunday May 30, Chinese Premier Li Kequiang reiterated that China would see its peak carbon dioxide emissions in 2030, before achieving net zero in 2060, CGTN reported here.

What’s wrong with starting emissions reduction today, Premier Li?

Hieronymus Bosch

This anonymous commentator is our insider in the world of offshore oil and gas operations. With decades in the business and a raft of contacts, this is the go-to column for the behind-the-scenes wheelings and dealings of the volatile offshore market.