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Shell hits back at 'carbon bubble' claims

Shell hits back at 'carbon bubble' claims

Oil and gas company publishes 20 page document telling investors that climate laws will not leave it with 'stranded assets'

John Vidal
theguardian.com, Tuesday 20 May 2014

Ben van Beurden, Chief executive officer of Royal Dutch Shell during the annual general shareholders meeting at the Circustheater in The Hague, The Netherlands, 20 May 2014 Ben van Beurden, Chief executive officer of Royal Dutch Shell during the annual general shareholders meeting at the Circustheater in The Hague, The Netherlands, 20 May 2014 Photograph: BAS CZERWINSKI/EPA

Shell has hit back at claims that its multi-billion dollar investments in tar sands, fracking and other unconventional oil and gas exploration will create a “carbon bubble” which may backfire catastrophically because of expected global climate change legislation.

Previous research by economists, campaigners, and MPs has suggested that the majority of coal, oil and gas reserves of publicly listed companies, including Shell, are “unburnable” if the world is to have a chance of not exceeding global warming of 2C, the level governments have agreed to limit rises to. That is leading to a so-called carbon bubble, an overvaluation of oil companies' financial value, they have said.

But in a 20 page response to its shareholders who are meeting on Tuesday in The Hague, Netherlands, for the company’s annual meeting, Shell strongly refutes the criticism that it is vulnerable to such a bubble.

“Shell believes that the risks from climate change will continue to rise up the public and political agenda. We are already taking steps to minimise our emissions and we are preparing the company for when legislation and markets will support a more significant action to mitigate CO2,” said JJ Traynor, vice president of investor relations at Royal Dutch Shell.

“We do not believe that any of our proven reserves will become stranded. While the ‘stranded asset’ notion may appear to be strong and thought-through, it does have some fundamental flaws and there is a danger that some interest groups use it to trivialise the important societal issue of rising levels of CO2 in the atmosphere,” he wrote.

Shell claimed that the methodology used by its critics was wrong because it failed to acknowledge that global energy demand was likely to increase with population growth and with increasing global prosperity. “As GDP rises in China and India... energy demand will increase on this journey,” said Traynor.

“Energy demand growth, in our view, will lead to fossil fuels continuing to play a major role in the energy system - accounting for 40-50% of energy suply in 2050 and beyond. The huge investment required to provide energy is expected to require high energy prices and not to the drastic price drop envisaged for hydro carbons in the carbon bubble concept”.

Research from Friends of the Earth Netherlands (Milieudefensie), released today, argues that the “super-major” oil company has many long term, high carbon projects in the pipeline which will become highly vulnerable when international law starts to constrain the burning of fossil fuels to limit temperature rises.

“Shell’s investments in tar sands are five times more carbon-intense than normal gas and 80% of their fossil fuel reserves are unburnable,” said Geert Ritsema, head of the energy campaign at Milieudefensie. “Shell may not decide to take the 2C limit seriously, but the rest of the world does. The Netherlands, the EU, the G8 and the UN have all set this as official climate objective. And because global reserves of fossil fuels are five times too large, Shell will have to write off the most expensive and most CO2 intensive reserves first.”

Research by the Carbon Tracker initiative and the Grantham Research Institute on Climate Change and the Environment at the London School of Economics (LSE) has shown that global fossil fuel reserves already far exceed the carbon budget to avoid global warming of 2C, but oil companies, including Shell, are spending over $500bn a year to find and develop new reserves.

The two organisations have called for regulators, governments and investors to re-evaluate energy business models against carbon budgets, to prevent what they and others have estimated as a $6trillion “carbon bubble” in the next decade.

“By ignoring the carbon bubble, Shell is pulling a bigger confidence trick than those who brought down the financial system – they are trying pass off a losing situation as being a sound financial investment to their investors,” said Friends of the Earth climate campaigner Asad Rehman in London.

“If they continue to downplay the carbon bubble, Shell jeopardises ordinary peoples’ hard-earned pension pots and leaves billions of people facing devastating climate change,” he said.


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