Shell white-washing $77bn carbon risk

Royal Dutch Shell has been accused of underestimating the carbon risk to investors on tens of billions of high cost oil projects, despite the global oil major’s recent claims to contrary.

The Carbon Tracker Initiative (CTI) and Energy Transition Advisors (ETA) have released a report warning that up to $77 billion-worth of the company’s new fossil fuel projects will be stranded as climate change policies begin to bite.

The report also highlights the risk of lower economic growth and technological advances hitting oil prices and making future projects unviable – a scenario it says Shell neglects to address.

“Shell’s approach is based on dismissing potentially weaker demand for its oil due to tougher climate policies, technological advances and slower economic growth,” say CTI and ETA in a media statement.

“Investors and financial regulators need to ensure that scarce pension fund monies will not be lost in moth-balled projects,” the statement says.

The report comes in response to an open letter by published by Shell in May to address shareholder concerns on the issue of stranded fossil fuel assets.

In the letter, Shell dismissed the possibility that its proven oil or gas reserves would become unusable as a result of climate change regulation, saying fossil fuels would continue to play a key role in global energy to 2050 and beyond.

Perhaps following the Australian Abbott government’s lead, Shell is accused of dismissing the likelihood of political action on climate change, “ignoring the growing list of national and regional emissions measures being legislated and the growing calls and potential for greater energy efficiency worldwide.”

According to the two think tanks, Shell’s conclusions rest on the following syllogism: over the coming decades the world will continue to consume fossil fuels; therefore fossil fuels will be produced; therefore existing fossil fuel reserves (or at least Shell’s reserves) will not be “stranded.”– Again, sounds familiar.

But as the groups point out, even producing reserves may still destroy value for shareholders.

“Ultimately, as analysts we believe that such destruction of shareholder value is the key risk implied by the term “stranded assets.” Even more important is the potential for resources to become low-return assets through future capital expenditures,” they write.

And while Shell acknowledges the need for urgent action on climate change, it also states in its letter that the world will fail to meet the internationally agreed global warming target of 2°C – a classic (and again, familiar) example of Orwellian double-think, says to CTI CEO, Anthony Hobley.

“Acknowledging the seriousness of the climate challenge whilst at the same time asserting no effective action will be taken until the end of the century is as classic a case of Orwellian double think as you are likely to find,” Hobley said on Wednesday.

“With this combative stance, Shell has missed an opportunity to explain to its shareholders how its capital expenditure plans are resilient to the impending energy transition.”