Here’s how Shell plans to become the first net-zero carbon emission oil major

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In the middle of a viral pandemic, a crash in the price of oil and an economic slump not seen in 100 years, Royal Dutch Shell has unveiled what is likely the most ambitious climate plan of any major oil company in the world. In doing so Shell seems to have one-upped BP, which released its blueprint in February.

Here’s the Shell plan (and here’s a reminder about the types of emissions it covers):

By 2050 or sooner, Shell says it will cut to zero emissions it produces (Scope 1) and emissions that are produced on its behalf in power plants (Scope 2).

Shell pledged to cut the emissions intensity of its energy products (Scope 3) by 65 percent by 2050 or sooner. This category includes oil and gas Shell extracts from the ground and all the fuels and products it makes from oil and gas that it buys from other producers. (Emissions intensity is measured as emissions per unit of energy.)

Those two steps do not make Shell a net-zero emissions business. That is why Chief Executive Officer Ben van Beurden said on a call to investors that the company is committing to sell energy to only those companies that also have “cradle to grave net zero” plans in place.

The last step is an admission that Shell cannot become a net-zero company on its own if it continues to sell oil and gas. But because airplanes or natural-gas power plants, for example, will continue to need those products for decades to come, Shell wants to stay in the business. And it will have to work with its customers to ensure that they either offset or capture and bury those emissions.

“Shell knows that’s the only way it can deliver on the net-zero commitment,” said Adam Matthews, director of ethics and engagement at the Church of England Pensions Board, who has worked for the past few years with other investors in pushing Shell in a greener direction.

So-called Scope 3 emissions are the crucial difference between the Shell and BP plans. Shell says it takes full responsibility to cut emissions from all its energy products-not just the stuff it extracts. As Bloomberg showed, BP’s plan excludes hundreds of millions of metric tons of Scope 3 emissions produced by the products it sells that are made from oil and gas extracted by other producers. In effect, even though just a couple of months ago BP’s climate plan was much more ambitious relative to its peers in the oil industry, it wasn’t going to make it a “net zero” company.

If Shell achieves its stated goal, it will be the first oil company to meet the strict definition of a net-zero company- a company that produces no emissions from any of its activities or products it sells. “Shell now has the most comprehensive approach on climate among all oil companies,” Matthews said.

After the oil industry’s role in delaying climate action, there are lingering doubts about such climate plans. Rohitesh Dhawan, head of climate, energy and resources at Eurasia Group, questioned whether ring-fencing of customers is practical. Rachel Kyte, former chief executive officer of Sustainable Energy for All, welcomed the plan but said that a lot more needs to be done in the short term.

A Shell spokesman couldn’t give an example of the company restricting sales to a customer because of a failure to meet certain conditions. Shell will announce more details on how it will execute on its new climate plan in the second half of 2020, the spokesman said. BP will also lay out more concrete steps in September.

The competition between the two oil majors seems to be friendly. “Despite all that is going on, we must keep our eye on the future and helping the planet,” BP Chief Executive Officer Bernard Looney wrote in a comment on van Beurden’s LinkedIn post about Shell’s new climate plan. “Wishing you the best.”

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