Richard Harvey, via Flickr

Stranded

Why Shell is unable to navigate the just transition trilemma.

Oil majors, such as Shell, are central actors in the overall planetary adjustment from a carbon-based economy to a renewable-energy-powered global economy. These large oil companies have known for many decades that their profitable business model revolves around extracting, selling, and burning fossil fuels while externalising the costs was causing climate change. The strategy these companies chose was to deny the science, misinform society, and delay decision-making on effective steps worldwide. Their current net zero strategies should be understood in that context, as yet another climate delay tactic.

Publication

Rodrigo Fernandez

Tobias J. Klinge (KU Eichstätt-Ingolstadt)

Nicolás Hernan Zeolla (Foundation for Research on Economic Development)

Rodrigo Contreras Ramírez (Foundation for Research on Economic Development)

Laura Deruytter (KU Leuven)

24 August 2023

reading time 2 minutes

The strategy these companies chose was to deny the science, misinform society, and delay decision-making on effective steps worldwide. Their current net zero strategies should be understood in that context, as yet another climate delay tactic.

Examining Shell’s financial commitments this new report finds no indications of a genuine net zero strategy. Shell’s disclaimer to investors and bondholders makes it very clear that the net zero pledge should not be mistaken for its actual business model and investment plans. In addition we find there will be considerable stranded assets in the event of effective regulation. This model is to knowingly dance on the volcano and to profit for as long as possible. The net zero strategies, however, do involve some investments in sustainable energy. These insufficient and very limited investments are part of a hedging strategy aimed to keep options open and muddle through.

However, the window to an orderly transition away from a fossil-fuel-based energy system to a renewable energy system is closing rapidly. The possibility of keeping all options open will soon come to an end and companies will be forced to pick sides. Will companies remain on the wrong side of history and delay the actions that are necessary to bring global emissions in line with the planetary carbon budget? Or will they continue on the path of climate denial and delay and produce as much natural gas and oil as possible to maximise value for their shareholders?

In this report, we have argued that Shell will face a trilemma with respect to these questions. It can achieve only a maximum of two out of three goals. The three goals Shell is aiming for can be described as:

Goal A continuing to operate as an oil and gas giant profiting from consuming ever greater portions of the global carbon budget;
Goal B continuing to pursue high shareholder returns; and
Goal C transforming itself into a major renewable energy player.

For a just transition, Shell can achieve only one of the three goals.

Moving forward, society will need clarity over the current strategies of systemically important energy corporations, such as Shell. Companies that occupy key positions in the future direction of the global energy and climate future will have to become transparent and be held accountable.