The Energy Podcast from Shell is the home of conversation about the energy that powers our world.
With demand for energy growing as society moves to net zero, how will the world balance providing secure and affordable energy with accelerating the transition to low-carbon solutions?
With more than a century of experience connecting energy to people, we bring together our own experts and guests to explore the big topics in energy – from the role of liquefied natural gas to the impact of AI; from the future of transportation to carbon capture and storage.
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What’s next for carbon capture and storage technology?
Season 7 · Episode 3
Tuesday, August 12, 2025 • Duration 31:57
Climate scientists, governments and organisations, including the Intergovernmental Panel on Climate Change and International Energy Agency, recognise that the world needs carbon capture and storage (CCS) technology if society is to achieve net-zero emissions. In this episode, hosts Bryony and Eddie are joined by Shell’s Vice-president for CCS, Bernhard Koudelka, to discuss the role of this combination of technologies in decarbonising heavy industry, and – as the world’s first project to offer commercial CCS as a service prepares to start up – the challenges of scaling the industry to the level the world needs.
Whether you’re new to CCS or looking for a deeper understanding of its role in the energy transition, this episode offers expert insight and real-world examples.
What are negative emissions?
Practices or technologies that remove carbon dioxide from the atmosphere are often described as achieving negative emissions.
Engineering one of the world’s most advanced energy projects
Season 7
Friday, August 1, 2025 • Duration 13:21
In this bonus episode of The Energy Podcast, host Bryony speaks with Hadi Quazi, Shell’s Joint Venture Asset Manager for LNG Canada. Together, they explore how Shell and its partners brought to life the largest private-sector investment in Canadian history – and put a remote corner of Canada on the global energy map. From a 670-kilometre pipeline crossing mountain ranges to a liquefaction facility on the country’s west coast, this episode takes you inside the engineering and partnerships helping to meet the world's growing demand for liquefied natural gas (LNG).
Carbon markets are advancing on a global level, following the first country-to-country trades at COP27. The Energy Podcast investigates how carbon pricing works and examines what role it can play in the race to reduce greenhouse gas emissions.
Presented by Julia Streets. Featuring Dr Hasan Muslemani from the Oxford Institute of Energy Studies, Andrea Bonzanni from the International Emissions Trading Association and Shell’s senior carbon pricing policy advisor, Dr Malek Al-Chalabi. With additional contribution by Stephen Kansuk, Head of Environment and Climate Change at the United Nations in Ghana.
The Energy Podcast is a Fresh Air Production for Shell, produced by Annie Day and Sarah Moore, and edited by Molly Lynch and Sophie Curtis.
EPISODE TRANSCRIPT:
00:00 Julia Streets: Today on The Energy Podcast...
MUSIC BED COMES IN
Andrea Bonzanni: Emissions must be reduced globally irrespective of where they take place. The atmosphere is one at the end of the day. Article VI allows reducing emissions where it’s more efficient.
Dr Hasan Muslemani: We have solutions that are being praised as the holy grail of net- zero… The issue is that we need all the solutions that we can get because in the fight against climate change, we are really in a race against time.
Julia Streets: The cost of climate change. It's a phrase commonly used by governments, companies, and campaigners across the world when discussing the need to limit global warming to well below two degrees Celsius. Quantifying the exact cost of far- reaching effects of climate change is not an easy task. But putting a price on emissions is viewed by many as an effective means to help drive down levels of CO2 in the atmosphere. The idea is simple. Putting a price on carbon emissions creates a financial incentive to reduce them. Carbon markets have existed for decades. There are many carbon pricing systems around the world, but at present, it is estimated that only a quarter of emissions are priced. That could soon change. At last year's COP27 climate conference in Egypt, the first country- to- country carbon trades took place. Could this pave the way for further uptake of carbon trading and what impact could that have in the fight against global warming?
Can A Divided World Tackle Climate Change?
Season 5 · Episode 1
Tuesday, March 21, 2023 • Duration 24:52
One year after Russia’s invasion of Ukraine, The Energy Podcast investigates the impact of recent events on the global energy transition, drawing on Shell’s two latest Scenarios: Sky 2050 and Archipelagos.
Presented by Julia Streets, featuring László Varró, head of Shell’s Scenarios team, and Dr NatKeohane, President of the Center for Climate and Energy Solutions (C2ES).
The Energy Podcast is a Fresh Air Production for Shell, produced by Annie Day and edited by Sophie Curtis.
EPISODE TRANSCRIPT:
00:00:00
Julia Streets: Today on the Energy Podcast...
MUSIC BED COMES IN
Dr. Nat Keohane: The energy security concerns from the Russian invasion of Ukraine actually accelerate the pace of the energy transition.
Laszlo Varro: There was no single global response. Europe is the eye of the storm. It is Europe where the energy crisis had by far the biggest impact. This is a situation where the average European consumer needed no explanation that there is a crisis.
00:28:41
Julia Streets: When Russia invaded Ukraine, the world was already facing a challenging set of circumstances with post-COVID- 19 austerity looming, energy prices rising and security tensions growing. The invasion amplified many of these challenges and brought the need for secure supplies of affordable, sustainable energy to the very top of the global agenda. Today, we will be exploring the tensions that have been unleashed just over one year after the invasion, with security issues, global energy supply and geopolitical alliances all in flux. We'll also be discussing how these tensions could be resolved in a world that needs to decarbonize, drawing on Shell's latest scenarios research.
1.5 C and… what’s next?
Season 3 · Episode 6
Monday, December 12, 2022 • Duration 33:27
With COP27 closed out, The Energy Podcast hears different perspectives from people who attended the conference in Egypt, and their views on what needs to happen next.
Presented by Julia Streets. Featuring Rebekah Shirley, World Resources Institute Africa; Susan Shannon, Shell; Eduarda Zoghbi, Global Student Energy; Andrea Bonzanni, International Emissions Trading Association.
The Energy Podcast is a Fresh Air Production for Shell, produced by Annie Day.
The 2022 UN Climate Change Conference, or COP27, will be taking place in Egypt between 6th and 18th November with a strong focus on Africa. As the conference gets underway, The Energy Podcast takes a look at what to expect.
Presented by Julia Streets. Featuring Prudence Glorious, Chief Purpose Officer at Tanzanian impact firm PZG PR, and Shell’s Chief Climate Change Adviser, David Hone.
The Energy Podcast is a Fresh Air Production for Shell, produced by Annie Day.
In the third episode of our series on heavy industry we explore chemicals. From t-shirts and trainers, medicines and mattresses, to cars and computers, phones and TVs, our modern-day lives are filled with products made from chemicals. But the chemicals industry produces a lot of CO2 emissions. What can be done to reduce these emissions? The Energy Podcast investigates.
Presented by Julia Streets. Featuring Peter Goult from Systemiq, Naoko Ishii from the University of Tokyo and Robin Mooldijk from Shell. Additional reporting by Alexander Mante.
The Energy Podcast is a Fresh Air Production for Shell, produced by Annie Day.
Steel. It’s strong, it dominates every modern city, and it’s supporting developing economies. But its production generates a lot of carbon emissions. What’s the answer? The Energy Podcast investigates.
Presented by Julia Streets. Featuring Professor Leora Dresselhaus-Marais from Stanford University and Lene Hviid from Shell’s metals division. Additional reporting by Judith Durkin.
The Energy Podcast is a Fresh Air Production for Shell. Edited by Claire Daley, production by Annie Day.
Cement… it’s all around us. But producing it generates a huge amount of CO2 every year. So what can be done to take carbon out of the cement-making process? The Energy Podcast investigates.
Presented by Julia Streets. Featuring Kristin Myskja, Director General of the Climate, Industry and Technology Department at the Norwegian Ministry of Petroleum and Energy, and Audny van Helden, VP Energy Marketing, Sectors and Decarbonisation, Shell. Additional reporting by Judith Durkin.
The Energy Podcast is a Fresh Air Production for Shell. Edited by Claire Daley. Produced by Annie Day. Exec Producers: Neil Cowling and Michaela Hallam.
From tracking the source of renewable energy to changing the relationship between how energy is produced and consumed, blockchain has the potential to do so much. Three industry experts tell us their experiences of blockchain in action.
Presented by Julia Streets. Featuring Sophia Rödiger, bloXmove; Jesse Morris, Energy Web and Sabine Brink, Shell.
Hello, I'm Julia Streets, and today on The Energy Podcast: How can carbon markets limit climate change?
MUSIC ENDS
With me to discuss this are Andrea Bonzanni, who's the international policy director at the International Emissions Trading Association, who you may well remember from a previous episode of The Energy Podcast. He is joined by Dr. Hasan Muslemani, who is the head of Carbon Management Research at the Oxford Institute for Energy Studies. And our third guest is Dr. Malek Al- Chalabi, who is a senior carbon pricing policy advisor at Shell.
Hasan, perhaps I could start with you. For the benefit of the audience, would you just mind explaining what we mean when we talk about carbon markets?
02:18 Dr. Hasan Muslemani: The fundamental concept behind a carbon market is really to put a price on carbon, or in other words, to quantify the cost of damages that emissions will cost our society over time. To do this, we have, at the heart of carbon markets, what is called carbon accounting or greenhouse gas accounting. This represents a set of standards and methods that help us quantify but also verify the impact that each business creates on the environment, and this impact is reported in terms of tons of CO2 emitted. Now, something that I really want to emphasize here is that today, we speak of carbon markets, but we need to differentiate between two different types of markets. The first is what we call a compliance market, which is a market that is heavily regulated and corresponds to a specific region or jurisdiction, and where companies within that jurisdiction have to take part in the market. The other one is a voluntary one. This is a lot less regulated and where participation is voluntary, as the name implies. The voluntary carbon market is based on the concept of offsetting. That is where a company wishes to mitigate or neutralize its own emissions. So, it goes out and invests in projects which are reducing equivalent amounts of emissions elsewhere in the world.
03:30 Julia Streets: Can you talk to us a little bit about how they work in practice in everyday terms?
03:36 Dr. Hasan Muslemani: Starting on the compliance markets, and the objective is really to put a price on carbon, there's two different ways to do this. The first one is carbon taxation, which should be a simple concept. We have countries like Norway and Denmark, which would impose a specific tax on every ton of CO2 that a company would produce within those countries. The key here, really, is for that carbon tax to be high enough to incentivize businesses to change behavior or to move to greener production. This is essentially a stick form of regulation where businesses have to lower their emissions or face an additional cost. The other mechanism, which is a cap and trade mechanism, which is the more familiar one, and in this system we have an authority, say, the European Commission, which sets a cap on how much emissions can be generated as a whole within the continent, within Europe, and then allocates a number of allowances or carbon credits to European countries and companies for them to trade amongst each other. Here, each carbon credit or allowance is representative of one ton of CO2. This allocation process, what I want to note, is done using the historical emissions of each one of these companies. This is a process that we call grandfathering. The overall cap is reduced each year in order to meet a certain European climate target in the future. The way this works is where companies that have lowered their emissions below their targets, now they have surplus of allowances, which they can go into the market and sell to companies that did not do so well and will require to buy credits. So, this mechanism really is sort of a carrot but also a stick sort of regulation.
05:12 Julia Streets: Thank you for explaining how they work. I suppose my next question, is how effective are they proving to be?
05:19 Dr. Hasan Muslemani: The longest running and actually the biggest ETS in the world, that is the EU ETS or emission trading scheme. This has started in 2008 and has gone through different phases over the years. But I do want to mention that it has suffered from a number of setbacks over those years. To give an overview, the carbon price at the beginning was around 30 euros per ton, but that price has crashed to less than 5 euros around the financial crisis of '09. This was most likely because of two main reasons. The first one is that companies had to report their emissions in such a regulated manner that they have not done before, and so they might have overestimated how much emissions they emit and hence how much allowances they eventually received from the system. But also, because of the financial crisis itself, it meant that business offices aren't lit, emissions aren't as high as usual, so they did not need to surrender as much allowances at the end of the compliance phase, which eventually meant there's an oversupply of credits in the market, and so the price has crashed. The good news is the EU ETS has gone through sort of a recovery mode over the past 10 years, and today the price has not only recovered but reached the level which is believed to incentivize most sectors to lower emissions, and that level is around 100 euros per ton.
06:41 Julia Streets: It's been so helpful to get a sense of progress, thinking about the dynamics of the market since launch, and also to think about the market share. Andrea, let me bring you in here because this is about the world's attempts to limit global warming to well below two degrees Celsius, in line with the Paris Agreement. Are we likely to see the growth of carbon markets in pursuit of this great ambition?
07:03 Andrea Bonzanni: Well, we know that meeting the goals of the Paris Agreement requires a radical transformation of many areas of our economies and our lives, and for the reason outlined by Hasan, carbon markets and carbon pricing in general are one of the tools that governments are increasingly considering. Carbon markets are spreading from a core of rich runs economies such as the EU, California, South Korea, and New Zealand, to middle- income and emerging countries. This year, we had Mexico and Indonesia launching their emission trading systems, and the two schemes are expected to expand and evolve over time. There are other countries in Southeast Asia and Latin America that are implementing carbon markets, and even some African countries are starting to consider them.
07:45 Julia Streets: Andrea, when we last spoke, you would just at COP27. As I mentioned in the introduction, that's when the first country- to- country carbon trade took place. Could you tell us a bit more about that and what happened at COP27?
07:58 Andrea Bonzanni: Sure. At COP27, Ghana authorized the transfer to Switzerland of certified emission reductions. This transaction was the first of its kind under Article VI of the Paris Agreement. There were emission reductions generated in Ghana thanks to the implementation of enhanced rice production techniques that avoided CO2 and methane emissions. These emissions will be counted towards the climate target of Switzerland. In turn, Ghana commits to apply a corresponding adjustment to its emission account. Mechanisms like this have vast potential to generate investment flows in climate change mitigation and sustainable development from the Global North to the Global South. Article VI is still a small, nascent market, but we expect it to grow and countries are looking to buy and sell emissions to each other. In addition to Ghana and Switzerland, after COP27, another transfer was authorized, this time from Thailand to Switzerland. A country like Japan has 26 bilateral agreements with countries around the world and is looking to import emission reductions in the near future. Countries like Singapore, South Korea, New Zealand and Canada are all looking to purchase carbon reduction from abroad. Many countries around the world, mostly developing countries, are preparing and getting ready to become sellers in this market.
09:20 Julia Streets: Andrea, just picking up on one of the comments you made there. One project being implemented under the Ghana- Switzerland, Article VI carbon pricing deal is a UN initiative that aims to reduce greenhouse gas emissions from rice cultivation by training local farmers in sustainable agriculture practices. Rice cultivation currently accounts for over 10% of global methane emissions, and this is because the main method of rice farming involves flooding the fields, which prevents oxygen from penetrating the soil, causing a buildup of bacteria. This bacteria emits methane into the atmosphere, contributing to global warming. The United Nations Development Program aims to promote climate- smart rice cultivation for Ghanian farmers, leading to a significant reduction in methane emissions. Stephen Kansuk, Head of Environment and Climate Change at the United Nations in Ghana, speaking from the capital Accra, told us more….
10:18 Stephen Kansuk: In Ghana, rice is cultivated as both food and cash crop. Research shows that in 2020, Ghana's total rice consumption was about 1. 4 million metric tons. To support rice farmers to reduce methane emissions in Ghana, the United Nations Development Program, the Ministry of Environment Science Technology Innovation, the Ministry of Food and Agriculture, and the Environmental Protection Agency, all in Ghana, and the future office for the environment in Switzerland are implementing a climate- smart rice project. The project is supporting over 7, 000 rice farmers across Ghana to adopt an alternate wet and drying technology in rice cultivation to reduce methane emissions. This project is one of the initiatives under a partnership between the government of Switzerland and Ghana. The agreement is to allow public and private institutions to collaborate to invest in climate change mitigation interventions in Ghana and exchange carbon credits with Switzerland for payments. In terms of benefits with this climate smart rice project, our target is to achieve about 1. 1 million tons of carbon dioxide equivalents, emission reduction targeted by 2030. The project will also provide extra incomes for the farmers as a carbon revenue through a performance bids payment system, and this will help increase their resilience. The project is also helping to create a number of jobs at the rural level so that they will be able to adapt effectively to the impact of climate change.
12:14 Julia Streets: Andrea, I wonder if I could bring you in because there has been some reaction that has accused governments of rich countries of outsourcing their emissions reductions to governments of developing countries. Is that fair?
12:27 Andrea Bonzanni: Emissions must be reduced globally irrespective of where they take place. The atmosphere is one at the end of the day. Article VI allows reducing emissions where it's more efficient, deploying capital where it can abate or remove more emissions. Researchers have quantified the cost savings of meeting climate targets used in Article VI will be up to 250 billion US dollars a year by 2030. There is a perception out there that projects reducing emissions abroad replace strong climate action at home. But I don't think there is evidence supporting this thesis. In the longer run, achieving net- zero means that every ton of CO2 emitted must be compensated by a ton of CO2 removed from the atmosphere. It is not rational to believe that all countries, especially European ones, can get to net- zero without using international carbon market mechanisms. International carbon markets deploy investments in things like natural climate solutions or emission removal technologies, such as direct air captures, bioenergy with CCS, and then deploy the capital where these projects are feasible. Not all geographies, not all jurisdictions have the potential to scale these solutions and achieve net- zero within their borders. Rich countries need strong climate action both at home and abroad, and we need carbon markets. We need well- designed one. 80% of countries in their nationally determined contributions said that they're planning to use carbon markets to meet their goals. So, we should start implementing carbon markets soon and let investment flows from rich countries into developing countries.
14:02 Julia Streets: So we've explored this from the point of view of what are carbon markets. We've thought about this from an international global sort of point of view, and whether or not this is fair from a jurisdiction point of view. We've also heard about a real case study and its application of where some of this collaboration comes in. Malek, could I ask you, from a corporate point of view, why does this particularly matter to a company like Shell?
14:25 Dr. Malek Al-Chalabi: Yeah, thanks. Thanks, Julia. At Shell, we've set a target to become a net- zero emissions energy business by 2050, and our policy positions on climate and energy transition serve as a global framework for Shell's advocacy with governments, international organizations, and associations. This includes supporting government policies that will help the world to achieve net- zero emissions by 2050. A variety of policy tools are required, one of which is carbon pricing, and at Shell, we advocate to put a direct price on carbon emissions as part of a broader policy framework to achieve net- zero emissions. The carbon price, whether through tax, cap and trade, or hybrid system, should apply to as many sectors of the economy as possible and increase over time. Additionally, Shell advocates for greater international cooperation through systems that transfer carbon credits between countries and ensure that international carbon credit transactions have environmental integrity by avoiding double- counting across national inventories. In summary, a carbon price can be an effective mechanism, and success depends on it being part of a comprehensive energy transition policy framework that incentivizes innovation and encourages commercialization of new and clean technologies.
15:33 Julia Streets: You talked there about the importance of collaboration. I'm curious, what needs to happen to get more countries trading carbon?
15:41 Dr. Malek Al-Chalabi: If we look at the data from the World Bank and look back 30 years, the first carbon prices took place in the 1990s. If we fast- forward today, there's approximately 70 carbon pricing initiatives and, as you've said, covering 25% of the world's emissions, which represents a sizable improvement. But this still means that 75% emissions are still unpriced, and more work needs to be done in this space. I think it's important to recognize a tremendous amount of work to operationalize carbon pricing policies has taken place. The International Chamber of Commerce at COP26 focused on global carbon pricing principles that are needed to help deploy carbon markets, and at COP27, a business review was also done to highlight opportunities for decarbonization. There are 10 principles which include, but are not limited to, focusing on greenhouse gas reduction as a prime target, creating a reliable and predictable overall framework, promoting the linkage of carbon pricing instruments, and ensuring cooperation for greater consistency globally.
16:49 Julia Streets: Hasan, earlier you were talking about some of the market dynamics at play. I would love to get your thoughts on what do we need to do if we want to have an ambition for a global price on carbon?
17:01 Dr. Hasan Muslemani: First off, I would say it's probably not easy and may not even be possible to have one carbon price that fits all jurisdictions in the world. This is because what may work for a country or a region or a jurisdiction might not work for another. We might have some that prefer a carbon tax mechanism, but others which might prefer a cap and trade, or an emission trading scheme, or ETS for short. Not only that, but the sectors which are included within these different ETSs in the world that we have today are not the same sectors. Some of them might include cement or steel or oil. Some others might include different sectors. To give an example from my own background, which is in steel production in China, specifically. Producing steel in China is much cheaper than in Europe. That's the first thing. The second thing is measures which we have that we can take to lower emissions from steel production in China versus in Europe are different and their costs are different. So, that means that the abatement costs for each company and each country are different. The problem with not having a global price becomes important when trading happens between these regions, so if you're importing or exporting steel into and out of Europe. For that reason, I think carbon prices should be complemented with what we now call carbon border adjustments. The EU has already introduced such a mechanism that will come online as of October of this year. Under these adjustments, what happens is any steel that would be imported from China into the EU will have to face the same carbon tax based on its carbon footprint. In that way, the steel manufacturer is now subject to the carbon price in Europe, the EU ETS price, creating what I would like to call an implicit global carbon price.
18:47 Julia Streets: Andrea, I'd love to get your thoughts, if you would, about some of the risks and some of the opportunities for Article VI? And what do skeptics say about its limitations?
18:57 Andrea Bonzanni: Well, the opportunities generated by Article VI are obvious. They go down to basic economic theory. We have to reduce or remove emissions where it's more efficient because that will allow us to do it faster and to do more at lower cost. So, we need an international mechanism that brings together countries with access to capital and technologies, but without access to cheaper emission abatement options, and on the other hand, countries without capital and technology, but with plenty of opportunities for reductions. So that's, to me, very clear; it's a mechanism that can work. Some of the risks around Article VI are related to the complexity of these mechanisms, and this is where the skeptics are coming from. Critics have magnified, in some instances, the cases where carbon markets have not delivered what they promised. They highlighted cases where methodologies to calculate carbon reductions were not robust, or measurements overstated the impact of certain projects. However, the industry is aware that markets need to improve, and there are many initiatives to address market integrity.
20:06 Julia Streets: Malek, I'd love to get your thoughts about what are your hopes for the carbon markets in the future?
20:12 Dr. Malek Al-Chalabi: I think if I build on what Andrea has said, I believe further operationalization of Article VI country- to- country trades increasing in the future would be a welcome development to take place. I think also, as some may know, Article VI. 4, which is the globally led carbon market by the UN, looking to operationalize in the next one to three years would also be another welcome development to help facilitate carbon markets. But also, as Hasan has mentioned, the growth of compliance and voluntary markets would also be a welcome development where countries can continue to use implicit or explicit carbon pricing mechanisms to help further incentivize low and clean technologies at a price that is helping assist decarbonization efforts.
21:07 Julia Streets: Gentlemen, I'd love to come to each of you with your closing thoughts for our listeners.
21:12 Andrea Bonzanni: Carbon markets need to grow. Growth, growth, growth is what we need. We need to shift gears, scale up markets, both in terms of coverage and in terms of price levels. We said that about a quarter of emissions are priced nowadays, but the World Bank estimates that only 4% are priced at the level that will allow us to achieve the goals of the Paris Agreement. So, whatever the economic and geopolitical situation, we cannot afford to put carbon markets on hold.
21:40 Julia Streets: And Malek, what would be the one thing that you think that the audience should hang onto and really take away?
21:45 Dr. Malek Al-Chalabi: I think our message would be that to put a direct price on carbon emissions as part of a broader policy framework to achieve net- zero emissions, and whether it's through a carbon tax, cap and trade, or a hybrid, they should apply to as many sectors of the economy as possible and increase over time.
22:04 Julia Streets: Hasan, would you agree with that? What would be your message?
22:07 Dr. Hasan Muslemani: I think markets have already picked up momentum, and they are here to stay. The next step is really to ensure integrity of what's being traded and sold in the market. That word integrity has really become the buzzword in the carbon market space lately, where we're seeing a lot of quality frameworks being developed to define what is integrity. We have solutions that are being praised as the holy grail of net- zero solutions, such as capturing CO2 directly from air or other solutions, and they're sort of being put in competition with each other. The issue is that we need all the solutions that we can get because in the fight against climate change, we are really in a race against time. Because this task is so critical to us as a human race, if anything, it's much better to be vaguely right than precisely wrong.
MUSIC BED COMES IN
23:00 Julia Streets: It's been a wonderful conversation because in such a short period of time, we've thought about the dynamics of the carbon markets; we've thought about some real use cases of how there's been some international collaboration; we've thought about why this matters for different people. But we've also been very considerate in terms of where are some of the limitations and perhaps some of the things that skeptics are talking about. But this is about integrity. This is about momentum, and this is about growth. Exactly as you say, this is all about us using all the tools at our disposal to drive change at pace and at scale. Andrea Bonzanni, Dr. Malek Al- Chalabi, and Dr. Hasan Muslemani, thank you very much for being with us today. You've been listening to The Energy Podcast, brought to you by Shell. Listen and follow for free wherever you get your podcast so you don't miss a single episode. The Energy Podcast is a Fresh Air Production, and I must remind you that the views you've heard today from individuals not affiliated with Shell are their own and not Shell, PLC, or its affiliates. I'm Julia Streets. Thank you for listening, and until next time, goodbye.
Hello, I'm Julia Streets and today on the Energy Podcast, can a divided world tackle climate change?
MUSIC ENDS
Allow me to introduce my guest today. Our first guest is Laszlo Varro, who joined Shell in 2021 as the VP of Global Business Environment, looking at scenarios and pathways. He joined, after 10 years at the International Energy Agency, where he was most recently their chief economist. In his role at Shell, he leads up the scenarios team, which explores how the global energy system could evolve right the way through to the end of the century. So Laszlo, it's great to have you on the show.
Laszlo Varro: Thank you very much. It's a pleasure to be here.
Julia Streets: And joining us today is Dr. Nat Keohane, who is the president of C2ES, the Center of Climate and Energy Solutions. Before taking on that role in July 2021, Nat served for eight years as a senior vice president for climate with the Environmental Defense Fund where he led all of EDF's climates work in the United States and globally. So Nat, thank you so much for being with us.
Dr. Nat Keohane: Thanks very much for having me.
Julia Streets: So Laszlo, in the introduction, I mentioned that you lead the scenarios team at Shell. Can you talk us through what we mean when you talk about these scenarios?
02:34:18
Laszlo Varro: Scenario analysis came out of Cold War strategic assessments. Shell was historically the first company to use it for strategic analysis, so we are continuing a time- honored tradition. Scenarios have decision makers navigating uncertainties by reflecting on plausible futures. The Shell scenarios are not Shell's predictions, they are not Shell's commitments and they're not Shell's strategy. They are part of the information base that the leadership had navigating through the uncertain world.
Now in 2022, it's fair to say that history was teaching us some very tragic lessons about uncertainties. Even before the war, there were tensions and fissures in the energy system. The post- COVID recovery in 2021 was exceptionally energy-intensive. Global carbon dioxide emissions stabilized at a level which is entirely unsustainable. Geopolitical intentions were already emerging, and debates were already emerging on the future of globalization.
Now, on top of these existing tensions, the Russian aggression against Ukraine is not only a human tragedy – most importantly, it is a human tragedy – but it was also a geopolitical energy shock, which hasn't happened since the 1970s shocks of the Yom Kippur War and the Iranian Revolution. It created a new energy reality. Some of the impacts are helping the energy transition, other impacts are hindering the energy transition. There are regionally divergent responses and, basically, we were assessing the regionally divergent political, social, economic responses and asked the question how they can shape the energy system in a direction where humanity would like to go.
04:27:16
Julia Streets: So let's explore these scenarios a little further if we may. So there are two that I think are particularly salient today. Could you just talk us through those two scenarios? Then I'd love to bring in Nat for your reaction and your thoughts. Laszlo.
04:39:29
Laszlo Varro: We felt that, in the world of 2022-2023, social and political priorities on security are a given. They are just a fact of life. But the two scenarios, the two pathways, are distinguished by what is the actual interpretation of security. What do we mean by security and how do we try to achieve that? In one of the pathways, we call that Archipelagos, security is achieved by sticking to the existing well understood conventional energy system, energy infrastructure and capital stock, and security increases the importance of domestic hydrocarbon resources or hydrocarbon imports from friendly countries. There are signals and signposts in that direction. Last year, we have seen a surge of domestic coal production all around the world. China, for example, expanded its domestic coal production in energy terms by seven exajoules. Just for the sake of comparison, all the oil and gas that Shell produces worldwide is around six exajoules in energy terms. So the increase in domestic coal mining in China last year was more than the entire hydrocarbon production of Shell.
Now we also designed another scenario - we called it Sky - in which the interpretation of security is very different. In this scenario, society regards the fossil fuel dominated energy system itself as a security risk. Very clearly, the fact that it was Russia, a major oil and gas producer which launched a geopolitical aggression, it reinforced the already existing political and media narrative that oil and gas are the problem and renewable energy is the solution. This is a scenario in which society flees forward and achieves security by an accelerated transformation of the energy system.
06:41:37
Julia Streets: Thank you for setting out those two scenarios because what strikes me is that one of them very much starts with the premise of where we are today and where we're headed, and that is the Archipelagos. The second, Sky, as you call it, starts with a future point and then works backwards from that. Nat, I know you've looked at these. I'd love to get your reactions.
07:05:06
Dr. Nat Keohane: Any scenarios like this are primarily useful for making comparisons. Any individual scenario is bound to be wrong in the details, so these aren't crystal balls, but by comparing the scenarios and looking at where they have consistent themes and where they diverge, we can learn a lot. So that's how I want to be approaching these.
So under both scenarios that Shell has released, renewables increase while fossil decreases. The difference is how fast. And because of those dynamics, as well as similar consistent transitions in transport and industry, in both scenarios, we see global CO2, carbon dioxide emissions peaking and starting to decline within a decade. One interesting finding in fact from the Archipelagos scenario that Laszlo mentioned is that the energy security concerns from the Russian invasion of Ukraine actually accelerate the pace of the energy transition.
It's also important to note this isn't the only evidence we have for this. The International Energy Agency in a recent report and the other oil major BP, and it just published Energy Outlook, both found similar conclusions. In other words, even under projected trends, we're turning the corner on fossil fuel consumption and emissions in the near term. The low carbon energy transition is no longer a matter of if but when.
And so this is where it's useful to look at the divergence between those scenarios because that divergence points to what we need to do to accelerate that transition much faster than it would otherwise happen. And it's very clear. We need to rapidly decarbonize, clean up the electric grid, even as we expand energy access in developing countries, and even as we shift much of our economy, including transportation and industry to run on electricity. We need to develop new fuels for aviation and new technologies to make heavy industrial products like cement and steel. We need to develop and deploy new technologies from scratch like green zero- carbon hydrogen and carbon removal technologies to take carbon out of the atmosphere and we need to scale them up and we need to transform land use so we store much more carbon in soils and forests.
All of those things are highlighted in the scenarios. To do all of that, we really need government policies at a much more ambitious scale than we have now.
09:26:29
Julia Streets: I'm really curious now to know what the current shifting dynamics are. As I mentioned in my open, we are one year into conflict. And what impact has the war in Ukraine had on the pace of change? Nat, can I come to you first?
09:42:43
Dr. Nat Keohane: My sense in terms of what Russia's invasion of Ukraine has done is that by highlighting energy security concerns, it turns out many of the ways to improve energy security align with reducing fossil fuel use, at least in the medium and long term. Not right away, and that's a problem. Right away, we see a bump up in the use of coal in some areas, and if that locks in, we're in real trouble. But at least what the scenarios are showing us is that the shift to a focus on energy security can actually help shift towards more renewables, and so, that's an important additional dynamic.
10:17:24
Julia Streets: Laszlo, let me get your reactions to that.
10:21:26
Laszlo Varro: I broadly agree with everything that Nat said. We tried to enrich the analysis by going into the regional dimension, because there was no single global response. Europe is the eye of the storm. It is Europe where the energy crisis had by far the biggest impact. Now, Europe mobilized very large amounts of money for the short-term crisis management essentially buying liquified natural gas at whatever price from anywhere around the world and also supporting consumers. But Europe also, as Nat mentioned, very strongly reinforced its clean energy policies. Essentially, the clean energy transition in Europe emerged as the overarching organizing principle of policy.
And very importantly, this is a situation where the average European consumer needed no explanation that there is a crisis. So last year, there was a warm winter in Europe and a warm winter reduces heating energy demand. That's well understood. But when you statistically analyze the demand data and you adjust with the temperature, it turns out that the demand decline in European heating gas use was around 10 billion cubic meters more than the temperature can explain. So 10 billion cubic meters of gas, which is like switching off the heating in 5 million homes, was delivered by people voluntarily changing their behavior.
Now you jump over to the United States. So the United States is embarking on a journey to decarbonize a high energy consumption American lifestyle, which requires innovation and requires investment. You could observe the main US policy reaction, the Inflation Reduction Act, primarily focuses on increasing investment in clean energy supply. There is no carbon pricing in the Inflation Reduction Act, but there are very, very strong incentives to build, build and build more and more clean energy supply.
Again, when you jump further, China. China, up until recently, was largely self- sufficient from coal. Their domestic coal production played an important role in maintaining energy security, but at the same time, in all the relevant clean energy technologies - wind power, solar power, nuclear power - China's investment activity is comparable to Europe and the United States combined. It's a massive scale leapfrogging from domestic coal to domestic solar and from domestic coal to domestic nuclear.
Last but not least, the developing world outside China, we call them the surfers in our analysis because these are countries that are surfing the waves of opportunity. These are countries which were very badly hit by the European energy crisis. One good example is Pakistan. There was even a European company which defaulted on a contractual obligation to supply gas to Pakistan because even after the penalties, it was more profitable to bring the gas to Europe. Pakistan recently had a gigantic blackout, 200 million people without electricity. And the Pakistani government essentially announced recently that, "We are going to increase our qualified power generation capacity by a factor of four and we are going to dig out our domestic coal and just burn it and maintain security that way."
So there have been divergent responses, but overall, what we see in our analysis is that even our more conservative, scenario, is actually a considerably lower temperature increase than what was feared just a couple of years ago in the climate assessments. There is no such thing as a business as usual scenario anymore.
14:09:19
Julia Streets: What does this mean for the energy transition ambition? Are we going to hit that ambitious target or are we going to fall short?
14:19:28
Dr. Nat Keohane: Maybe I can start with just a little bit of context on where we are relative to those global targets. The Paris Agreement on climate change sets that goal of keeping that rise in average global temperatures well below two degrees above pre- industrial levels and striving for 1. 5. The more science we have and the more we learn, the more we realize that 1. 5 is really a much, much safer place to be.
So where are we? We're at 1. 1 today and the scenarios as we were talking about, the more conservative scenario goes to 2.2. There's a lot of uncertainty. Let's say 2 to 2. 5 degrees Celsius by the end of the century. On the one hand that is a lot of progress since before the Paris Agreement. Before the Paris Agreement, we were looking at 3. 5 to 4 degrees in terms of projected temperature increase. Now we're looking at 2 to 2. 5. Again, everything is uncertain, but 2 to 2. 5 under this conservative scenario.
Why is that? The technology changes we've talked about, the accelerations in innovation, but also the Paris Agreement gets some credit for that. The Paris Agreement has created a framework for cooperation that is starting to work. And, the theme of the day, we need to accelerate that much faster if we're going to get below 2 and down to 1. 5, all of those things that the scenarios talk about, how are we going to do that? We need to leverage the Paris Agreement and government policies at all levels, national, state, local. We need to leverage them to really accelerate that clean energy transition.
15:52:20
Julia Streets: Laszlo.
15:55:21
Laszlo Varro: A timely energy transition which satisfies the objectives of the Paris Agreement, and that includes the Sky scenario, which was explicitly designed to satisfy the ambitions of Paris, is consistent with our roughly 2, 3 thousand billion dollars per year increase in average annual clean energy investment. Total capital investment in clean energy globally is thousand billion dollars per year today. A very sizable chunk of that is wind and solar, but biofuels, hydrogen, other technologies also play a role, and this roughly a thousand billion dollars per year, will have to go to, depending on how you model it, somewhere around 4, 000 billion dollars per year.
Now, in order to achieve that, a couple of things are needed. First of all, the money. Now in the Western financial system in Europe and the United States, there is a very strong appetite for clean energy investment, but 90% of that clean energy investment funding stays in the Western world and only 10% flows to developing countries, where clean energy is critically underfunded.
So one factor where the two scenarios start differing from each other, that in Sky, the financial system effectively channels that capital into clean energy investment in the developing world. The only way to achieve that is to mobilize the power of modern capitalism and turn the energy transition into a profitable investment opportunity.
The second thing that you need after you have the money is the equipment. You need the wind turbines, the solar panels, the batteries. You need the metals that they are made from, so you need the copper, the nickel, the lithium. You need the manufacturing capacity and you need value chains which are secure and are trusted from a political point of view. So again, Sky is a scenario in which the scale up of the clean energy value chains and the metal supply is managed appropriately. In Archipelagos, this emerges as a barrier.
And last but not least, after you have the money and you have the equipment, you need to have a legal permission to build those things and you need to be able to connect them to the grid, and the legal processes and the licensing and permitting environments in many countries in the world are not in line with the need to rapidly scale up green energy investment. So there's a very important task for governments to modernize the regulatory environment and enable this industrial investment to go ahead.
18:12:21
Dr. Nat Keohane: I'm really with Laszlo in what he said about the finance that's needed and how we mobilize that. We need trillions of dollars. He said thousands of billions. Trillions. That's the same thing. I just want to underscore that. That's what we need in terms of driving more climate finance.
Now some of that does need to come from governments. The US, the richest country in the world – we need to be providing more climate finance. It's shameful, frankly, that the US only... It provides a fraction of the climate finance commitments we've pledged. Only a few billion dollars in climate finance a year. That needs to be much greater. And that's talking about billions and we need to be talking about trillions. How are we going to do that with government policies at the national and international levels that mobilize the private sector?
The scenarios talk about the importance of carbon markets and carbon trading. Article six of the Paris Agreement provides a framework for that. We need to accelerate that. The best policy to align incentives and mobilize capital is always a price on carbon. The European Union has that. Other countries are putting that in place through various market- based approaches. If we can't do that, then we ought to look for other ways to create incentives to drive capital into those new technologies.
Final point, we've talked a lot about increasing the build out of clean technologies and accelerating innovation in zero carbon technologies like wind and solar and hydrogen and so on. That's really important, but it's not sufficient. We also have to accelerate the phase out of the fossil fuel that we're already consuming, starting with coal plants, but also going to oil and gas. We need to accelerate the phase out of the high-carbon fuels even as we are accelerating the build-out of the clean technologies because we have to do both of those things if we're going to meet our targets.
22:26:17
Julia Streets: So let's close out our discussion today by asking you what would you want the audience to do? Nat, can I come to you first?
20:39:28
Dr. Nat Keohane: Sure, thanks. We've just been talking about the need for government policy, for well-designed government policies at all levels, national, state, local, international, to drive the clean energy transition and accelerate that phase-out away from the high-carbon fuels. Those government policies rest on a foundation of political will and citizen engagement, at least in much of the world.
So what I always say is the most important thing that individuals can do is make your voice heard on climate. Make this a priority. When you go to the voting booth, if you're in democracy, if you're in the US, you're elsewhere, make this a priority for your voting. Talk to your friends about it, talk to your relatives. The importance of talking and building awareness about not only the state of play in terms of the climate crisis, where we're headed and how urgent it is, but also the optimism, the note that we can shift that trajectory, that we are shifting it and we just need to accelerate that change. That's where I always start.
21:36:44
Julia Streets: Laszlo, what would you want the listeners to do?
21:41:46
Laszlo Varro: So as a citizen, you interact with the energy system through three channels. You have three hats. One, as a citizen, you are a participant in a political system, you vote in elections. Second, you are an investor. The financial system channels your money into investment. Third, you are a consumer. It is your consumer decisions which orient a modern market economy.
When you wear your first hat, be aware that governments will have to implement energy and climate policies that were conventionally thought to be politically impossible. So make it possible. Send a signal to the political system that you want those policies. When you wear your investor hat, ask hard questions from the financial institutions that manage your money and consciously steer your investments toward the green energy space. Last but not least, consumers also play a very important role in creating the market for new low carbon products and solutions. So be there and send a signal towards the modern market economy. The capitalist market economy is incredibly effective to provide you what you demand, but you have to demand it. So use all of your three hats and use all of the three channels.
23:13:19
Julia Streets: So Dr. Nat Keohane, thank you so much for being with us and for all your thoughts today.
23:18:26
Dr. Nat Keohane: Thanks very much for having me. It's been a pleasure.
23:20:29
Julia Streets: And Laszlo Varro, thank you for being with us.
23:24:31
Laszlo Varro: Thank you very much. Thank you very much, Nat, for joining us.
MUSIC BED COMES IN
23:20:38
Julia Streets: Another fascinating discussion. We started by laying out two very specific energy security scenarios, one called Sky and one called Archipelagos. Of course, you can find links to those on the episode page. Then we thought about what is the impact of the Russia- Ukraine war because ultimately, we're trying to drive change at pace and scale, but we are not doing this in isolation. We're doing this very much on an international playing field and there are regional and national dynamics and considerations at play. Then of course, we brought it right the way back down to what can we do as listeners of this podcast? What can we all do to play our part? My thanks to both Laszlo Varro and Dr. Nat Keohane for all their thoughts today.
You've been listening to the Energy Podcast brought to you by Shell, and you can listen and follow for free wherever you get your podcasts so you don't miss a single episode because next time, we're exploring the role that carbon markets can play in keeping global temperature rise below 1. 5 degrees Celsius. The Energy Podcast is a Fresh Air Production, and I must remind you that the views you've heard today from individuals not affiliated with Shell are their own and not Shell plc or its affiliates. I'm Julia Streets.
Thank you for listening and until next time. Goodbye.
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