What the Shell emission reduction decision means for Big Oil

What the Shell emission reduction decision means for Big Oil

On Wednesday this week, a landmark decision was delivered in the Dutch capital, mandating big oil company, Royal Dutch Shell to reduce its carbon emissions by at least 45% by 2030 compared to 2019 levels. The decision was delivered in a lawsuit filed in April 2019 on behalf of tens of thousands of Dutch citizens by seven public interest environmental groups, including Friends of Earth Netherlands and Greenpeace.

The decision makes history as one of the first decisions out of a courtroom mandating an oil company to curb its emissions by a specific level within a certain period.

Recall that in January this year, a Dutch court held that Shell’s Nigerian subsidiary was liable for oil spills in the Niger Delta in another lawsuit brought by farmers severely affected by the spill some 16 years ago.

With Wednesday’s decision delivered on emission levels, there are significant implications for Big Oil. It is noteworthy that in the run-up to Wednesday’s decision, Shell had set out a global transition strategy to divest its fossil fuel assets and transition to renewable energy resources, a strategy which it put forward to its shareholders for a vote in April this year.

As part of this strategy, it had started to sell off its fossil fuel assets in various countries including Nigeria. One analysis by CNBC concluded that eight big oil companies, including Shell, may together want to sell oil and gas assets amounting to more than $100 billion in a bid to respond to the energy transition.

While the strategy by Shell sets a target for reducing the carbon intensity of its products by at least 6% by 2023, 20% by 2030, 45% by 2035 and 100% by 2050 from 2016 levels, Judge Larisa Alwin in Wednesday’s decision held that these targets were “not concrete and…full of conditions.” According to the Judge, “the conclusion of the court is therefore that Shell is in danger of violating its obligation to reduce.” The court’s decision specifically mandated that Shell’s emission reduction be absolute, a clear distinction from Shell’s existing targets which are merely intensity-based. The difference is, while absolute emissions double down on measuring and eliminating all emissions, intensity-based emissions only look to measure the amount of emissions per unit of energy produced. This means it will not take into account energy traded or dealt with in any other way outside new production.

This decision heralds a new era for climate litigation in courtrooms around the world. It not only challenges Shell to raise its ambitions for net-zero and intentionally work towards positive emission reduction targets, but it also challenges its Big Oil counterparts to look critically at their operations, as the courts may begin to play a more activist role in the months to come.

Only last week, the International Energy Agency (IEA) released its Roadmap for the Global Energy Sector that showed that for the world to achieve its Paris Agreement emission reduction targets by 2050, no new oil and gas fields should be produced beyond 2021. In a separate report from last year, the IEA’s figures revealed that Shell’s 2020 emission level was 1.38 billion tonnes, a whopping 4.5% of global emissions and that figure for a year in which oil and gas demands were at its lowest due to the pandemic.

Indeed, the last few years have seen an increase in climate litigation with growing awareness around the problem of climate change and around the need for businesses to transition to environmentally-friendly policies. A United Nations Environment Programme (UNEP) report from January found that climate cases have nearly doubled over the last three years, including in countries like Colombia, India, Pakistan and South Africa. With this win against Shell, not only will people become emboldened to bring more of such cases against Big Oil, courts will become more willing to tow the route of judicial activism in favour of climate activists.

In essence, the future may not be very bright for Big Oil if they refuse to shift ground. On Wednesday, while Shell lost at the court, shareholders of American oil and gas multinational, Exxon Mobil, voted out two of its board members on concerns of transition to cleaner energy, replacing them with two new board members more suited to address the climate change problem in the company’s global policy.

In the same stride, investors in Chevron, another oil and gas major, also voted 61% in favour of a proposal asking the company to cut its total greenhouse gas emissions, including customers’ emissions and its own operations and supply chains.

What this means

With all of these moves happening in quick succession, these new policies will trickle down to the operations of these companies in the countries where they own and operate assets and more divestments of fossil fuel assets will follow.

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