What we're reading about, 3/23/24

Climate, energy, and sustainability coverage we've been following around the web

(1) Shell dropped one of its key decarbonization targets and weakened another one, though the company still says it wants to get to net zero by 2050.

Shell measures the decarbonization of its business by using a “net carbon intensity” metric which it describes as follows (emphasis mine):

“Net carbon intensity measures emissions associated with each unit of energy we sell. It reflects changes in sales of oil and gas products, and changes in sales of low- and zero-carbon products and services -- such as biofuels, hydrogen and renewable electricity… Net carbon intensity measures the transformation that is happening in our portfolio as we implement our energy transition strategy. Achieving net-zero emissions by 2050 is the same as achieving 100% reduction in net carbon intensity.”

In 2021, Shell’s announced strategy was to cut the net carbon intensity of all the energy products it sells 20 percent by 2030, relative to a 2016 baseline. Now, they have lowered the minimum target reduction of 20 percent to a range of 15-20 percent. Shell also dropped its longer-term goal to cut net carbon intensity 45 percent by 2035 (see below chart from Carbon Brief).

(Carbon Brief)

The changes reflect Shell’s new goal to keep oil production flat while expanding sales of liquefied natural gas (LNG) up to 30 percent by 2030. Shell has also introduced a new target for cutting emissions from customer use of oil by 40 percent by 2030 (versus 2016) - not to be confused with company-wide net carbon intensity, as described above.

This fits with Shell’s view that LNG is a “critical fuel in the energy transition” (per the FT), and thus expanding its LNG business in the near- to medium-term doesn’t contradict its long-term net-zero goal. As we’ve highlighted before, this claim warrants skepticism – while it is true natural gas power plants are more efficient and emit less CO2 than coal and oil plants, long-haul shipments of LNG can be more carbon intensive on a lifecycle basis than the coal they largely replace.

(2) Currently, a company in the US can claim to run on 100% clean energy if it offsets all of its fossil fuel-generated electricity through the purchase of renewable energy certificates (RECs). REC systems typically work on the basis of “annual matching” – that is, fossil energy can be offset by certificates from clean power producers so long as the energy was produced in the same year that the certificate covers.

However, the Inflation Reduction Act (IRA) is set to adopt a more stringent standard for companies that want to use electricity from the grid to produce “green” hydrogen. In order to qualify for the most generous hydrogen production tax credits (PTCs), operators have to buy clean power based on hourly matching. According to Heatmap (emphasis mine):

“The hourly matching requirement, which will take effect in 2028, could compel utilities, grid operators, energy producers and consumers to adopt new systems for clean energy accounting, ultimately laying the groundwork for a 24/7 clean electricity market that extends far beyond the hydrogen sector.” 

While annual matching could mean cheaper “green” hydrogen, it would also lead to much higher emissions, according to Hydrogen Insight. The idea behind hourly matching is to create a stronger incentive to build infrastructure that can provide clean power on a 24/7 basis - which we need to do more of in order to actually reach net zero.

(3) A panel of judges on the Fifth Circuit stayed the SEC’s new climate disclosure rules in light of a lawsuit by two oilfield sxervices companies accusing the agency of “arbitrary and capricious” decision-making. Liberty Energy, one of the plaintiffs, put out a press release explaining their rationale:

(Liberty Energy)

The Hill’s Rachel Frazin laid out what’s next:

“The pause does not necessarily mean that their case will ultimately succeed or that the rule will be overturned — but, it is an indication that the judges are at least somewhat receptive to the arguments of its opponents… The SEC argued against the pause in court filings, saying that the companies did not show they would suffer imminent and irreparable harm. ‘Liberty Energy—the sole petitioner seeking relief that is a publicly traded company—already publicly discloses certain climate-related risks,’ said SEC Counsel John Rady in a court document.”  

In practice, whatever the outcome of the case, the stay (and fallout from the suit) will likely delay the implementation of the SEC’s climate rules.

(4) Heat pumps - devices for home heating that use electricity from the grid instead of gas or fuel oil - are generally more efficient than fossil-powered alternatives, or existing A/C and resistive heating technology that uses electricity. The downside, however, is that the upfront installation costs are often out of reach for households.

Still, a new study by the National Renewable Energy Laboratory (NREL) finds that heat pumps are a cost-effective choice for ~65 million homes in the US – or ~60 percent of the country – even before taking widely available subsidies into account (for example, the IRA will enable households to take advantage of a $2,000 tax credit for heat pumps and an additional $11,500 in rebates for lower income households). The study also finds that the emissions benefits of heat pumps are more immediate that previously thought. According to Heatmap (emphasis mine): 

“[The study] found that in each of the 48 contiguous U.S. states, switching to a heat pump reduces emissions today, even if that heat pump is one of the cheaper, less-efficient models. Heat pumps are just so much more efficient than other options that they still reduce emissions despite today’s relatively dirty grid. On average, each home could cut between 2.5 to 4.4 tons of carbon over the approximately 16 years the equipment lasts, meaning widespread adoption could result in a 5% to 9% drop in national economy-wide emissions. The effect is much more pronounced in some states, like those in the Northeast, where a lot of homes currently use fossil fuels for heating. A household in Maine that installs a high efficiency model, combined with completing insulation upgrades, would reduce emissions by an average of 11 tons per year — or about the equivalent of taking two cars off the road for a year.”  

(5) Despite its ambitious goal of cutting emissions 40 percent by 2030 (relative to 1990 levels), California is likely to fall well short, according to a new report by the nonprofit Next 10 and consulting firm Beacon Economics. So far, the state has only managed to cut emissions by 11.5 percent versus the 1990 baseline.

California’s emissions increased 3.4 percent in 2021, driven by an increase in gas-fired electric generation, as hydropower was compromised by droughts. Still, electric power emissions are down 40 percent since 2000. On the transportation side, emissions increased 7.4 percent in 2021, as COVID restrictions loosened while public transit ridership remained depressed (ridership in 2022 was still 40 percent below pre-pandemic levels), though on a more positive note, the state realized its goal of getting 1.5 million EVs on the road two years early, in 2023.

At a high level, if California continues on its current trajectory, the state won’t hit its emissions reduction goal until 2047, seventeen years behind schedule. Still, that might be too pessimistic. Liane Randolph, the chairwoman of the California Air Resources Board, talked up the prospect of “decoupling” to the LA Times (the state’s economy grew by 8 percent in 2021, more than twice the rate of emissions growth). Plus, failing to achieve ambitious goals might say more about the goals than the state’s momentum. Despite the report’s headline conclusion, the authors still found that California had the third lowest carbon intensity of any state in the country, behind only New York and Massachusetts.

Further Reading

• Shell revises climate targets as it plans to keep gas business growing (Financial Times)

• Shell abandons 2035 emissions target and weakens 2030 goal (CarbonBrief) 

• Why Moving to 24/7 Clean Electricity Is Going to Be Really, Really Hard (Heatmap)

• Court halts SEC climate disclosure rule (The Hill) 

• Where Heat Pumps Win — And Where They Lose (Heatmap) 

• How a Swedish Heat Pump Startup Plans to Wean Europe Off Gas (Bloomberg) 

• An Innovative Financing Model Is Ensuring Everyone Can Afford a Heat Pump (Bloomberg) 

• California unlikely to meet landmark goals for reducing greenhouse gas emissions (LA Times)