It is becoming increasingly clear that small piece-meal tweaks to energy systems do not have the same long-lasting effective impact as wider changes.
Two developments in the world of the energy transition over the last ten days offer pretty solid proof of the kind of decarbonisation strategies that work best and those that are actually ineffective.
Starting off with the ineffective, yet well-intentioned, court case lodged by Friends of the Earth Netherlands against fossil fuel giant Shell. A decision back in 2021 had gone against the firm but it chose to appeal.
The initial verdict said that Shell was not doing enough to cut its emissions, so a judge imposed a reduction target and insisted that all emissions caused by the company’s activities must be addressed.
Emissions are split into ‘scopes’. Scope 1 includes all the direct emissions generated by the company; scope 2 covers indirect emissions like purchased electricity or heat; and scope 3 are those emissions generated by the end users of Shell’s products, i.e. fossil fuel burning.
Shell already has targets that cover scope 1 and 2, as they are relatively straightforward to address. Fossil fuel power generation can be substituted for renewables, energy efficiency measures can be deployed, heating can be decarbonised.
But scope 3 emissions are largely out of the direct control of companies like Shell. They cannot ask their customers not to burn the fossil fuels they sell them and they cannot rewrite the laws of chemistry to make oil and gas release fewer CO2 emissions.
That is partly why Shell appealed the decision. A court in the Hague agreed with Shell’s line of arguing and ruled that there is no real legal framework to impose and enforce this kind of target.
Despite the obvious negative implications for the climate that this decision has, it is probably the only logical one at this stage. If Shell had been obliged to reduce its scope 3 emissions that ultimately would have meant selling less oil and gas to customers.
That is self-defeating if demand does not go down in step with reduced supply. Other companies not bound by that legal decision would fill the gap. If their emission goals are less strict than Shell’s, then CO2 levels could even increase.
Focusing on the micro of the energy transition is normally like swimming against the tide. That is why attacking the macro is by far the best tactic, as evidenced by a development shared by the European Commission this week.
The bloc’s emissions trading system, the ETS, had a vintage year in 2023. Emissions from power plants and industrial sites fell by 16.5%, a record reduction for the carbon market.
Increased deployment of renewable energy and fuel-switching from coal to gas drove the reductions. A fairly stable carbon price also meant that companies had to deploy CO2-reduction measures in order to protect their bottom lines.
All told, it means that emissions covered by the ETS have fallen by nearly 50% compared with emission levels in 2005. A 2030 target to reduce those emissions by 62% is well within reach, according to the Commission.
This is the kind of policy that drives real transformative change in the energy transition. Policies with global reach like the carbon border adjustment mechanism look set to do the same when it comes fully online in 2026 too.
Of course there is room for targeted changes that can drive climate action, such as the UK supreme court’s decision this year on fossil fuel impact assessments, but they ultimately fit into a landscape created and managed by policies like the ETS.
Regulators the world over are starting to realise that carbon markets are the answer and there are set to be new versions established in countries like India and Japan in the coming years. Hopefully, this will be a catalyst for even deeper and quicker emission cuts.
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