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May 20, 2014
Shell Joins Exxon in Denying Assets are Stranded
    by Robert Kropp

A long-winded response by the oil company to shareowner concerns boils down to the assertion that it plans to burn all the reserves on its books regardless of the impact on climate change.

In 2011, Carbon Tracker published Unburnable Carbon, a landmark study which concluded that up to 80% of the reserves now treated as assets by fossil fuel companies will have to stay in the ground if global temperature increases are to be limited to no more than 2°C.

The implications of the study are profound, from both financial and environmental perspectives. If long-overdue regulatory action by national governments finally come to pass, then the investment risk to shareowners is clear. And if in the absence of regulatory action the world’s fossil fuel companies go ahead and burn through those reserves, then it will certainly be game over for the possibility of mitigating the worst effects of climate change.

In November, a coalition of 70 global investors, organized by Carbon Tracker and Ceres and which collectively manage more than $3 trillion in assets, wr ote to 45 of the world’s largest fossil fuel companies, requesting that the companies report on the exposure to and management of risks associated with stranded assets.

In March of this year, engagement by As You Sow and the wealth management firm Arjuna Capital resulted in ExxonMobil becoming the first oil and gas company to report on stranded assets. To describe Exxon’s subsequent report as disappointing would be an understatement: “Any future capping of carbon-based fuels to the levels of a 'low-carbon scenario' is highly unlikely due to pressing social needs for energy,” Exxon reported. In other words, the company persists in believing that it will continue to have the social license to burn all the fossil fuel reserves counted as assets on its books, despite the grave implications for a world already being transformed by climate change.

This week, Royal Dutch Shell publicly responded to shareowner concerns on the issue, and the company’s position is no less disappointing than that of Exxon.

In its response Shell referenced the conclusions of the Intergovernmental Panel on Climate Change (IPCC) and stated that there is “a high degree of confidence that global warming will exceed 2°C by the end of the 21st century.” But instead of considering the IPCC observation as a call to vigorous action, Shell stated, “The world will continue to need oil and gas for many decades to come, supporting both demand, and oil & gas prices. As such, we do not believe that any of our proven reserves will become ‘stranded’.”

Shell also criticized the concept of stranded assets, somehow concluding “that some interest groups will trivialize the important societal issue of rising levels of CO2 in the atmosphere.”

Not surprisingly, Carbon Tracker issued a statement following that of Shell:

“Shell does not explain how it is solving the contradiction between the predictions of high oil demand and its acceptance of the need to address climate change. Carbon Tracker argues that high-cost production and growing oil demand assumptions are inconsistent with a more resilient global economy and stable global climate. In our latest report we invite companies and investor to stress-test oil demand scenarios, taking into account expected slowing economic growth in countries like China, more efficient use of oil - particularly in transport, and substitution effect due to the introduction of cleaner fuels and technologies such as natural gas, biofuels, and electric vehicles.”


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