1. Copyright: SIPC Directions to 2050 A New International Framework The scale of the challenge The scale of the challenge Post Copenhagen Architecture Post Copenhagen Architecture Sector based agreements Sector based agreements Enabling large scale action Enabling large scale action A global CO 2 market A global CO 2 market David Hone Group Climate Change Adviser Shell International B.V.

2. 2 A new direction is needed The way we produce and use energy today is not sustainable

3. 3 Very demanding reductions are called for Effective action requires: Global emissions to fall by at least 50% relative to 1990 by 2050; Global average per capita emissions that will – as a matter of basic arithmetic – need to be around 2 tonnes (T) by 2050 (20 GT divided by 9 billion people): this figure is so low that there is little scope for any large group to depart significantly above or below it; Agreement by developed countries to take on immediate and binding national targets of 20% to 40% by 2020, and to commit to reductions of at least 80% by 2050; Key Elements of a Global Deal Nicholas Stern

4. 4 The implications are clear

5. 5 Key Levers in the Economy CO 2 emissions = people GDP energy CO 2 person unit GDP unit energy Only four factors govern the outcome, being: PopulationNumber of people Standard of LivingGDP per person Energy IntensityEnergy per unit of GDP (efficiency of the economy) Carbon IntensityCO 2 per unit of energy (reflects the energy source) x x x X X

6. 6 Pathways to 2050 0 50 100 150 200 250 300 350 400 450 $0$20,000$40,000$60,000 GDP per capita, US$ 2000 (ppp) Energy per capita, GJ Improving energy efficiency 2025 2050 Falling CO 2 emissions per unit of energy 2008 Wealthy developed Developed Leading developing Developing

7. 7 The prospect of emission targets looms 0 50 100 150 200 250 300 350 $0$10,000$20,000$30,000$40,000 GDP per Capita, US$ ppp (2000) Energy per Capita, GJ Finland Romania “Developed” countries with Kyoto Targets Korea Taiwan Singapore ChinaThailand Malaysia Rapidly emerging economies in Asia

8. 8 Two pathways to consider No target under the Kyoto Protocol Opportunity to respond to the market through the Clean Development Mechanism National action agreements National policies and measures Sectoral agreements Funding via market mechanisms Use of clean-technology funds Direct recruitment to cadre of nations with targets National emission target 2013 - 2020 2018 - 2030 2008 - 2012

9. 9 Abatement GtCO 2 e per year in 2030 B CA Large scale abatement within the electricity sector. Some land restoration. Energy efficiency measures, land use practices, avoided deforestation. Higher cost technologies still moving down the cost curve The global abatement curve Cost of abatement €/tCO 2 e

10. 10 The anatomy of a deal Cost of abatement €/tCO 2 e Abatement GtCO 2 e per year in 2030 B C Targeted systems for agriculture and deforestation D A Developed Developing Less Developed Absolute targets National policies and measures: SD-PAMs, NAMAs, without access to international project mechanisms. Large scale action in the electricity (and transport) sector driven by international project mechanisms and clean tech funds. Large scale action through cap-and-trade, transport measures (vehicle efficiency, low carbon fuels etc.) and building regulations Support for Demonstration programmes globally Smaller scale clean development projects utilising the CDM

11. 11 Important for the CDM to Evolve CDM / JI (Kyoto 2008-2012) Small / Moderate scale Development “dividend” SD criteria Additionality Exhaustive project by project process Cost of abatement €/tCO 2 e Abatement GtCO 2 e per year in 2030 Clean Development Mechanism Existing CDM rolls forward Smaller scale than CTM Development agenda Focus on less developed economies Clean Technology Mechanism Focussed on the higher end of the abatement curve Principally clean electricity Recognises CCS Drives sector-based approach Clean Technology Mechanism Focussed on the higher end of the abatement curve Principally clean electricity Recognises CCS Drives sector-based approach

12. 12 Possible Post-Copenhagen Architecture Long term goal Absolute targets Policies & Measures Measurable Reportable Verifiable Clean Tech Funds Supporting Mechanisms Adaptation Funding Carbon Market Infrastructure

13. 13 Clean Tech Funds Supporting Mechanisms Adaptation Funding Carbon Market Infrastructure Possible Post-Copenhagen Architecture Long term goal Absolute targets Policies & Measures Measurable Reportable Verifiable Sector based agreements Sector based agreements Shifting the balance towards absolute targets through large scale packages of activity

14. 14 Design of a sector based “satellite” agreement Sector Based Agreements -Large scale preparatory step towards absolute targets -Clear purpose and end-point - Built on the foundation elements - Negotiated separately (by a limited number of parties) as “satellites” to the main agreement -Typically focussed on a sector - Technology capacity building, funding and financing -Best practice capacity building

15. 15 Emissions Mitigation Pathways Only four pathways forward: Energy efficiency Renewables Nuclear Fossil fuels with Carbon Capture and Storage (CCS) All four are essential and will be needed at scale: To meet energy demands this century To limit CO 2 emissions into the atmosphere CCS is a key focus area in Shell: A family of technologies all in use today Large scale end-to-end demonstration needs to happen Deployment need not be a distant dream

16. 16 Funding flow A “sector based” agreement that focuses on coal use in the power sector First large scale CCS demo projects (e.g. China) CCS Certs. CCS Standard emerges in some countries Emissions trading adopted in many developing country power sectors Initial CCS roll-out in developing countries Initial CCS infrastructure funded directly EU-ETS US-ETS Clean technology funding framework emerges globally CCS Project Mechanism & certification processes finalised $ £ ¥ € 20092010-2015 2020 2025+

17. 17 Supporting CCS in the international framework Key elements that need to be present in the near term: CCS recognised within the UNFCCC Clean Development Mechanism (CDM) or within a new post 2012 mechanism; International CCS certification, that delivers a (tradable) certificate for one tonne of CO 2 stored underground and supports the CDM; A funding framework for the demonstration phase of CCS, consisting of - Recognition of CCS within existing and new clean technology funds (e.g. the fund recently proposed by the G8); Recognition of extra-national CCS demonstration projects within national and regional funding arrangements.

18. 18 Positioning CCS in the evolution of the CDM CDM / JI (Kyoto 2008-2012) Small / Moderate scale Development “dividend” SD criteria Additionality Exhaustive project by project process Cost of abatement €/tCO 2 e Abatement GtCO 2 e per year in 2030 CO 2 Storage Certificate Recognises CCS globally Certifies tonnes sequestered Standardised rules Potentially tradable CO 2 Storage Certificate Recognises CCS globally Certifies tonnes sequestered Standardised rules Potentially tradable Clean Development Mechanism Existing CDM rolls forward Smaller scale than CTM Development agenda Focus on less developed economies Clean Technology Mechanism Focussed on the higher end of the abatement curve Principally clean electricity Recognises CCS Drives sector-based approach Clean Technology Mechanism Focussed on the higher end of the abatement curve Principally clean electricity Recognises CCS Drives sector-based approach

19. 19 A Global Carbon Market must evolve Linkages develop between all systems and more systems appear 2000 2005 2010 2015 2020 2025 Danish-ETS UK-ETS Australian ETS US National or North American “cap-and-trade” Norwegian ETS EU-ETS CDM CDM evolves to include clean electricity mechanism Pre-Kyoto Kyoto Post 2012 Expanding EU-ETS Japan technology standards Linkage framework New technology mechanisms evolve (e.g. for CCS) China adopts CCS standard New Zealand ETS

20. http://blogs.shell.com/climatechange