Shell UK ZAS0015

Shell UK response to Environmental Audit Committee – Call for Evidence on how the aviation and shipping sectors can best achieve net zero emissions

Introduction

Shell UK Limited[1] (Shell UK) welcomes the opportunity to submit written contributions on how the aviation and shipping sectors can best achieve net zero emissions.

Shell UK supports the UK’s net zero goal and recognises the requirement to reduce oil and gas consumption to meet it. Different fuel and vehicle technologies will be needed to meet demand for transport, while reducing air pollutant and CO2 emissions. This includes more efficient fuels and lubricants, paraffinic fuels as well as lower-carbon alternative fuels, such as biofuels, battery electric vehicles and hydrogen. Shell is active in the development of all these fuels and technologies for the transport sector.

For more than 50 years, Shell UK has explored for and produced oil and gas in the North Sea. Today, we are one of the region’s biggest producers, supplying around 10% of the UK’s total oil and gas needs.  Aside from producing and supplying oil and gas, we also supply, trade and market products made from oil and gas. These include fuels and lubricants for hundreds of commercial customers, including aviation and marine sectors. Prior to COVID, up to 500 aircraft refuelled with Shell-supplied aviation fuel every day, across 11 UK airports.

As we look ahead to COP26 it’s clear that the world is not moving fast enough. We believe that, in addition to greater domestic ambition in NDCs, countries and industry need to pursue a series of international sectoral decarbonisation agreements to address energy use alongside energy supply and accelerate the transition to a net-zero carbon economy. 

Pursuing sectoral decarbonisation will involve changes to supply chains and distribution networks, to institutions and infrastructure and to the shape of markets and the rules that govern them. It will require coordination by key players and Shell is keen to play our full and active part in supporting appropriate industry action.

Our response is therefore grouped by Aviation and Shipping sectors.

Aviation

Shell is providing its views on Aviation reform as part of the DFT Jet Zero Consultation in September 2021, we have set these out below.

Decarbonisation within the aviation sector represents a significant challenge, because there are fewer lower carbon options available, the highly competitive and international nature of the industry, and projected growth in activity with passenger numbers expected to increase over the next decades.

As such, reaching net zero in aviation will need unprecedented co-operation and will rest on progress made on an enabling policy framework which includes a sectoral approach as a guiding principle to achieve progress.

For the purpose of this written submission, Shell UK’s response will therefore focus on the dedicated approach needed for the aviation sector to achieve net zero, and will outline the policy framework we consider is needed to support the development and deployment of Sustainable Aviation Fuels (SAF) in the UK, including fiscal measures.

Three pathways to decarbonisation

Shell supports a three-step approach to decarbonising the aviation industry.

Avoid

• Adopting carbon-neutral energy on the ground and improving energy efficiency in the air through aircraft design, for example.The development of new net-zero emissions fuel technologies, such as hydrogen.

Reduce

• Accelerating sustainable aviation fuel (SAF) deployment through blending biofuels and synthetic fuels with conventional jet fuel, allowing for a gradual introduction of the fuel into supply chains without the need to adapt engines.
• Increased use of SAF by airlines.

Offset

• The use of high-quality, nature-based carbon credits to compensate for remaining carbon emissions.

The timeframe within which these three strategies will have their greatest impact differ. Some, such as nature-based carbon credits are available now. Some sustainable fuels are being used already but are not yet available to be deployed at scale. But net-zero emission technologies, such as hydrogen-fuelled planes or electric aircraft, are in their infancy and will probably only affect sector emissions after 2050.

Shell believes that for the aviation sector to achieve net zero emissions (NZE) by 2050 a sectoral approach is needed to deliver significant investments and change across the whole value chain from aircraft OEMs, airlines, fuel suppliers, fuel producers, airports to, most importantly, consumers.  In particular it is important to synchronise the demand and supply for low carbon energies such as SAF, PTL, hydrogen and electricity. 

Key policies principles for support development of SAF to help deliver net zero in the aviation sector

Shell recognises that governments around the world face unique challenges and that different countries and regions are moving at different speeds to address aviation carbon emissions. However, we believe that policies should be coordinated across sectors such as aviation, to help meet decarbonisation of the industry internationally.

As alternative lower carbon engine technologies are currently not widely available, SAF is the main viable technology to reduce substantially the sector’s GHG emissions, especially in the shorter term.

SAF Mandates

• We are fully supportive in the UK of the Government’s SAF mandate proposals, as we believe that ambitious and consistent mandates are key to create demand. The level of the mandate should be ambitious but consistent with the pace of building out supply capabilities and infrastructure. Globally Shell supports the goal to set this at 10% of jet fuel production by 2030 and at least 50% by 2050.
• Through regular reviews the mandate should be ramped up systematically over time, as the production scales up and commercialises.
• The mandate should initially allow the continued use of SAF made from recycled carbon fuels that are compliant with clear and globally agreed sustainability and CO2 emission criteria.
• The mandate should provide clear pathways to production of SAF from advanced feedstocks and synfuels, e.g. through a sub target.
• The mandates should allow obligated parties to use a book-and-claim approach to help meet the obligation during a transition period.  This would ensure that time is given to develop sufficient supply chains to ensure that suppliers can ramp up coverage across the UK airports.

Price Support

• While SAF blending mandates are a necessary policy measure on their own they are insufficient to incentivise the necessary investments in supply at the scale needed to meet NZE by 2050

• Governments should provide or encourage long-term financing and offer fiscal incentives to encourage rapid scale up of novel, capital intensive SAF technologies.
• Policies should include fiscal and financial policy instruments to allow for loan guarantees, accelerated depreciation or other investment tax credits, and grants to be awarded to SAF plants.
• It should also include other bankable policies for the SAF products such as a durable purchase agreement, e.g. a contract for difference (CfD) or a performance-oriented production tax credit of sufficient duration to cover the project’s lifetime. 
• The policy frame for SAF should be accompanied by a robust and rising carbon price to incentivise greater energy efficiency in aircraft and operations and to help partially bridge the long-term cost differential between SAF and conventional aviation fuel.

Support for Airlines to use SAF

• Governments should also consider the impact of early-stage mandates on the airline industry and acknowledge the financial challenges the sector is facing. Support for sustained demand will be critical to encourage SAF producers to invest in increasing capacity.

• To provide incentives for airlines to use SAF or alternative fuels, airports, airspace service providers and regulators should be encouraged to provide operational incentives to airlines to use new technologies or alternative fuels through, for example, differentiated tariffs on landing or user fees at airports.

Aviation Fuel Taxation

• When considering taxing aviation fuel, Shell believes it should be based on CO2 with a full exemption for SAF. Linking the rate of excise duty to the carbon/emissions intensity of the fuel would provide an additional incentive for low/no carbon aviation fuels.

In setting up policies for the aviation sector, Government should also ensure that new requirements do not conflict with existing transport policies (e.g., sustainability criteria for biofuels in the road sector), and ensure that administratively simple and practical systems can be used to monitor, report and verify compliance.

Shipping

In Setting Shell’s Course[2], we set out how the sector can co-create a lower carbon future for shipping and a pathway to Net Zero Emission for shipping.

Shell believes that to deliver net zero emissions (NZE) in Shipping by 2050 there is a need to accelerate the deployment of low carbon technologies and investments. Shell believes that a sectoral policy framework will be required to set clear goals and obligations for different roles in the sector. The pathway to net zero emissions in Shipping requires changes to vessels, fuel and infrastructure. 

Shipping is a global industry and ideally the main policy elements should be adopted by the International Maritime Organization (IMO) and enforced across all vessels flag states and ports. Shell believes that the UK as a progressive member state within the IMO can ratchet pressure on IMO to adopt a clear trajectory to NZE by 2050 and set ambitious carbon intensity reduction targets for 2030 and 2040. The UK can also have an important role in actively supporting the development of the required technology, innovation and the early deployment of technology and port infrastructure by providing incentives.

The shipping sector, as a whole, must find zero carbon energies for the long-term future, but also act today. Shell believes that initial focus must be to reduce greenhouse gas (GHG) emissions now through ready for now energy efficiency technologies and using lowest carbon fuels now (LNG, biofuels – liquid and gas), while developing the future zero carbon fuels – hydrogen-based fuels including ammonia and other synfuels.

To accelerate decarbonisation of the maritime sector to bring it in line with UK objective to achieve net zero carbon emissions by 2050 the UK government should provide:

1. For fuels – A well-to-wake GHG intensity goal for marine fuels as part of Clean Maritime Plan as a mean to increase the use of lower-carbon and zero-carbon energies in shipping;
2. For vessels & fuels – An adjacent UK Emissions Trading System (ETS) to introduce an explicit carbon price on GHG emissions from shipping which could be integrated into a global approach; and
3. For the sector – further development of the Clean Maritime Plan will enable policy coherency and measures targeting supply, demand and enabling infrastructure. 

Emissions standards

The Clean Maritime plan should aim to increase the use of sustainable alternative fuels.  Shell supports a GHG-emissions intensity standard for marine fuels on a WtW basis.  Any target should set out a clear multi-year obligation.  It should allow over performance which would encourage zero-carbon energies and include for flexibility through trading, a so-called baseline-and-credit system.   

UK Emissions Trading System for Maritime

Shell prefers an adjacent ETS for domestic and international maritime. In the event a global system is implemented it will be easier to carve out an adjacent ETS for maritime into a global approach.  We suggest the following high-level design criteria:

• Enable compatibility with a future IMO global approach and consider the ship owner to be the obligated party;

• No free allowances since allocation of free allowances requires benchmarking, which is difficult due to highly variable data for the same type of vessel;
• Address risk of carbon leakage by setting a clear definition of ‘unloading a significant portion of the cargo’ in order to qualify the last port before entering the UK;
• In case of an adjacent ETS, consider limited carbon removal such as high-quality NBS for less than 10% of the cap for UK international maritime as compliance pathway from the mid-2030s and in order to achieve NZE by 2050. 
• Recycle revenues to support investments in research and development of technologies, to incentivize the build of new vessels, to install the required infrastructure and the large-scale availability of zero carbon fuels.
• Methane emission reductions must be tackled separately, and standards developed for engines and fuels;

Complimentary Measures

There needs to be further development of the Clean Maritime Plan sectoral roadmap with close coordination and integration between policies that impact vessels, fuels, and infrastructure. 

Evidence points on what Shell is doing to reduce GHG emissions in the maritime sector

Energy efficiency

• Shell’s patented draft[3] and trim optimisation software, Just Add Water System (JAWS) has been deployed on 62 Shell-operated vessels, each delivering up to 7% reductions in fuel consumption and associated emissions. This has been licensed to Kongsberg Maritime, now making it available to the wider industry.
• Air lubrication[4] is being deployed for the first time on Shell’s in-service LNG ships with the first vessel setting sail in October 2020. This technology delivers in the region of 5–8% reduction in fuel consumption and associated emissions, and will be included on all eight of Shell’s LNG fleet currently under construction.

LNG

• Shell has developed the world’s largest LNG fuelling network of ports and bunker vessels on key trading routes, enabling more customers to choose LNG.  There are 75 ports globally offering LNG and over 25 LNG bunker vessels providing flexible supply to a larger number of ports.  Shell has 6 LNG bunker vessels serving 9 different ports in 4 bunkers vessels in Europe, 1 in the Americas and 1 in Singapore.[5]
• Shell LNG worked with the Carnival Corporation plc to run achieve reduced emissions, quieter engines and no visible emissions from the funnel. The AIDAnova, the world’s first cruise ship powered by LNG delivers a 95–100% reduction in sulphur oxides (SOx), up to 85% reduction in particulate matter and nitrogen oxides and up to 22% tank to wake greenhouse gas emissions reduction versus marine diesel oil.

Biofuels

• Shell was the first fuel supplier to provide certified second-generation sustainable biofuel to some of the world’s leading shipping companies, in the Netherlands.

Hydrogen

• Shell as a consortium partner, worked with Kawasaki Heavy Industries on the design and construction of the hydrogen containment and handling systems for the CO₂-free Hydrogen Energy Supply-chain Technology Research Association (HySTRA) vessel, launched in 2020. Shell will be the technical manager of the vessel in the operations phase and it will be on the Shell fleet when it sails away in 2021, allowing us to develop the proof case for large-scale distribution of hydrogen.
• Shell is testing hydrogen as a fuel for the marine environment with DNV GL at the Spadeadam Facility, UK. We aim to develop a detailed understanding of its properties. The research is a key enabler for future ship designs.  In 2020 Shell joined the DNV GL-led Maritime Hydrogen Safety Joint Development Project (MarHySafe) consortium which aims to develop the knowledge required for safe and reliable onboard hydrogen storage, bunkering and use of hydrogen in shipping, with the aim of removing regulatory barriers to hydrogen fuel use.

September 2021