Shell May Boost Internal Carbon Price as Emission Rules Tighten

May 30, 2014 6:19 am ET

May 30 (Bloomberg) -- Royal Dutch Shell Plc may boost the internal carbon emissions price it uses for planning new projects if governments tighten climate rules, according to an executive in its emissions unit.

Europe’s biggest oil company budgets for future capital investment on the assumption it will pay $40 a metric ton for carbon emissions, according to Angus Gillespie, vice president of CO2. That’s almost six times the current price for pollution rights in the European Union’s carbon market, the world’s biggest.

EU emission costs may reach 30 euros ($41) a ton by the next decade as the bloc seeks steeper emissions cuts and measures to control the supply of carbon permits, according to Bloomberg New Energy Finance. When project economics are assessed, the potential charge from climate policies “gets into the hundreds of millions of dollars,” Gillespie said.

“There are opportunities that we have not progressed because of the $40 a ton levy,” Gillespie said at a carbon conference in Cologne, Germany. “I can’t say what they are, obviously, but I can assure you there have been a few.”

EU carbon allowances plunged 83 percent since 2008 as the financial crisis cut industrial demand. Prices gained 4 percent this year to trade today at 5.15 euros a ton on ICE Futures Europe in London.

Shadow Price

Fossil-fuel producers use so-called shadow carbon prices to help ensure that multi billion-dollar investments remain profitable for decades under stricter environmental rules. Exxon Mobil Corp., the world’s biggest oil company, assumes a price of $60 a ton, according to CDP, a nonprofit organization that compiles environmental performance data for investors.

Shell is proceeding with a project to capture carbon dioxide from a natural-gas-fired power plant in Scotland, the company said in February. The Peterhead project was one of two selected in March last year to win funding of 1 billion pounds ($1.7 billion) from the government.

Some project managers are initially reluctant to have a shadow carbon price applied to their fossil-fuel projects because it cuts their assessed value, Gillespie said in an interview yesterday. “Once you explain the business case, it gets traction.”

“It’s my role to create tension in the projects,” he said. “When they see Angus Gillespie riding over the horizon with the CO2 flag, it’s like the forces of darkness approaching.”