Europe’s biggest oil company has silently abandoned carbon reduction plan.

Just six months into his role as the CEO of Shell, Wael Sawan made a quiet decision. He put an end to the largest corporate initiative in the world that aimed to create environmental projects to counter the effects of CO2 emissions.

Glenn Burgess

Shell’s promise to invest as much as $100 million per year to create a stream of carbon credits has been dropped, along with the goal of generating 120 million carbon credits each year by the end of the decade.

This change in direction shows that Sawan is now more focused on Shell’s core oil and gas business, which brings in most of its profits. It also acknowledges that the earlier goals were just not achievable.

Several companies, including oil giants like BP, Chevron, Woodside Energy Group, Equinor, and Eni, are now starting to create their own systems for generating carbon credits.

During a full-day investor event in June, Sawan presented an updated plan for the major European oil company. This plan focused on reducing expenses and emphasizing profit-generating activities such as oil and gas. Interestingly, he didn’t mention the company’s previous pledge to invest up to $100 million annually in creating a carbon credit pipeline, which was a part of Shell’s commitment to reach net-zero emissions by 2050.

Shell has indeed confirmed that the objectives for their carbon offset program, including the ambitious goal of generating 120 million carbon credits yearly by the end of the decade through projects involving trees, grasses, and other natural resources (many of which Shell intended to create), have been abandoned.

This goal would have offset about 10% of the company’s emissions. However, Shell has not yet disclosed any new targets for offset development or outlined its updated approach to fulfilling its future climate commitments.

They spent only $95 million, which is less than half of their original budget, on creating or investing in various carbon projects, from Western Africa to the Brazilian Amazon to Australian farmlands. Unfortunately, these projects have produced very few, if any, carbon offsets, and Shell has faced difficulties in finding projects that meet its quality standards.

This situation casts a new and critical light on carbon offsets, which have become a significant but contentious “climate solution” for many large companies. Bloomberg New Energy Finance predicts that the voluntary carbon market, currently valued at approximately $2 billion, could potentially expand to a staggering $950 billion by 2037.

Until now, most of the criticism has centered on the quality of carbon offsets. Numerous investigations, including some conducted by Bloomberg Green, have revealed that many offsets fail to deliver the environmental benefits they claim. Shell attempted to address this issue by implementing strict standards, ample financial resources, and drawing from over a century of engineering experience.

However, they soon discovered that prioritizing quality often came at the expense of quantity. In other words, they had to choose between having high-quality offsets or a larger quantity of them, but achieving both was challenging.

“It’s really hard to get scale from high-quality credits,” said Giles Dufrasne, carbon policy officer at Carbon Market Watch. “The two forces”—volume and quality—“work against each other.”

Flora Ji, who has been with Shell for 17 years, has been overseeing the company’s “nature-based solutions” division since 2021. In an interview conducted before Sawan decided to abandon the official target of 120 million offsets per year, she acknowledged that everyone recognized this was a significant and ambitious goal.

At the same time, the carbon market had not grown quickly enough to keep up with the increasing demand for offsets, she said. “It didn’t have that kind of huge, exponential growth we expected.”

Ji chose not to answer additional questions after Sawan revealed the company’s new direction. A spokesperson for Shell reiterated the company’s official stance, stating that “the growing demand for carbon credits should be met with a focus on quality.” The spokesperson further emphasized, “We do not agree that there is a disconnect between the international demand for a higher quantity of carbon credits and the ability of project developers to meet stringent quality standards.”

Shell’s motivation to establish a strong pipeline of carbon offsets was drawn from a 2017 paper published by the Nature Conservancy. This environmental organization, which is involved in creating and selling offsets, discovered that conserving and restoring nature could capture more CO2 than previously believed. This approach could potentially play a significant role in curbing global warming, and it came at a much lower cost compared to other proposed solutions.

This research, combined with increasing investor demands for companies to decrease their carbon emissions, motivated Shell to seek a reliable source of carbon offsets. Just purchasing credits was not a straightforward option because carbon projects often face minimal regulation and controversies.

Moreover, Shell’s primary businesses already made it a frequent target for environmental activists. The team behind Shell’s nature-based solutions sought to avoid adding more fuel to the fire.

“The only way to ensure you have sufficient supply of credits of the right quality at the right time and at an acceptable price is to have an in-house team and build your own supply pipeline,” said Anaïs Bach, former head of operations for TotalEnergies’s nature-based solutions business who now runs a carbon-focused startup. “This is more pressing for oil companies as there’s an underlying fear that carbon projects will be reluctant to work with them in the future.”

Shell aimed to prove its critics wrong, including those who had accused its carbon projects of being a “dangerous scam.” The company started working on carbon offsets in 2018, and when it established the 120 million target three years later, it formalized its quality standards. They opted for a cautious estimate of deforestation to avoid exaggerating the benefits of conservation.

They committed to monitoring the long-term management of projects even after carbon credits were issued. Shell also pledged to share revenues fairly with local partners and address concerns about additionality, ensuring that they weren’t taking credit for carbon reductions that would have occurred naturally.

“The market didn’t pay sufficient enough attention to quality back then,” said Shell’s Ji. “The quality, integrity and responsible use of credits: these are the prerequisites to the credibility and sustainability of the carbon markets.”

As an illustration of Shell’s approach, before committing to fund a 10,000-hectare reforestation project in the Philippines, they closely examined the models used by academics from the University of the Sunshine Coast in Australia to estimate the project’s potential carbon reduction.

Additionally, Shell conducted thorough background checks on the leaders of local organizations involved in the project, searching for any indications of corruption or criminal behavior.

“The level of that investigation reassured me that they were taking ethics and compliance very, very seriously,” said John Herbohn, director of the Tropical Forests and People Research Centre at USC and the coordinator for Project Tarsier. “That just sent to me a message that they were serious about doing things right.”

“If we were simply looking at maximizing the total number of credits, we would’ve done things differently,”He emphasized that they opted to plant tree species that are primarily native to the region, even though imported species would have grown faster and begun storing carbon more quickly.

Shell and USC finalized the terms of their partnership in 2022, nearly three years after they initiated discussions. It then took an additional six months before tree planting began. Herbohn expects that a maximum of 20% of the total carbon credits will be generated in the first ten years, with the rest of the offsets distributed over the subsequent two decades.

Rich Gilmore, the CEO of investment manager Carbon Growth Partners in Melbourne, highlighted that there are “clear and inherent structural limitations” that constrain projects like these. He pointed out, “No matter how many people you have working on this, how much money you invest, or how high carbon prices rise, you can’t accelerate the growth of trees or make soil microbes work more quickly.”

Ji acknowledges these challenges. She mentioned that nature-based projects can take anywhere from three to seven years to start issuing carbon credits, depending on how carbon measurement methodologies are implemented.

An example of this delay can be seen in the Scottish Highlands, where Shell partnered with the government agency responsible for managing Scotland’s forests to plant over a million trees. After four years of work, in July, Forestry and Land Scotland reported that they had validated and assigned nearly 27,000 “pending issuance units” to Shell.

These units are a kind of pre-credit and each represents the removal of one ton of CO2 from Scottish woodlands. However, it will take at least five more years of monitoring before Shell can claim these carbon credits, which amount to just 0.02% of its original goal.

Similar delays are occurring in other projects. In Canada, a severe heatwave damaged seedlings in a tree-planting initiative. Acquiring and conserving land for carbon credits in the Brazilian Amazon rainforest is a slow and challenging process, taking at least two years to generate offsets even after securing a plot.

Some projects in Spain and the Netherlands, promoted by Shell on its nature-based solutions website, are not expected to issue any credits, according to spokespeople for the project developers.

In 2021, Shell announced a plan to spend $100 million on these efforts but ended up investing only about a quarter of that amount. Last year, they spent $69 million, with the majority going towards acquiring a minority stake in the Brazilian carbon offsets developer Carbonext. Even if they had met their target, this would have represented less than 1% of the company’s total capital expenditure.

“We are probably one of the first to make an investment commitment to directly invest into nature-based projects as a private company in this arena,” Ji said. “Over time we learned all the challenges associated with that.”

Shell’s willingness to invest has created opportunities. In 2019, they initiated talks to support mangrove restoration in Senegal. The project’s designer, the Belgian non-profit WeForest, initially had reservations about collaborating with a major oil company, but CEO Marie-Noelle Keijzer explained that there were limited alternatives available.

“There were no organizations we were aware of that would put up the millions of dollars it takes to do intensive planting at large scale without having any guarantees it will work,” said Keijzer. “Our goal is to restore ecosystems back to health. Shell was our only financial option to make that happen.”

Shell went a step further by financing research in the project area to monitor its effects on biodiversity. They also set up equipment to measure the exchange of gases between the developing mangroves and the atmosphere, ensuring that the project doesn’t exaggerate its environmental impact. In return for its investments, the company will receive a portion of approximately 1.7 million carbon credits throughout the project’s lifespan, which is less than 2% of its previous annual target. The first credits from this initiative are not expected before 2025, according to Keijzer.

However, CEO Sawan has dialed back on some of the environmental initiatives set by his predecessor. In addition to scrapping the carbon offsets target, he also dropped a goal to boost power sales and pledged to be more discerning when it comes to investing in renewable energy, which is a crucial part of the shift away from fossil fuels.

Furthermore, Shell quietly abandoned a target to reach 500,000 electric vehicle (EV) charging points by 2025 and to secure at least a 10% share of global clean hydrogen sales.

“The company has flipped to the short-term focus, to profit maximization,” said Adam Matthews, chief responsible investment officer at the Church of England Pensions Board. “They’re no longer aligned with trying to navigate the transition in the same way that we had previously perceived.”

Despite what some, including Matthews, view as a notable change in direction, Shell has not altered its overarching climate goal of achieving net-zero emissions by 2050. Furthermore, Shell hasn’t entirely abandoned its efforts in carbon offsets. However, their contingency plan reveals a different strategy. Ji mentioned that the company can also rely on offsets it purchases from the market to supplement its supplies.

This approach, however, exposes Shell to the lower-quality credits that they initially sought to avoid.