The economic crisis is a powerful storm. It needs to be weathered without blowing either governments or companies off course in their long-term journey towards a bigger, cleaner energy system.

THE ENERGY CHALLENGE

In our 2007 Sustainability Report we described the need to build an energy system that produces more energy with less CO2 as one of the biggest challenges facing the world this century. We talked about three hard truths that make this challenge tougher. The first is that demand for energy will rise over time as the population grows and the world gains 3 billion more energy users by 2050. The second is that energy supplies will struggle to keep up with this demand. The third is that stress on the environment from this growing energy use is set to rise.

Last year’s Report also described two scenarios for the energy system between now and 2050. Our scenarios are not forecasts or predictions, but two plausible alternative ways the energy system could develop. One, which we called “Scramble”, envisages a headlong rush by individual countries to secure more energy for themselves, whatever the consequences for others, or the planet. In this scenario, government responses to energy and climate problems are short-term and reactive. This leads to more economic volatility and brings wilder swings in energy price. The other scenario, “Blueprints”, starts with a disorderly patchwork of local and national initiatives, but quickly settles down into a more orderly, co-operative transition. In this scenario, a global policy framework emerges for managing greenhouse gases within a decade. This encourages technologies like CO2 capture and storage (CCS), biofuels, wind and solar power and, after 2020, a mix of plug-in hybrid, fully electric and hydrogen-powered vehicles to come on stream faster. Demand for energy grows more slowly than in “Scramble”, though it still nearly doubles by 2050.

We made it clear we see “Blueprints” as a better response to the energy challenge than “Scramble”, and would be a better world for Shell to do business in. We stated our determination to help develop the critical technologies needed and advocate the policies required to move in a “Blueprints” rather than in a “Scramble” direction.

THE HARD TRUTHS JUST GOT HARDER

In many ways, the current economic downturn makes responding to the three hard truths more difficult. The drop in economic activity has temporarily reduced energy use and sent energy prices tumbling (see Energy prices). Lower prices bring some relief in the short term for energy users, and may help reverse the recent sharp rise in the costs of producing oil and gas. However, they store up problems for later, since they reduce the funds companies have to invest in new energy projects. The credit crunch also makes it harder for some energy companies to raise funds. As a result, worldwide investment in energy projects is dropping at a time when it needs to be rising to meet future growth in demand. In 2008, the International Energy Agency warned that oil demand might outstrip supply as early as 2013, once the world economy recovers and energy demand picks up. Governments, understandably, are focused on the immediate economic crisis in the lead up to the Copenhagen climate change conference, a critical time for building the international policy frameworks that are urgently needed to address greenhouse gas emissions.