5/6/24, 2:33 PM Shell sold millions of ‘phantom’ carbon credits

Climate Capital Shell PLC

Shell sold millions of ‘phantom’ carbon credits
Subsidy scheme in Alberta allowed oil major to register carbon credits equivalent to twice the volume of
CO₂ captured

The Athabasca oil sands in Alberta, Canada. Shell sold to Canada’s largest oil sands companies millions of carbon credits tied to
CO₂ removal that never took place © Ben Nelms/Bloomberg

Kenza Bryan and Clara Murray in London YESTERDAY

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Shell sold millions of carbon credits tied to CO₂ removal that never took place to
Canada’s largest oil sands companies, raising new doubts about a technology seen
as crucial to mitigating greenhouse gas emissions.

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5/6/24, 2:33 PM Shell sold millions of ‘phantom’ carbon credits

As part of a subsidy scheme to boost the industry, the Alberta provincial

government allowed Shell to register and sell carbon credits equivalent to twice the
volume of emissions avoided by its Quest carbon capture facility between 2015 and
2021, the province’s registry shows. The subsidy was reduced and then ended in
2022.

As a result of the scheme, Shell was able to register 5.7mn credits that had no
equivalent CO₂ reductions, selling these to top oil sands producers and some of its
own subsidiaries. Credits are typically equivalent to one tonne of CO₂.

Some of the largest buyers of the credits were Chevron, Canadian Natural
Resources, ConocoPhillips, Imperial Oil and Suncor Energy.

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Shell was awarded more than 5.7mn unearned carbon offset

credits over 8 years
Emissions offset credits awarded to Shell by the Albertan government, annually (Mt
CO2e)

Credits from real carbon reductions 'Phantom credits'

1.5

0.5

0
2015 2016 2017 2018 2019 2020 2021 2022

Source: Alberta Carbon Registries

Keith Stewart, a senior energy strategist with Greenpeace Canada, criticised these
“phantom credits”.

“Selling emissions credits for reductions that never happened . . . literally makes
climate change worse.”

Shell said carbon capture played “an important role in helping to decarbonise
industry and sectors where emissions cannot be avoided” and that realising its
potential “requires creating market incentives now.”
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Alberta’s environment ministry said the crediting support scheme had not resulted
in “additional emissions” by industrial polluters.

Chevron, Canadian Natural Resources, ConocoPhillips, Imperial Oil and Suncor

Energy declined to comment.

Energy companies in Canada and around the world are lobbying for more state
support for carbon capture and storage. The province of Alberta is home to one of
the biggest and most carbon-intensive oil deposits in the world. Production there
has boomed in recent years, slowing Canada’s progress towards its emission
reduction targets.

The Quest plant is operated by Shell Canada and owned by Canadian Natural
Resources, Chevron and Shell Canada, and is part of the Scotford processing and
refining complex.

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At Quest, CO₂ is removed during the process of making hydrogen gas, which is
used in the energy-intensive process of turning the bitumen extracted from oil
sands deposits into synthetic crude oil.

Canada has among the most generous incentive schemes for carbon capture and
storage, according to energy research group Wood Mackenzie. But the industry still
struggles to be commercially viable even there.

According to Quest’s annual report, its total cost per tonne of carbon avoided was
$167.90 in 2022, compared with a carbon price for Alberta’s big industrial emitters
that year of $50.

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Oil sands account for an increasing share of Canada's fossil fuel

emissions
Share of total oil and gas sector greenhouse gas emissions, by source (%)

Oil sands upgrading

Oil sands extraction using mining
Oil sands extraction using wells
Natural gas
Conventional oil
Other

100

80

60

40

20

0
1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021

Source: Environment and Climate Change Canada

According to documents obtained by Greenpeace Canada in a freedom of

information request and shared with the Financial Times, Shell originally
requested a three-for-one deal on carbon credits at Quest.

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Alberta announced the two-for-one scheme in 2011 for plants operational before
the end of 2015, applying only to Quest, which started running that year. The bonus
fell to three-quarters of a credit in 2022 and was then phased out as the carbon
price rose.

Shell is in the process of making an investment decision about a second carbon

capture plant, Polaris, at Scotford.

The International Energy Agency has warned that an “inconceivable” amount of

carbon capture and storage will be needed to keep production of oil and gas at
existing rates while cutting greenhouse gas emissions.

Jonathan Wilkinson, Canada’s minister of energy and natural resources, told the
FT a two-for-one system for carbon credits was “probably not appropriate”. “At the
end of the day, the oil and gas sector and the oil sands firms in particular need to
get going with respect to emissions reductions,” he said.

Additional reporting by Harry Dempsey in London

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