Fossil fuels are going to remain the main source of power in an increasingly energy-hungry world for decades to come, says James Smith in this week's Green Room. However, he urges governments to urgently provide polices to encourage investment in cleaner technologies.
Long-term thinking has never been more important in the energy industry.
There are 40 million cars in China... by 2020, forecasts suggest that figure will grow to 150 million
Energy companies routinely invest billions of dollars in mammoth projects that often have life spans of 30 years or more.
If we are to plan effectively, we must have an idea of where current trends will take us. At Shell, we see these trends as "hard truths" because they are inescapable and, in some cases, unpleasant.
The first hard truth is the acceleration of global energy demand. By 2050, the world's population could reach more than nine billion, compared with today's 6.6 billion.
Energy demand is growing even faster than population growth. Developing countries, China and India in particular, are entering the energy-intensive phase of their development where people buy their first computer or car.
To illustrate the speed of change, there are 40 million cars in China - that's three for every 100 people. By 2020, forecasts suggest that figure will grow to 150 million. Fuelling these cars will require an additional two-to-three million barrels of oil per day - the equivalent of Germany's current consumption.
The second hard truth is that fossil fuels will continue to be the main source of energy for decades to come.
Fossil fuels presently meet about 80% of global energy demand, whereas biofuels, wind and solar energy currently supply less than 1%.
The era of "easy oil" is nearing an end, warns James Smith
Even with heroic efforts to increase the use of alternative energy they would still only provide around 30% of predicted global energy demand by 2050.
The third hard truth is that production of "easy oil" (oil and gas that are relatively easy to extract) will not keep pace with the growing demand.
At a time when demand for energy is surging, more and more of the world's conventional oil fields are going into decline. Many of the world's future resources are located in the Arctic, or offshore in deep water.
Much is in the form of oil shale and oil sands - so-called "unconventional" oil. All of these are more energy-intensive, difficult and costly to develop.
The fourth hard truth is that carbon dioxide (CO2) emissions are set to rise even faster than demand for energy, unless we take quick action.
Yet, as I've said, most of the world's growing energy needs will continue to be met by oil, natural gas and, especially, coal.
Alternative sources will only meet 30% of our energy needs by 2050
To secure future energy supplies and become less dependent on imports of oil and gas, countries will exploit their domestic coal reserves.
This is true not only for China and India, but also for the US, where more than 50% of electricity is already generated by burning coal.
In the 27 member states of the European Union, about 35% of electricity is currently produced by coal-fired power stations. Using coal more cleanly - by gasifying rather than burning coal - is therefore vital in the battle to reduce CO2 emissions.
These hard truths present society with significant challenges. Governments must urgently provide policies that encourage investment in new technologies and energy conservation.
These policies fall into three broad categories: regulations for energy efficiency; putting a price on CO2 emissions; and targeted incentives to speed up the development of promising new technologies.
To see the potential impact of tougher regulations on the energy efficiency of buildings, vehicles and consumer appliances, simply look to Japan, which in 2004 used the equivalent of 2.8 tonnes of oil per person, compared with 5.4 tonnes per person in the USA, according to the International Energy Agency.
Governments need to formulate the right policies at an international level to ensure a relatively smooth transition from a high-carbon global economy to a low-carbon global one
A good way to put a price on CO2 and to force reductions is to implement a "cap-and-trade" system. Such a system puts a cap on the CO2 emissions a company is allowed to emit; and the cap gets reduced over time.
It creates a carrot and a stick scenario - If companies exceed the cap, they have to pay for additional emissions rights.
But there is an incentive to reduce emissions below the cap because a company can sell the benefit to those companies that couldn't reduce their emissions so much. So it's putting the market to work to get emissions down in the most efficient way.
The EU's Emissions Trading System (ETS) deserves to be supported and strengthened so there is confidence in a long-term market in carbon. And the benefits will grow if the system can be extended internationally.
Targeted government support will be necessary to help develop early stage technologies, especially Carbon Capture and Storage (CCS), which is a technology driven by climate change concerns, rather than by customer demand.
What the world wants are energy sources, every one of which is clean and cheap and always available. But no single energy source meets all three criteria.
So companies like Shell must work to make a diversified mix on energy sources fit for the world's purpose. That purpose is enough energy to support economies while avoiding the damage of climate change.
That is why Shell has such a broad range of technology developments, from clean coal, to making oil sands less carbon intensive, to later generation biofuels that make biofuel from crop waste, to wind, to thin film solar and to hydrogen.
No single company or industry can meet the challenge of satisfying the world's rising demand for energy while simultaneously reducing CO2 emissions.
In the next two years, governments need to formulate the right policies at an international level to ensure a relatively smooth transition from a high-carbon global economy to a low-carbon global one.
Companies, through their commitment that climate change should be tackled and through their technologies, need to earn the right to a seat at the table where those policies are being defined.
James Smith is UK chairman of Royal Dutch Shell plc
The Green Room is a series of opinion pieces on environmental topics running weekly on the BBC News website
Do you agree with James Smith? Have we got to accept and adapt to the fact that fossil fuels are still going to be our main energy source for decades to come? Does the answer lie with technological solutions? Or should companies like Shell be doing more to wean us off the age of oil?
I think Mr Smith's statement is trying to build awareness of the things to come. But actions speak louder than words - would Shell change its operations to reflect the message James Smith is trying to get across, if it meant losing considerable profits?? Yes, perhaps carbon fuel is and will remain the main source for energy, however things cant switch just over night, I think it will take time, and alot enforcement, for organisations / people to seriously consider changing - Shell need to support this - sucking carbon fuels from every last crack one earth doesnt support this. Yes, oil will be around for decades to come, but its simply the fact, that it will become too expensive for organisations to find it and extract it, when that peak approaches who knows whats going to happen.... GOOD LUCK!
Mr Monoke, Telford
I'd imagine that culling three billion people might still constitute a pretty hard reality.
Yet more 'business as usual' comments from a vested interest! How can he blame the government for not supporting investments in green technologies when Shell (and BP, Exxon etc) are all continuing to spend many times more research dollars every year on their old technologies than they do on new technology?
There's no point prospecting for more oil when the carbon limit of the atmosphere has already been breached. From now on, capital expenditure should only go on energy systems that are very low or zero carbon.
Technology solutions exist, what gets in the way is political timidity and green-washed businesses who can see their time is at an end.
Most of this is fine and good; I completely agree with Mr. Smith that we need well-defined, proactive policies to reduce greenhouse gas emissions sooner rather than later. I also agree that an emissions permit trading system is the only sensible way to approach the issue. But the acid test for energy companies is what they're doing to support this. Historically, the fossil fuel industry has touted its "green" initiatives in the media, then spent tremendous effort behind the scenes lobbying to cast climate change into doubt and to block any measures that would impede their unsustainable business practices. My advice to Mr. Smith is to finally acknowledge this history, if Shell or its peers are serious about change, and then to put money behind their new convictions.
Matt, Elyria, OH, U.S.A.
We used to fear the Nuclear Bomb, but now it seems that the Population-Carbon Bomb is what has the potential to end our species.
Some people say that if there are 1 billion of us left in 2100, then we'll have done well.
The problem with the assessment above is not about carbon, but about our rapacious use of resources and excrement of pollution. We have more than just carbon emissions to solve if we are to survive.
The world's oil and gas industries are now spending 400 billion dollars per year (Financial Times 30 Aug 07) on the exploration for and production of (E&P) their primary "resource", fossil carbon. In other words, four trillion dollars per decade. As a businessman and a participant in these activities Mr Smith must know exactly what he is doing - spending rather a lot now in order to earn even more during the greater part of this century. As a man of science he must also know that he and his petro-comrades are leading us all into irreversible peril.
He could change track, if he worked hard enough with his fellow purveyors of carbon to spend concomitant sums on solar electricity, and its necessary corollary, solar hydrogen. In this way he could steer the whole planet away from the impending disarray of its climatological, oceanic and terrestrial systems - a disarray which we are already seeing in Africa, the poles and elsewhere.
The technologies associated with hydrogen have not yet all been mastered, but a few billions from Shell (not the half-billion which it has been allocated so far) together with a few more billions from the other oil giants could bring into existence the energy swop whose adoption is the only hope we have for averting the onset of truly terrible planetary change: hydrogen for carbon.
Mike Koefman, secretary, Campaign for a Hydrogen Economy, Manchester M4 7HR
Mike Koefman, Manchester M4 7HR, UK
How does Steven Walker think the world's population should be halved/ By war, famine, pestilence? Or by having lots of Mugabe-type regimes where life expectancy is halved? I think not.
James Smith's analysis is likely to be very realistic and identifies some very difficult issues. The IPCC reports suggest that a reduction upwards of 70% in our CO2 emissions by 2050 is required to limit global warming to just 2 degrees C. To achieve this will require major changes in the way we produce and use energy and it is hard to see where reductions of this magnitude will come from. It is not a problem just for politicians but for all of us. Politicians necessarily have a limited planning horizon as they usually wish to be re-elected. Individuals too often believe it is a problem for others, not for themselves.
While not normally a pessimist, this is one area where I feel it is going to be a case of too little, far too late and Mr Walkers suggestion could actually happen, albeit unintended.
Richard, Montpon, France
Biofuels aren't going to replace anything anytime soon - at least not on a scale large enough to substitute for all our oil & gas use.
Currently, corn produces about 273 gallons of ethanol per acre, as ethanol has less power than petrol, that would mean we would need at least 2 acres of corn to run one average car for the year. So, the UK alone, would need about 66 MILLION acres of corn, for car use alone.
Not a feasible proposition, as that doesn't even take into account the coast of producing it in the first place, or where we would grow food.
Glad to see someone taking a realistic approach to this problem, though it would be interesting to hear more about nuclear power for generating electricity.
Britain emits about 2% of manmade carbon dioxide, so however much we bicker about our individual carbon footprints, it's irrelevant compared with China building one coal-fired power station every week for the next 7 years.
Cleaning up our technology - including cars and power stations - will be critical to surviving climate change.
Jessica, Reading, UK
Where has our spirit of endeavor gone? What happened to the belief in ourselves as a species. We've done fantastic things in the past. This is our moment to turn this world arround. This article just seems to be saying, 'well, we can't get away from fossil fuels'. Well Shell would say that! Where's the inspiration?
the world has limited supplies of fossil energy.a few saved tins and bottles, a small adjustment on the thermostat will slghtly delay what will become the last days of the carbon society. we have 1 chance and only 1 chance to get it right, i doubt it will happen
ian shakeshaft, farnworth bolton uk
I dont see what he is getting at. What ive read is that new devices developed use less power. Also biofuel will replace current fuel such as oil from hempseed, switchgrass and algae.
Mr Small, uk
I think we would also expect all responsible energy companies to promote energy efficiency and conservation as well as other supply measures such as via technology to meet demand.
- or there is a third option; who says the population has to carry on increasing to the 9 billion people he is imagining? Suppose we each choose to use the next 30 or 40 years reducing the population by 3 billion people in the next 50 years; halving the number of people on the planet. Where is James Smith's hard reality going then ? - not so hard, or so real, is it ?
steven walker, Penzance