Airbus and Shell Step Up Efforts On Their Go-Green Strategy

Summary

  • Airbus unveiled three types of aircraft designs under its ZEROe strategy: turbofan, conventional turboprop, and a futuristic blended body.
  • British oil and gas major Royal Dutch shell has announced that it is looking at cutting up to 40 per cent of its costs related to oil and gas production and is also actively turning its focus on renewable energy markets.
  • Both the companies are mandated to reduce their carbon footprint in a time-bound manner, as per the EU directive, which requires individual member countries to reduce emissions in a time-bound manner.

Airbus and Royal Dutch Shell (LON: RDSA) two of the largest global companies have recently come out with plans to proceed with their individual commitments to lower carbon emissions. Airbus has taken a cutting-edge technological approach to serve its commitment and has come up with three zero emission aircrafts powered by hydrogen fuel which would be able to take to the skies by 2035. Royal Dutch Shell, on the other hand, is completely overhauling its business to make it more renewable energy focused. It is worth mentioning here that both these MNCs have been deeply battered by the coronavirus pandemic and have seen a significant reduction in their revenues. They are now looking at innovative ideas to transform their businesses and adapt to the new normal in the post-pandemic world.

The Airbus ZEROe concept

The ZEROe (Zero Carbon Emission) concept of Airbus is based on the latest hydrogen fuel technology. The three aircraft concepts proposed by Airbus would use hydrogen as fuel which, when combusted with air will produce water vapours. The company is currently working on various designs towards this end and is expecting to finalize on the most appropriate ones soon after which the development process will be initiated. The company's ultimate aim is to roll out a finished product in the market by 2035, which will firmly place it as the global leader in carbon-neutral aviation technology.

United Nations’ Intergovernmental Group on Climate Change (IPCC) has estimated that aviation pollution is alone responsible for 3.5 per cent of the total anthropogenic climate change (which includes both CO2 and non-CO2 induced effect). The IPCC further estimated that this share could go up to 15 per cent with a higher number of aircraft flying across the skies in the long-term. Further, amongst all other industries, aviation has been relatively slower in coming up with advanced technologies to lower its emission. Therefore, if the emission levels of all other industries go down substantially by the year 2050, the relative share of the aviation industry would obviously go up.

Shell’s restructuring plan

Royal Dutch Shell plc has seen its revenues plummet sharply during the year 2020 due to the coronavirus pandemic. The company has subsequently taken on the task of reducing its operating costs on all of its operating segments.

In its upstream sector, the company is targeting to reduce its operating costs by 30 to 40 per cent and reduce its capital spending on most new projects. The company would now focus on its core production assets in Nigeria, the Gulf of Mexico, and the North Sea where it will be able to better implement its cost reduction strategies.

The company's integrated gas segment, which runs Shell's LNG division, will also be incorporating some deep cost cuts. Finally, in the downstream segment, the company's highly valued 45,000 strong service station network, will be deployed appropriately in the implementation of the company's strategy. It is the largest downstream service station network in the world.

The company's plans to move into renewable fuels requires that it should reduce its average operation costs, as renewables is a low-margin business.

The company’s actions are a reflection of what most of its competitors are doing around the Europe. It is worth noting that BP plc and Eni are also actively working and investing in reducing their exposure to fossil fuels and expanding their renewable energy asset portfolio. Most of the oil and gas companies in Europe have come under increased pressure in recent times from shareholders and the government to reduce their carbon footprint and work towards making the continent carbon neutral.

Stock Performance of Royal Dutch Shell Plc (LON: RDSA) January 2020 onwards

Source – Thomson Reuters

The shares of Royal Dutch Shell Plc have been underperforming on the London Stock Exchange since the beginning of the year 2020. On 2 January 2020, the shares of the company were trading at GBX 1046.20 per share. From there, they continued on a downward spiral to reach GBX 970.80 per share on 18 March 2020, when the pandemic infection numbers started to grow sharply. The prices recovered marginally after that but again went into a downward spiral later. On 22 September at 3.44 PM (GMT+1) the shares of the company were trading at GBX 1040.40, up by 3.54 per cent against the previous days close.

EU’s carbon emission regulations

Europe has one of the strictest environmental regulations in the world. The European Union has framed regulation on multiple levels to reduce carbon emissions throughout the continent. The Union not only funds research on cutting edge energy technologies but also requires its member countries to lower their carbon footprint progressively in a timebound manner.

For instance, the EU has enacted several punitive legislations that requires manufacturers of vehicles to reduce the pollution levels of their automotive or pay hefty fines. It has also enacted a legislation that requires energy and utility companies to gradually shift their energy sourcing to renewable assets and lessen their dependence on coal and petroleum products.

Finally, the recent efforts of Airbus and Shell to reduce their carbon footprints are commendable. While the initiatives being taken by Royal Dutch Shell Plc will go a long way in converting it into a lean and environmental-friendly company the technological leap announced by Airbus will help in reducing the overall pollution levels in the world.

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