ustainable development the challenge for energy Business and the Environment Programme, Cambridge April 17, 1997 . JOHN JENNINGS . Chairman of The ?Shell? Transport Trading Company and a Group managing director of the Royal Dutch/ Shell Group John Jennings Sustainable development the challenge for energy John Jennings was appointed chairman of The ?Shell? Transport and Trading Company, p.l.c. in July 1993. He has been a Group managing director of the Royal Dutch/ Shell Group of Companies since July 1987 and became Vice- chairman of the Committee of Managing Directors from July 1993. As a Group managing director his spheres of interest are Canada, East and Australasia, Exploration and Production, and Grants and Charitable Donations. In 1961 MrJennings began his overseas service with the Group in the Netherlands which was followed by appointments as wellsite geologist, Oman; exploration activities, Australia; area geologist for Southern Africa, located in The Hague; chief geologist, Shell UK Exploration and Production, London. He spent one year (1970/71) as a Sloan Fellow at the London Business School and subsequently worked as: exploration manager, and later technical manager, Petroleum Development Limited (Oman); general manager and chief representative, Shell Group of Companies in Turkey; managing director, Shell UK Exploration and Production, London; and Group Exploration and Production coordinator, Shell Internationale Petroleum Maatschappij, The Hague. MrJennings was born in Worcestershire, UK in 1937. In 1958 he graduated in geology from Birmingham University, was awarded a Shell research Studentship and obtained his in geology at Edinburgh University in 1961. In 1985 he was made Commander of the Order of the British Empire and in 1989 Commandeur de l?Ordre National du M?rite in Gabon. In 1992 he was made a Fellow of the Royal Society of Edinburgh. John Jennings Sustainable development the challenge for energy The vision of sustainable development has three essential pillars wealth creation, social development and environmental sustainability. The primary function of business is in the economic sphere, meeting people?s needs'and creating the wealth which raises living standards. They must do so in a way which is both environmentally and socially accept- able. As well as providing tax revenues to fund state infrastructure and welfare pro- grammes, multinationals also play an important role in spreading essential skills. Some companies provide significant direct social support. Securing sustainable energy supplies is central to the challenge of sustainable development. Fossil fuels will play an essential part in this, particularly in meeting rising energy demand in developing countries over the next few decades. Using such fuels more efficiently and reducing their environmental impact will be a continuing thrust. Energy markets will evolve and diversify through the normal competitive processes. Shell companies contribute to the pursuit of sustainable development recognising that all parts of society have a role to play in achieving this goal. They see it as a shared jour- ney of continual change, as understanding and capabilities improve. However, it will involve fundamental choices for society in balancing different objectives. The goal of sustainable develop- ment de?ned by the Brundtland Commission as ?development that meets the needs of the present without compromising the ability of future generations to meet their own needs? has become a com- pelling vision for the 215t century. It has three essential pillars wealth creation, social develop- ment and environmental sustain- ability. In her foreword to Our Common Future Brundtland argued: ?What is needed now is a new era of economic growth growth that is forceful and at the same time socially and environ- mentally sustainable.? Today, I will offer a perspective on this vision from the standpoint of a multinational energy busi- ness. Much of what I will say con- cerns the challenge of meeting growing energy needs in a sustain- able way. It is also about how Shell companies are grappling with the concept of sustainable develop- ment and how they can ful?l their commitment to it. This is not because we claim a special wisdom in this area but rather as an example of how a large, long- established which aspires to be both commercially enterprise, successful and socially responsi- ble, is tackling the challenge of making its contribution to sustain- able development. In discussing this I will use some of the scenarios Shell plan- ners have developed to help us think about the future. These do not, of course, attempt to forecast how the world will turn out. That is impossible. We can rely only on one thing that the future will surprise us. It won?t merely be a continuation of the past. However, we can identify some of the princi- pal forces that may shape it. Let me start with wealth creation where we are now and what are the prospects for the future. Development, as most of us understand it, means economic growth to raise living standards. Since the mid-19th century, spreading industrialisation has made this possible. World eco- nomic output grew more than elevenfold between then and 1960. But the benefits were almost wholly restricted to those in Western industrialised coun? tries who enjoyed an unprece- dented rise in living standards (see chart I overleaf). Expanding population has, of course, been the other trans- forming characteristic of the modern world. In 1850 there were around one billioni< human beings. Half way through this century there were twice that number. Today, there are six times as many. This growth has been far from uniform. Since 1960 the popula- tion of the developed world has increased by only some 1% a billion one thousand million John Jennings Sustainable development the challenge for energy year. In the developing world as a whole it has been twice that. But in some countries, particularly in Africa, it has been much faster (see chart 2). The population of Nigeria, for example, has grown by nearly 3% a year from some 42 million people in 1960 to an estimated 110 million today. Fortunately, strong economic growth has continued in the sec? ond half of this century and has been much more widely spread (see chart 3): Despite rising popu- lations, developing countries are achieving average real per capita income growth of around 3.5% a year. Their growth has accelerat- ed as that of developed countries has slowed. Many now seek to challenge the benefits of economic growth. However, the UN Development Programme reminds us: ?The developing countries have in 30 years achieved progress in human development that took industrial countries more than 100 years. Living standards for hundreds of millions have risen.?* Unfortunately, not everybody shares in this increasing wealth even in countries that are advanc- ing. A tenth of the world?s popula- tion lives in what are called least developed countries', mainly in Africa. They have been getting poorer, as population expansion has outpaced economic growth. Countries with expanding populations inevitably have a high proportion of young people and great dif?culty in providing them with occupa- $1993 billion 6000 - El Industrial countries 2000 - 0' 1350 4000 - I Non-Industrial countries 1 960 Chart 1: World economic output 1850?1960 annual OECD Developing Sub-Saharan countries Africa Chart 2: Population growth rates 1960-93 tions. With no obvious prospects but with CNN to show them others? af?uence they are a powerful force for instability, challenging traditional institu? tions which are incapable of meeting their expectations. I believe that such chronic struc- tural unemployment is one of the most fundamental challenges fac- ing society. Jobs simply cannot be created fast enough to keep the expanding workforce employed. Looking to the future, global population growth seems to be slowing. But there may still be UNDP Human Development Report 1996 approaching eight billion of us by 2020, and maybe 10 billion by the middle of next century. Fortunately, there are good grounds for optimism about con- tinuing overall economic progress driven by economic liberalisation, technological advance and spreading skills. Shell scenarios suggest that glob- al output could grow threefold on a purchasing power parity basis over the next 25 years (see chart 4). Living standards for most of the world?s people should con- tinue to rise. John Jennings Sustainable development the challenge for energy Developing Least countries developed countries I 1 960-70 1 970-80 1 980-90 . .23 Chart 3: Real per capita income growth 1960?90 $1990 trillion 995 growth (purchasing power parity basis) El Rest of World El Developing Asia Eastern Europe I Latin America I OECD 2020 high growt Chart 4: Shell scenarios world output 1995-2020 However, raising living stan? dards in the poorest countries with the fastest growing popula- tions is a formidable challenge. At present rates the populations of many African countries will double again before 2020. It is question- able whether traditional approach- es to development can succeed in such a context. I believe that the de?nition of development will evolve as time passes rebalancing spiritual and moral concerns with material aspirations. But to come back to the pre- sent, let me turn now to the role of commercial enterprises. How can they contribute to sustainable development? Their primary role must be in the economic sphere providing essential goods and ser? vices and creating wealth through employment, and the payment of taxes and dividends, in a continu- ing process of innovation and investment. To do this they must remain profitable to fund investment for the future and to provide a return to those who supply their capital. The tax revenues which ?ow from business are the life blood governments use to fund infra? structure and welfare the schools, hospitals and social pro? grammes which raise living stan- dards and support the human development on which economic progress depends. Shell compa- nies, for example, paid some $50 billion in corporate and sales taxes last year. Multinationals also play another vital role in human development disseminating technical, commer- cial and managerial skills. This is particularly important in the devel- oping world - where such skills are in short supply and essential for development. Shell companies are major, long-term investors in developing countries. Their operations are largely run by nationals of those countries and depend on their skills. Naturally, they put a great deal of effort into developing these. One important way in which this comes about is as a result of the movement of people between different Shell compa- nies. At any time some 5,000 peo- ple of 60 different nationalities are working outside their home countries gaining and passing on experience. Skills development is not restricted to the relatively small number of Shell staff. A very much larger number of people learn new skills from being involved in operations as contrac- tors and suppliers. Shell compa- nies depend on the quality of their work and support the devel- opment of their skills. John Jennings Sustainable development the challenge for energy I think the importance of man- agerial expertise to economic development is often neglected. In my experience, it is not the ability to build, say, a hospital that may be lacking in developing countries. Rather it is the ability to ensure thereafter that it is properly main- tained, equipped, supplied, staffed and managed. Sustained manage- ment is the essence of successful business and multinationals play an important role in disseminating it. Beyond their businesses, many companies contribute to the com- munity through social investment programmes. These can be very important in poor countries although there is always a problem in deciding the appropriate limits to commercial responsibilities. Shell Nigeria, for example, has been supporting communities in its operational areas since the 19605. These include an agricul? tural extension scheme which has directly helped perhaps half a million farmers over the past 30 years. The company has also pro- vided thousands of educational scholarships over that period 2,600 secondary school pupils and 550 university students were supported last year. Since 1985, it has built over 200 classroom blocks. It is setting up a network of rural health centres seven have been completed since 1995 as well as refurbishing and equipping government clinics. Important though these efforts are, they can only have a very limit- ed impact on the millions of people who live in the Niger Delta. Rural million boe/ 200 - 150- 100- 50- 0' I 1860 1905 I 950 Renewables Nuclear/ hydro Gas I Oil I Coal I Traditional biomass 1995 Chart 5: World energy supplies 1860?1995 50- 1860 1905 I950 Renewables Nuclear/ hydro Gas I Oil I Coal I Traditional biomass I995 Chart 6: World energy supplies 1860-1995 share) communities there like those else? where in Nigeria lack basic ameni- ties. Population growth is putting increasing pressure on land, and on educational and employment opportunities. It is not surprising that people seek a greater share of the revenues from the oil produced in the their midst some 90% of which goes to the state. Nor that they should look to the company more visible than a distant govern- ment to meet their grievances. Shell Nigeria has argued publicly that these areas should receive a greater share of revenue. People who work in business have the same concern for those in need as anybody else but there are no easy ways of resolving such con?icting obligations, demands and sympathies. In approaching the inevitable dilem- mas and complexities of their businesses, Shell companies are guided by a framework of general principles. These were ?rst published over 20 years ago and are based on enduring values honesty, integri- ty and for respect people. However, they are living principles IUNDP Human Development Report 1996 john jennings -- Sustainable development -- the challenge for energy million bee/d :isn oxduding hvdih'anai biomass :l nest of World l:l nevelopin. Asia I FSu/Easmn sure>> min Antenna om: (Juan 7: Shell :Lman'os mwgy Hominid 1995-2020 periodically reviewed in light of changing and expectations. The latest edition explicitly recognises Shell compile nies' responsibility to express sup port for fundamental human rights and affirms their right to speak out on matters affecting the community, where they can make a contribution. So let me now turn so energy supplies which are central to the pursuit oi sustainable develop- ment. As the Brunddand Report pointed out: 'Energy 15 necessary for daily survival. Future develop ment crucially depends on its long circumstances term availability in increasing quantities from sources that are dependable. safe and environ. mentally sound.' Not surprisingly mere has been a huge increase in the need for energy since me mid--19th century 7 when the world consumed per. haps six million barrels of oil equiv elem a day, mostly wood. Over she next century demand rose by some 2% a year to reach 40 million bee/d. in the second half or this century, however, it grown much more quickly-- by some 5.5% a year 7 and, including traditional sources such as wood. we now cone sume nearly 200 million bee/d (rte chalk 5 a; 5). Energy demand in indusmahsed Counmes rose rapidly during the post war boom but growth has slowed since the 1970s. However. she energy needs of dcveloping Counr tries have been growing by some 4.5a, a year for the past 20 years -- more than doubling in that period. Energy use per capita has risen from an average of some four bare rels of oil equivalent a year in 1900 to 13 today. But that con~ seals huge variations 7 in the developed world we each now consume some in boe a year, The composition of energy supplies has also changed, By early this century coal provided methods of the world's energy. it remained the major fuel until the 1950s and still provides near. ly quarter oi our energy. Oil provides a third -- although its share has fallen since the 1970s. Gas -- which has significant emi ronmenral and efficiency advan-- tages increasingly important and now meets a fifth of energy needs. Looking forward, continuing population growth and economic development will require increae supplies of energy, shell sce naries suggest that energy demand could rise by lhrecrquarters by 2020 (see chart 7), In that timescale, the bulk oi this growing demand will have to be met by fossil fuels. There is simply no pracsical alter- native In lhis Limeframe. This represents a challenge so die nnuou of environmenml su5r tainab' 'ty, As consumption of fowl fuels has grown we have increasing ly become aware that 7 while they deliver great benefits -- they have many drawbacks. Indeed, I have 111' dc doubs sharewith enormous sup. plies of energy available in nature historians will see our pre sens means of meeting nul' ner s. a pine The process of extracting and transporting fossil fuels carries risks. Burning these fuels creases emissions which can contaminate the 2i; we brenlh. And, in recent years, we have begun to appreci- ate the potential impact on Life earth's climate system of the car- bon dioxide emlucd [0 the atmosphere when we burn them. There is a logical scientific argue ment LhAl climate must he aftected by increasing concentrations of atmospheric carbon dioxide. l-loweve. as a geologist, am well aware of ihe "mural miabil of John Jennings Sustainable development the challenge for energy exaioules 1 600 1200 Renewables . El Nuclear/ Hydro 30NGI. I Coal 400 I Traditional Biomass 0 . 'l 860 1900 1 940 'l 980 2020 2060 Chart 8: Shell scenarios: Sustained Growth 1860-2060 climate within historical periods as well as geological timescales. Man-made carbon dioxide is only a small fraction of the ?ux in natural systems. I believe that we are still not in a position to know whether any effect will be good, bad or indifferent, whether it will be last- ing, or whether the earth?s natural processes will restore stability. That said, given the risks and uncertainties, it is clearly prudent to: 0 develop alternative ways of economically generating energy, 0 learn to use energy more ef?ciently, and 0 reduce the environmental impact of producing and burning fossil fuels. But what is the most effective way to progress towards these goals without inhibiting the essential economic and social pil- lars of sustainable development? Let me take each of them in turn. Shell planners have developed two long-term energy scenarios to explore the possible develop- ment of alternative energy sources and increasing energy ef?ciency over the ?rst half of next century. One long-range scenario, which we call Sustained Growth, describes a world in which there are continu- ing abundant energy supplies at competitive prices (see chart 8). Average per capita energy con- sumption would nearly double by 2060 - to approximately Japanese levels today. Renewables would obtain a growing share of the increasing market. How plausible is this? If we look back we can see that oil consumption grew by nearly 10% a year between 1870 and 1950 ?rst for heating and light- ing, then for shipping (Winston Churchill famously switched the Royal Navy from coal to oil just before the First World War), and then for motor transport. The real price of oil at the end of this period was less than a quarter of what it was at the beginning. New renewable sources of energy wind, biomass and solar power are already established in niche markets. Looking ahead, we can expect them to become increasingly competitive as they follow the normal learning curve of technological development with falling costs as output increases and suppliers respond to competitive pressures and opportunities. The second scenario, Dematerialz'sation, envisages a rather different world in which new technologies, systems and lifestyles would deliver continuing improvements in energy ef?cien? cy so that average per capita con? sumption rises by only some 15% by 2060 say to Italian levels in 1970 (see chart 9). This would require achieving a sustained 2% annual reduction in energy inten- sity the amount of energy required per unit of economic growth. Increasing energy ef?ciency is a normal part of industrialisation. In the United States, for example, energy intensity has fallen by some 1% a year over the past cen- tury. There are good grounds for believing that we may soon be able to make faster progress as the result of increasing government and commercial focus on this goal, technological advance, mar- ket reform, the switch from manu- facturing to service industries, and lifestyle changes. Technological advances are enabling increasing energy ef?- ciency in many areas from indus- John Jennings Sustainable development the challenge for energy exaioules 1600' 1200 CI Renewables - El Nuclear/ Hydro 80Coal 400 I Traditional Biomass 980 2020 2060 Chart 9: Shell scenarios: Dematem'alisation 1860?2060 trial processes to building con- struction, including: 0 government backed projects in the United States and Germany to develop cars with more than twice the fuel ef?- Iciency of today?s average, 0 striking improvements in the resource and energy ef?ciency of oil and gas production, 0 signi?cant increases in power generating ef?ciency as a result of the introduction of combined cycle gas turbines, 0 the potential for Information Technology to save energy by changing lifestyles is gradually being appreciated. Nor should we underestimate the importance of market reform. We can see this most spectacularly in the former Soviet Union where there was previously gross waste of energy which had no value in a system without mar? kets. For example, often the only way to regulate the temperature in centrally heated apartment blocks was to open the windows. That is, of course, only one exam- ple of the waste of resources and environmental damage inherent in centrally-planned economies. Energy markets in many coun- tries are still distorted in ways that increase demand and inhibit ef?ciency. One thing that will, in due course, profoundly in?uence these changes is the limits to fossil fuel resources. In the early 19705, the Club of Rome articulated concerns about the imminent exhaustion of these and other natural resources. This was misplaced. Despite rapid growth in consumption, proved reserves have risen - in the case of gas to three times the 1970 level. But fossil fuel resources are certainly finite although reserves are an economic as well as a geological concept, re?ect- ing changing technological capa? bilities and market conditions. Resource limitations are unlikely to affect global markets for some time. However, declining produc- tion in consuming countries, such as the United States, may have a profound impact on atti? tudes to energy use much sooner. At present there is surplus oil production capacity primarily in the Middle East. But, as major consuming countries increasingly have to rely on imports, supplies will tighten. I believe this will lead to growing emphasis on supply security and on policy measures to ensure diversity of energy sources. Moreover, as fossil fuel resources decline they inevitably become more dif?cult and poten- tially costly to produce. We are now, for example, looking for oil and gas in water more than two kilometres deep. Will pressures on demand and limitations of supply lead to high- er energy prices? I believe it would be very unwise to plan on a signi?cant increase in the real price of energy. Prices will be constrained by competition from alternative fuels and energy sav- ing methods. We can expect ener- gy markets to become much more diversi?ed as the 218t cen- tury progresses. In either scenario, demand for fossil fuels is likely to grow rapidly for at least the next quarter of a century. By 2020, consumption of gas could have nearly doubled, that of oil risen by two-thirds and that of coal risen by a half (see chart 10). Oil supplies may peak within the ?rst half of the century. However, gas and coal resources are more abundant and supplies could continue to grow for con- siderably longer. China and India have major coal reserves and are John Jennings Sustainable development the challenge for energy million boe/ 350 300' 250' 200' 150' 100' 50' o. 1995 excluding traditional biomass Renewables Hydro El Nuclear I Coal I Gas I Oil 2020 Chart 10: Shell scenarios: energy fuel shares 1995-2020 (high growth) G-tonnes Carbon 20 15 I un?? Shell scenarios: 1? Sustained growth 5 - Dematerialisation 0 . . . 1900 1950 2000 2050 2100 Chart 11: Shell scenarios carbon dioxide emissions from fossil fuels 1900?2100 bound to use these. Moreover the development ofclean coal tech- nologies? should reduce the envi? ronmental impact of its use. Among expanding nuclear power would alternative sources, solve the problem of carbon diox? ide and other emissions. But this depends on achieving public acceptability and ?nding safe ways of dealing with nuclear waste. I mentioned the growing com- petitiveness of renewable energy sources. These now account for less than 1% of energy supplies. This could grow to more than 5% by 2020 faster expansion than oil achieved a century ago, although the amounts of energy involved would be very much greater. It is possible to conceive, as in ourSustained Growth? scenario, that they could be providing half the world?s energy by mid?century. These changes will obviously have a signi?cant impact on emis? sions of man-made carbon dioxide into the atmosphere. Suggestions that emissions from fossil fuels could continue growing at current rates throughout next century such as the International Panel on Climate Change?sbusiness as usual? scenario are unrealistic and do not take into account the inevitable evolution of energy markets. Shell scenarios suggest that emissions would peak by the middle of next century and return to today?s levels by the end of it (see chart Of course, this is by no means certain but it is more plausible than con- tinuing expansion. I am pleased to say that Shell planners are con- tributing to work to develop new IPCC scenarios. Given the continuing role that fossil fuels must play in supplying the world?s energy needs, it is essential to reduce the environ- mental impact of their produc- tion, distribution, manufacture and use. This is not a new aim. The 1969 Shell Transport annual report, for example, discussed work by Shell companies to improve ways of dealing with oil spills, reduce the sulphur content of products, and cut vehicle exhaust emissions. It recorded that a Group managing director had taken responsibility for over? seeing these efforts. Much has been achieved since then. Let me focus on those areas mentioned in the 1969 report. Better ship design, more reli- able marine plant and higher operating standards in which Shell companies have played an important role have signi?cant? ly reduced world tanker acci- dents. In the 1970s tankers were responsible for some 24 major spills a year world-wide. In the John Jennings Sustainable development the challenge for energy 19805 the average was nine and annual there has been contlnulng average improvement (see chart 12). 25 Comprehensive international sys? 2o- tems for dealing with spills have 15 - been set up. Sulphur in oil products has 10- been reduced considerably. For example, the sulphur level in Western European automotlve 0 19705 1980 5 1990-96 diesel is now a tenth of that in the 19603 (chart 13). There has been a similar downward trend for other Chart 12: World tanker spills 1970?95 (greater than 7,000 tonnes) fuels. This has occurred despite Source: ITOPF continuing economic pressures on European re?neries and has been accompanied by a reduc- tion in sulphur emissions from re?nery stacks. 0'5 Lower sulphur levels in fuels 0.4- help to reduce vehicle exhaust 0.3- emissions. With increasing road transport, these are understand- 0.2- ably a matter of public concern. 0.1 . . . adVanCCS 1? englne d651gn: and 0 19605 1970s 19805 1996 2000 fuel and lubricant technology are Proposed However, the extent to which reducing such emissions is insuf? Chart 13: Western Europe automotive diesel sulphur limits 1960-2000 ?ciently appreciated. The recent collaborative European Auto-Oil research pro- 1995 gramme carried out by the two I 1990 2010 2010 auto-oil industries together with the European Commission showed that existing measures will ensure that some pollutants meet desired air quality standards. Additional steps are needed for other pollu? air quality targets Carbon Nitrogen Particulates monoxide oxides tants and are the subject of pro- posed European legislatlon Benzene including a further reduction in automotive diesel and gasoline sulphur levels (chart 14). We sup- port this legislation. Chart 14: Western Europe air quality 1990?2010 John Jennings Sustainable development the challenge for energy Shell companies have been committed to continuous improvement in their health, safe- ty and environmental (HSE) per- formance for many years, and have policies, procedures and sys- tems to enable them to achieve this. These are constantly being developed and we have recently published a revised Group HSE Commitment and Policy. One aspect of this is greater emphasis on procedures designed to ensure that commitments are being met in all Shell companies? operations. However, this world?wide com- mitment does not mean identical standards around the world at any one time. It is important to under- stand Why. Environmental improve- ment depends on continuing change. Plant built some time ago is bound to have poorer environ? mental performance than the most recent. It is both economic and environmental nonsense to suggest that the old must be abandoned every time we make an improve? ment. There is an inevitable catch- ing up process. Like everybody else, Shell com- panies have to prioritise their efforts: 0 dealing ?rst with the most pressing problems and great- est risks, 0 putting their investment where it can have the most impact, and 0 planning to achieve the best long-term results. These will always vary from operation to operation depending on the particular conditions. They must also be a matter for national regulators who insist on deciding local environmental needs and expenditure priorities. The environmental solutions cho? sen by af?uent western countries may not be appropriate for those with more pressing development needs. Remember, poverty is one of the major causes of environ- mental degradation. In saying this, I do not seek to excuse sloppy operating stan- dards anywhere. Business is, and must always be, subject to regulation. As a busi? nessman, and as a citizen, I cer? tainly don't believe in what might be called unfettered mercantilism which could be immensely destructive. Indeed, I am con? that the between the roles and responsibil? cerned distinction ities of government and business is already being blurred, particu- larly in the developing world. I think it is a dangerous course for society to believe that unrepresen- tative business organisations should make fundamental choices on its behalf. What is crucial is how business is regulated. Society?s interest is in achieving the maximum progress towards environmental and social goals without inhibiting the capaci- ty of business to deliver the eco- nomic bene?ts on which both ulti- mately depend without wealth creation there can be no develop- ment as the world de?nes it. One problem in charting this dif?cult course is the limit to our scientific knowledge. This is 10 inherent in science. As we learn more about something we inevitably reveal new mysteries. We have to learn to cope with changing uncertainty which requires neither burying our heads in the sand, nor leaping without thought to dramatic con- clusions. Rather it requires a careful, ?exible approach able to respond to changing understand? ing recognising and coping with remaining uncertainties. I suggest that in most cases this is best achieved by ?exible regulatory systems which are responsive to spe- ci?c business pressures and timeta- bles or utilise market processes - rather than prescriptive, blanket rules. A regulatory system which encourages business to evolve is more likely to achieve sustained improvement than one which requires abrupt shifts. Markets encourage widespread experimentation. Competition decides which ideas succeed in an evolutionarysurvival of the ?ttest? until something better comes along. Competitive pressures encourage the essential learning process of increasing productivity. Of course, governments will sometimes interfere in markets in pursuit of political policy goals. But we have surely learned from recent history that they must do so very carefully. Distorting markets can very easily have perverse effects and create long?term prob- lems that are dif?cult to correct as, for instance, with subsidised fuel in many developing countries or coal mining in Germany. John Jennings Sustainable development the challenge for energy The latest edition of the Royal Dutch/Shell Group Statement of General Business Principles and the new Group HSE Commitment and Policy state Shell companies? com- mitment to contribute to sustain- able development. We recognise that all sections of society have a role to play in achieving this goal. We see it as a shared journey of continual change, as understand- ing and capabilities improve. But we also believe it will involve a continual challenge, and funda- mental choices for society in bal- ancing different objectives. Making a commitment to con- tribute to sustainable development does not, of course, mean an abrupt change in business activities. As I have discussed, the concept encompasses things that Shell com- panies have done for a long time. But they are committed to taking sustainability into account in all their future business plans and decision-making processes. To sum up, I have discussed the three pillars of sustainable development. The primary func- tion of business enterprise is in the economic sphere meeting people?s needs and creating the wealth which raises living stan- dards. However, they must do so in a way which is both environ- mentally and socially acceptable. As well as the tax revenues which fund state infrastructure and wel- fare programmes, multinationals play an important role in spread? ing essential skills. In some cases, companies also provide signi?- cant direct social support. Securing sustainable energy supplies is central to the chal- lenge of sustainable develop- ment. Fossil fuels will play an essential part in this, particularly in meeting rising energy demand in developing countries over the next few decades. Using such fuels more ef?ciently and reduc- ing their environmental impact will be a continuing thrust. Energy markets will also evolve and diversify through the normal competitive processes as well, no doubt, as speci?c policy mea- sures. However, in framing such measures, society will have to cope with a ceaselessly dynamic situation with changing scientif- ic understanding, technical capa- bilities, market pressures and political concerns. I believe that a major barrier to progress is the unproductive con? 11 frontation which springs from a feeling of ?them? and ?us? the notion that business is an obstacle to be overcome rather than a part? ner to be worked with. If society is to achieve sustainable development there must be a symbiosis between the wealth creating part and the rest of society. This will not happen if society acts as if creating its wealth is the problem rather than essen- tial for the achievement of its goals. I don't in fact believe that soci- ety as a whole does think like that. After all the millions who work in business are part of society with the same hopes and fears for the world as everyone else. But per? haps Snow?s ?two cultures? still do exist in the gulf between busi- ness people and those who con- tribute in other ways, as much as between scientists and artists, the rational and the spiritual, the philosophic ideal and the prag- matic action. We must ?nd ways of bridging that gulf. I take comfort from the fact these issues have generated much lively debate all over the world. It is a privilege to have the opportu- nity to make a small contribution to that debate here today. Shell International Limited (SI), 1997. Permission should be sought from SI before any part of this publication is reproduced, stored in a retrieval system, or transmitted by any other means. Agreement will normally be given, provided that the source is acknowledged. This publication is one of a range published by Group External Affairs, 51, Shell Centre, London SE1 7NA, England, covering aspects of the oil, gas, coal and chemicals businesses. For further copies, and for details of other titles available in English or as translations, please contact the External Affairs department of your local Shell company. Alternatively, write to the above address or fax 0171-934 5555 (London) quoting department reference PXX, or telephone 0171-934 5293. Shell companies have their own separate identities but in this publication the collective expressions ?Shell? and ?Group? and ?Royal Dutch/ Shell Group of Companies? may sometimes be used for convenience in contexts where reference is made to the companies of the Royal Dutch/ Shell Group in general. Those expressions are also used where no useful purpose is served by identifying the particular company or companies. Printed in England by Vitesse l5l79/4.97/10m 0 Recent Speeches 0 Contributing to a sustainable future the Royal Dutch/Shell Group in the global economy Cor Charting a course preparing for the oil and gas business of the 21st Century Maarten van den Bergh Dealing with contradictory expectations the dilemas facing multinationals Cor 0 Winners and losers meeting the upstream challenges of the 21st Century Mark Moody?Stuart 0 Getting past sound bites science, industry and the environment john fennings A continuing contribution oil and gas in the 21st Century