BP Contradicts Bush on Climate Change
The Bush administration has made a mantra of the claim that mandatory greenhouse gas reductions would be prohibitively expensive, costing millions of jobs, cutting into gross domestic product, and harming U.S. competitiveness.
The "fatal flaw" of Bush's argument (to borrow a favorite administration phrase about Kyoto) is that his estimates are based on theoretical economic models that don't fully capture how environmental policy affects technological change. As a graduate of Harvard Business School, which pioneered the "case study" method of examining real-world corporate experiences, Bush should know better. In fact, I have a case study for him to read. It's about a leading global energy company that is proving the President wrong.
Speaking at Stanford Business School on March 11, 2002, BP chief executive John Browne announced that his company had met its self-imposed target for reducing greenhouse gas emissions -- nearly eight years ahead of schedule, and at no net cost to the company.
It was Browne who, five years earlier at Stanford, had sent shock waves through the energy industry by announcing that his company had decided that the risks of climate change justified precautionary action. The following year, Browne set another first in the energy industry by pledging to reduce greenhouse gas emissions from his firm's operations by 10 percent below 1990 levels by 2010, nearly twice the average cut called for by the Kyoto Protocol. At Stanford, he revealed that "we've delivered on that target," well ahead of time. BP had reduced emissions by more than nine million tons below their 1990 level.
BP hit its target at no net economic cost.
"That achievement," Browne noted, "is the product not of a single magic bullet but of hundreds of different initiatives carried through by tens of thousands of people across BP over the last five years." The company cut pollution by improving efficiency, by plugging natural gas pipeline leaks, by cutting back on gas flaring at refineries, and by adopting cleaner products, such as low-sulfur transport fuels and natural gas. Through a company-wide emissions trading program, it ensured that the goal could be attained at the lowest cost, promoting deep cuts by the divisions that were most able to make them.
As a result, BP hit its target at no net economic cost. Savings from improved energy efficiency outweighed expenditures. A refinery in Texas saved $5 million and 300,000 tons of carbon dioxide equivalent. A chemicals plant in Korea cut costs by $4.5 million and CO2 emissions by 49,000 tons. Browne calls the net economic benefit "a positive surprise -- because it begins to answer the fears expressed by those who believed that the costs of taking precautionary action would be huge and unsustainable."
In the United States, these false fears have been fed to the public by the coal industry lobby and by many electric power and oil companies. They back their claims by using the work of economists whose climate policy models assume that only a large energy tax -- the "magic bullet" that Browne decries -- will cut emissions. Not surprisingly, these abstract models project high costs, but they are diametrically opposed to BP's empirical evidence of what works and how much it will cost.
BP's success does not imply that there will be no costs to addressing climate change. Some sectors and businesses will be negatively impacted. But if you factor in the many side benefits of policies that lower greenhouse emissions -- avoided storm damages, energy savings, reduced air pollution and acid rain, exports and job creation -- the economy as a whole could see a net benefit in climate protection.
BP's efforts also suggest that "early movers" advance quite quickly along the learning curve of simultaneously cutting emissions and saving money. The program's success has prompted Browne to commit his firm to stabilizing net emissions from operations at current levels through 2012 (despite an anticipated 5 percent annual growth in BP's oil and gas businesses), through further energy efficiency gains and the trading of carbon credits. Over time, the company plans deeper cuts by continuing to shift to natural gas, by expanding its solar business (which grew by 40 percent in 2001 and already accounts for 17 percent of the world market), and by developing other renewable energy sources and hydrogen.
Some might argue that the BP experience proves that voluntary steps to deal with climate change are enough to solve the problem. Browne disagrees. If the energy business is to be reinvented to tackle climate change, Browne contends, "we need the help of governments" to establish the appropriate framework of incentives to move toward climate stabilization.
The Kyoto Protocol provides such a framework, requiring industry to accelerate the decarbonization of energy. Unfortunately, the United States, the leading greenhouse gas emitter with 24 percent of the global total, has withdrawn support for the Protocol and failed to offer a credible alternative. Most corporations would admit that the initiative unveiled by the administration in February 2002 is a business-as-usual policy that will do little to reduce U.S. emissions. But if the rest of the industrialized world manages to bring the Kyoto Protocol into force without the United States -- not an implausible scenario -- U.S. companies and the U.S. divisions of multinationals could be left out of an international system for emissions trading that some financiers believe will eventually become the world's biggest commodities market.
It's a sad truth that the climate policy of chief executive Bush, hamstrung by parochial polluting interests, lags well behind the global vision and strategy of chief executive Browne. Here's hoping our Harvard MBA President takes a look at the latest case study on BP and climate change. He could even assign it to his economic advisors and corporate lobbyists.
Seth Dunn is a Research Associate at the Worldwatch Institute in Washington DC. He focuses on energy and climate change issues.