Gay Today: Technology

BP Cuts Undercut Bush
on Climate Change Costs

By Seth Dunn
Research Associate, Worldwatch Institute

Washington, DC -- It has been a mantra of the Bush II climate policy that mandatory action to address climate change will be prohibitively expensive-costing millions of jobs, cutting into gross domestic product, and harming U.S. competitiveness.

A BP oil refinery in the Scottish countryside

The "fatal flaw" of Bush's argument (to borrow a favorite Administration phrase) is that his estimates are based on theoretical economic models that fail to 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-through ambitious goal-setting-is finding ways to reduce emissions at no overall cost.

Speaking at Stanford Business School on March 11, BP chief executive John Browne announced that his company had met its internal target for reducing greenhouse gas emissions-nearly eight years ahead of schedule at no net cost. It was Browne who, five years earlier at Stanford, 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 his firm's greenhouse gas emissions by 10 percent below 1990 levels by 2010. On March 11, he announced that "we've delivered on that target"-well ahead of time.

BP CEO Lord John Brown

How did BP do it? By reducing energy use, improving overall efficiency-such as preventing natural gas pipeline leaks and gas flaring-moving toward cleaner products like low-sulfur transport fuels and natural gas, and trading emissions internally, BP reduced emissions to 10 million tons below their 1990 level. "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."

BP also hit its target at no net economic cost, with monetary savings from lower energy inputs and improved efficiency outweighing 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 lobby industry-buoyed by Bush's win in West Virginia in 2000-as well as many electric power and oil companies. But they find their intellectual support in the economists whose climate policy models assume that only large energy taxes will do the trick. Resulting in high cost estimates, these abstract models are diametrically opposed to BP's experience 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 benefits-avoided storm damages, energy savings, reduced air pollution and acid rain, exports and job creation-the economy as a whole could gain.

So may early actors like BP, who by integrating climate into its business strategy is moving quickly along a learning curve that has yielded emissions cuts, cost savings, and the confidence to set a new commitment: hold emissions from operations at 10 percent below 1990 levels through 2012, through further energy efficiency gains and the trading of carbon credits. Over time, the company plans deeper cuts through continued shifting to natural gas, expansion of its solar business (which grew by 40 percent in 2001), and the development of other renewable energy sources and hydrogen.

One might argue that the BP experience proves that voluntary steps to deal with climate change are enough to solve the problem. That argument might be more tenable if Browne reached the same conclusion-but he doesn't. 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.

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The Kyoto Protocol provides such a framework, sending signals to industry to accelerate the decarbonization of energy. Unfortunately, the world's leading emitter-with 24 percent of global carbon emissions-has withdrawn support for the Protocol and failed to offer a credible alternative framework. Even industry leaders admit that the initiative unveiled by the Administration last month is a business-as-usual policy that will do little to contribute to reducing U.S. emissions.

It's a sad truth that the climate policy of chief executive Bush, hamstrung by parochial industrial 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. Maybe he'll even assign it to his economic advisors and corporate lobbyists.