A bold pledge from BP: ‘Net zero’ emis­sions

New chief ex­ec­u­tive faces a ti­tanic task in pur­su­ing the most am­bi­tious cli­mate goal of any Big Oil firm.

Los Angeles Times - - BUSINESS - Bloomberg

BP’s new boss set out the bold­est cli­mate goal of any ma­jor oil com­pany, pledg­ing Wed­nes­day to elim­i­nate or off­set al­most all of the car­bon emis­sions from BP op­er­a­tions and the fuel it sells to cus­tomers.

Bernard Looney, who has been the com­pany’s chief ex­ec­u­tive for just a week, set an am­bi­tious agenda for what’s be­com­ing an ex­is­ten­tial chal­lenge for the oil in­dus­try.

While peers such as Royal Dutch Shell, To­tal and Equinor have re­sponded to in­vestor pres­sure by adopt­ing tar­gets for emis­sions curbs, none has promised to zero out all emis­sions from the fos­sil fu­els they pump from the ground.

Looney, without de­tail­ing how it would be ac­com­plished, said BP will do that by 2050.

“The world’s car­bon bud­get is fi­nite and run­ning out fast; we need a rapid tran­si­tion to net zero,” Looney said in a state­ment. “We have got to change — and change pro­foundly.”

Only Spain’s Rep­sol, a smaller re­finer and en­ergy pro­ducer, has gone fur­ther: It has pledged to fully elim­i­nate “Scope 3” emis­sions, which in­clude fuel it buys from third par­ties and sells to con­sumers.

Looney struck a con­fi­dent tone, but he faces an enor­mous task. The Lon­don-based com­pany’s new CEO didn’t have de­tailed an­swers to ques­tions about how to elim­i­nate car­bon from one of the world’s largest oil com­pa­nies.

“I ap­pre­ci­ate you want more than a vi­sion — you want to see mile­stones,

near-term tar­gets, some ways to mea­sure progress,” Looney said in a ques­tio­nand-an­swer page on BP’s web­site. “We do not have those for you right now,” but the com­pany will an­nounce more mea­sures in Septem­ber, he said.

U.S.-traded shares of BP rose 1.7% on Wed­nes­day.

Rad­i­cal change

For BP to sur­vive the en­ergy tran­si­tion in a world that’s grad­u­ally fall­ing out of love with oil, it will need to make big in­vest­ments in new sources of clean en­ergy, en­sure cash keeps flow­ing from its fos­sil fuel as­sets and also fun­nel gen­er­ous re­turns to in­vestors. It’s a tricky bal­anc­ing act that its clos­est peer, Shell, is al­ready strug­gling to mas­ter.

BP’s com­mit­ment to do all this while still boost­ing free cash flow and share­holder re­turns is “re­ally the key chal­lenge,” RBC Cap­i­tal Mar­kets an­a­lyst Bi­raj Borkhatari­a said.

As Looney pre­sented his strat­egy in Lon­don, he said BP will re­main an oil and gas busi­ness “for a very long time,” while also ac­knowl­edg­ing that pro­duc­tion will de­cline in the long term. He said that what­ever is pumped in 2050 “will have to be de-car­bonized” and that he’s a big be­liever in the vi­a­bil­ity of the tech­nol­ogy to cap­ture and store car­bon diox­ide emis­sions.

BP also an­nounced struc­tural changes along­side its emis­sions tar­get. Looney will dis­man­tle its up­stream and down­stream busi­nesses and re­or­ga­nize them into an en­tity made up of 11 new teams that will be more in­te­grated and fo­cused.

“The state­ment rep­re­sents a step change in terms of vi­sion for the com­pany and one that moves the group to­ward the big­gest re­or­ga­ni­za­tion and mod­ern­iza­tion in at least two decades, if not a cen­tury,” an­a­lysts at Bar­clays Bank said in a note. “The mag­ni­tude and rad­i­cal na­ture of this shift should not be un­der­es­ti­mated.”

Tar­get­ing Scope 3 emis­sions is a big step for an in­dus­try that pro­duces the bulk of the world’s plan­et­warm­ing emis­sions.

To ful­fill the pledge, Looney or one of his suc­ces­sors may one day face a hard reck­on­ing — ei­ther shift en­ergy pro­duc­tion to re­new­ables, in­vent com­mer­cially vi­able tech­nol­ogy to store the car­bon emit­ted from burn­ing oil and gas, or stick with fos­sil fu­els and ac­cept that pro­duc­tion will have to drop.

BP’s own op­er­a­tions emit the equiv­a­lent of about 55 mil­lion tons a year of car­bon diox­ide, while the oil and gas it pumps from the ground emits an ad­di­tional 360 mil­lion tons, the com­pany said. Looney plans to elim­i­nate both those sets of emis­sions on a net ba­sis by 2050.

“This is what we mean by mak­ing BP net zero,” Looney said. “It di­rectly ad­dresses all the car­bon we get out of the ground as well as all the green­house gases we emit from our op­er­a­tions. These will be ab­so­lute re­duc­tions, which is what the world needs.”

BP also aims to re­duce by half the car­bon in­ten­sity of the prod­ucts it mar­kets — crude and fu­els it buys from other com­pa­nies and sells to its cus­tomers — by of­fer­ing peo­ple more choice of lowand no-car­bon prod­ucts.

BP’s own up­stream op­er­a­tions pro­duced 1.14 mil­lion bar­rels a day of liq­uids in 2018, but it ac­tu­ally re­fined 1.7 mil­lion bar­rels a day and its to­tal sales to con­sumers were 2.74 mil­lion bar­rels a day, ac­cord­ing to its an­nual re­port.

Transat­lantic di­vide

BP’s move in­creases the di­vide be­tween oil com­pa­nies on ei­ther side of the At­lantic. The Euro­pean ma­jors are heed­ing so­ci­etal and in­vestor pres­sures to slash their car­bon foot­prints. Pledges from their Amer­i­can coun­ter­parts ExxonMo­bil Corp. and Chevron Corp. are more mod­est, fo­cus­ing on re­duc­ing meth­ane emis­sions and more gen­er­ally align­ing them­selves with the Paris cli­mate agree­ment.

In the early 2000s, the com­pany re­branded it­self as Be­yond Pe­tro­leum un­der an­other vi­sion­ary chief ex­ec­u­tive, John Browne. But big in­vest­ments in so­lar power largely failed. In one of his last in­ter­views be­fore leav­ing of­fice, Looney’s pre­de­ces­sor Bob Dud­ley warned against Big Oil mov­ing too fast on new tech­nolo­gies to counter cli­mate change, be­cause their fail­ure could lead to fi­nan­cial ruin.

How­ever, cir­cum­stances are chang­ing. Re­frain­ing from be­com­ing greener is no longer a choice for the world’s largest pol­luters.

The dam­ag­ing ef­fects of ris­ing global tem­per­a­tures are in­creas­ingly ev­i­dent, and es­tab­lished in­vestors are start­ing to worry about the vul­ner­a­bil­ity of their port­fo­lios to a cli­mate cri­sis.

It was among the most de­bated sub­jects at this year’s World Eco­nomic Fo­rum in Davos, Switzer­land. Last month, Black­Rock Inc. added its sig­nif­i­cant weight to a $41-tril­lion in­vestor group that’s press­ing the big­gest emit­ters to change their ways.

The Church of Eng­land Com­mis­sion­ers, one of the ac­tivist in­vestors that has been pres­sur­ing Big Oil, praised BP’s move. “This is the am­bi­tion that the world needs,” Ed­ward Ma­son, head of re­spon­si­ble in­vest­ment, said in a tweet.

Daniel Leal-Oli­vas AFP/Getty Im­ages

GREEN­PEACE ac­tivists chain them­selves to oil bar­rels out­side BP’s Lon­don head­quar­ters last week on new Chief Ex­ec­u­tive Bernard Looney’s first day.

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