BP believes that carbon pricing by governments is the most comprehensive and economically efficient policy to limit greenhouse gas emissions
How carbon pricing works
We believe a global carbon price would help to provide the right incentives for or everyone - energy producers and consumers alike - to play their part.
Where it starts
Governments: Across the world, more than 40 countries are developing mechanisms to put a price on carbon. These government initiatives aim to provide financial incentives to producers and consumers to reduce GHG emissions. This can be implemented either through a carbon tax or a cap-and-trade scheme.
How it works
Carbon tax: This imposes a direct fee on GHGs emitted. This carbon price is achieved by setting a consistent cost per tonne of CO₂ (or CO₂ equivalent) released into the atmosphere.
Cap-and-trade system: This issues permits for sectors or whole economies to emit GHGs up to a total fixed limit or ‘cap’. Participants must acquire these permits to cover their own emissions, with the price set by market forces.
Who it affects
Energy producers: Producers, such as BP, pay for the GHGs emitted by their operations. They are encouraged to seek solutions to reduce their emissions - through energy efficiency and innovation in lower-carbon technologies.
End consumers: Businesses and households ultimately pay more for carbon-intensive goods and services. They are motivated to use less energy, choose more energy-efficient products and favour lower-carbon energy products.
Putting a price on carbon - one that treats all carbon equally, whether it comes out of a smokestack or a car exhaust - would make energy efficiency more attractive and lower-carbon energy sources, such as natural gas and renewables, more cost competitive. A carbon price incentivizes both energy producers and consumers to reduce their GHG emissions. Governments can put a price on carbon via a well-constructed carbon tax or cap-and-trade systems. Our view is that putting a price on carbon will reduce emissions at a larger scale and at lower cost than alternative policy measures, by reducing the demand for carbon-intensive products. It might make our operations and products more costly in some cases. We consider that this is fair - as long as the carbon price impacts all GHG emitters equally - and we are keen to compete on this level playing field.
A global carbon price
We were pleased to see that the agreement made at the 2015 UN climate conference in Paris creates the possibility for carbon pricing to help deliver global goals and national contributions for reducing GHG emissions. We recognize different national prices are a necessary and practical first step but would like to see convergence towards a single global carbon price over time. In the meantime, any national carbon pricing mechanism should address the impacts of unequal international competition. Otherwise there is a risk of carbon leakage, meaning that energy-intensive industrial activity and investment could just move from one country to a less-regulated part of the world - potentially increasing their associated GHGs worldwide.
What BP is doing
BP has long publicly supported measures to put a price on carbon emissions, including our endorsement of the World Bank carbon pricing statement in 2014. We stepped up our advocacy in 2015, joining seven other oil and gas companies in calling on the UN and governments to put a price on carbon. Work is continuing through face-to-face meetings between the companies, select governments and UN representatives to share lessons learned and views on policy to effect change. We have also joined the Carbon Pricing Leadership Coalition, which brings together senior representatives from government, the private sector and civil society to expand the use of carbon pricing. BP actively prepares for a future with a potentially higher carbon price by requiring our businesses to use an internal carbon price - currently set at $40 per tonne of carbon dioxide (CO₂) equivalent for industrialized countries - in evaluating large new projects.
If governments act to price carbon, this discourages high-carbon options and encourages the most efficient ways of reducing emissions widely, including reduced demand for the most carbon-intensive fossil fuels; greater energy efficiency; the use of natural gas in place of coal; increased investment in carbon capture and storage, renewable energy, smart buildings and grids; off-grid access to energy; cleaner cars; and new mobility business models and behaviours.From the 25 June 2015 letter to the United Nations Framework Convention on Climate Change from the CEOs of BG, BP, Eni, Shell, Statoil and Total