Current trends and issues: Renewable Energy
Speech date: 04 March 2008
Venue: International Renewables Energy Conference, Washington DC Conference Center
Title: BP Group chief executive
Ladies and Gentlemen, good morning. It's a great pleasure to be here at the third International Renewables Energy Conference and BP is delighted to be the Diamond sponsor of an event which has attracted so many senior policy makers and practitioners in the renewable sector. I am glad too that this conference is being held in Washington. America is the world's biggest energy consumer, and any serious change in global energy consumption patterns has to begin here.
The timing of this conference is excellent too, because energy is emerging as the one of the big issues in the Presidential election. I think that tells us a great deal about the current concerns of the people of America - and how far public opinion has moved everywhere in the last few years.
Across the world we're at an inflection point as far as the future energy mix is concerned. If we act now to develop sustainable regulatory and fiscal structures, we will be able to smooth the transition to a lower carbon economy of the future. If we wait, then that transition could be very difficult indeed.
What I would like to do today is to give a business perspective. I know from experience that any new regulatory and fiscal structures must be grounded in reality.
They must, for instance, be able to deal with the rapid rise in demand for energy, not just from developing nations, but across the world. There are more than half a billion households who, in the course of the next decade, are expected to cross the $5,000 a year income threshold. They are moving from a rural way of life, to a modern urban existence and in doing so are significantly increasing their energy consumption.
And in addition to those already alive, there is demographic growth. Global population is forecast to grow by 1.5 billion by 2030.
This newfound prosperity is something to be celebrated - we cannot, nor should we, deny the people of the world the right to better themselves.
I welcome the increased emphasis on energy efficiency in America and other nations. But, even so, it is clear that the rapid economic and demographic growth forecast for the next 20 years is going to require ever more primary energy - about 50% more than we use today, according to forecasts from the International Energy Agency.This rapid rise in demand is driving the increase in greenhouse gas emissions. But much of this growth in demand is taking place in countries with very little indigenous oil and gas supplies. This, in turn, has magnified concerns for energy security. Therefore, these two challenges, climate change and energy security, need to be solved together. It is our job - the job of all of us here - to do that.
BP is America's largest energy investor. Since 2001 we have invested $30 billion and over the next 6 years expect to invest a further $30 billion in bringing energy security to America.
BP was the first large oil company to face up to the problem of climate change. There is always much, much more to do. But in addition to developing our oil and gas production in a sustainable and environmentally responsible manner, we are also investing more than $1 billion a year into our Alternative Energy business. That is a powerful contribution to solving both of those challenges I just talked about: climate change and energy security.
- Firstly, we are investing in the technologies which are already available today, such as wind and solar power. We now have the largest wind real estate in the United States - in fact, we recently commenced operations at Cedar Creek, one of the largest wind farms in America. We are also investing in China, India and Egypt. In solar, we developed a new way of growing silicon called Mono2, which significantly increases the energy producing capacity of solar cells. We have America's largest manufacturing facility in Frederick, Maryland. Worldwide in 2007 we had around 230MW of annual manufacturing capacity and plan to grow manufacturing capacity to 800MW by 2010.
- Secondly, we are investing in new forms of energy supply, which we can see coming onstream in the medium term. These include the Next Generation of Biofuels, which will be based on a much more efficient molecule than ethanol. And that won't compete with food crops. Our commitment to biofuels includes the creation and $500 million investment in the Energy Biosciences Institute; a partnership between BP, the University of California at Berkeley, the University of Illinois at Urbana-Champaign, and the Lawrence Berkeley National Laboratory.
- Thirdly, we are investing in exciting new technologies for the future. This is essentially an R&D effort, developing technologies such as Carbon Capture and Storage and hydrogen power.
A sustainable policy framework for the future
We are proud of these initiatives. But even though "Clean Tech" is growing very fast, let's be honest: the scale at which the industry is conducting projects today is not going to have much impact on the energy market of the future. For that, we need sustained investment, on a massive scale. A step change of that nature will require sound energy and environmental policies from Governments worldwide.- First, a price for carbon, which fairly reflects the true cost to the climate of greenhouse gas emissions; and
- Second, an additional system of transitional incentives to accelerate new technology and to drive down its cost faster than would otherwise be the case.
A carbon price
There are essentially only two ways in which the true cost of Greenhouse Gas Emissions are paid for. One is a carbon tax, and the other is a so-called Cap and Trade system.
Although a tax would provide fiscal certainty, it has two disadvantages. Firstly, it would not provide environmental certainty and that is what is required. A carbon tax would not be contingent on a given level of emissions reductions internationally. Secondly, it would almost certainly be impossible to gain agreement for such a tax among all the different nations of the world.
That leaves a Cap and Trade system, where Governments decide on a level of Greenhouse Gas Emissions reductions and release permits to emitters in order to achieve that level.
As a businessman, I am in favour of market-based solutions because I have seen how powerful they can be in practice. And a Cap and Trade system is already running with some success in the European Union's Emissions Trading System.
But how would a global Cap and Trade system work? How could there possibly be agreement among the 180-odd Governments of the world, without seriously intruding upon their sovereignty?
A global trading system should of course be our ultimate objective, otherwise some high-emitting nations will enjoy a "free-ride" on the reductions of others. But just because that is not achievable immediately, I don't believe we should be deterred from starting on a regional basis now. In fact, I take great comfort from the history of financial markets in this regard. Nobody can doubt that financial markets are now global. Yet all those markets started off in individual countries, sometimes just in small localities, and grew up without the need for a single global currency.
Transitional Incentives
However, I do not believe we can rely solely on carbon trading markets to provide sufficient incentive to develop new technology. So although I am generally against subsidies, I do believe there is a public good to be derived from bringing forward the development and deployment of low carbon technologies, much as public-private partnerships enabled the construction of early nuclear reactors.
The purpose of any incentive should be to kick start the introduction of technologies - for example, wind, photo-voltaics and carbon capture and storage - to accelerate them, and to drive down their costs. But any incentive regime needs to be carefully designed and, critically, should be transitional in nature. Properly designed incentives should taper away over time, in order to encourage and speed up the normal cycle companies like BP go through. As a profit-making enterprise, we are quite used to introducing new techniques and then driving down their costs. That, for instance, is what we have done in deep water oil production, where costs have fallen by around 5% a year over several decades.Once low carbon technologies are proven, cheap and accepted, they will be adopted around the world. That is how markets work to disseminate knowledge, from computers to mobile phones.
Conclusion
These are imperfect policies in many ways and I am sure better ones will emerge. But they are a start. They should not be too difficult or complex to implement. And that is a good thing. Energy Security and Climate Change are two of the greatest challenges facing us today. There has been quite a lot of talk about them in the last few years. Now is the time for action.That, I think is the right note to finish on. Thank you very much.
