Fri, Jul 13, 2018 - Page 9 News List

Oil and gas firms will lead the energy revolution, ex-BP head says

By John Browne  /  Bloomberg

When it comes to climate change, I have always been a believer: not in hand-wringing debate, not in unrealistic solutions like the elimination of hydrocarbons, but in the power of action.

In 1997, as chief executive of BP PLC, I was the first leader of a major oil company to acknowledge that climate change was a problem, and that the industry had a responsibility to acknowledge and address it.

The head of the American Petroleum Institute claimed that I had “left the church.”

Twenty-one years later, I returned to the church in a different way, along with a group of distinguished business leaders.

Last month, Pope Francis hosted the chief executives of many of the biggest oil and gas companies, investors overseeing nearly US$10 trillion of capital and many of the energy sector’s leading thinkers and policymakers. We convened to discuss ways of reducing emissions of carbon dioxide and methane.

It was the first time in my 50-year career in the energy industry that such a gathering has taken place. The discussion was marked by humility and pragmatic optimism.

Not everybody shares this bright outlook. Two investment managers have argued in the Financial Times that the end of the “age of oil” is in sight. They urged oil and gas companies to commit to winding themselves down when the time is right, and return money to investors, who are more qualified to decide what to do next.

As things stand, they are wrong. In areas such as aviation, maritime and heavy commercial shipping, there are no viable substitutes for oil. Natural gas has a long life ahead as it replaces coal in the power sector and provides a reliable complement to the intermittency of renewables.

Based on current trends, IHS Markit expects total demand for oil and gas to rise by 30 percent between now and 2040.

Consumption of renewable energy is expected to triple, but from a lower base: By 2040, it will account for just 6 percent of the energy mix, about the same as nuclear power today.

It is also premature to discount the ability of today’s oil and gas companies to adapt. When I took over as CEO of BP in 1995, the industry invested almost nothing in renewable energy. Today, the “supermajors” allocate more than US$4 billion every year to low or zero-carbon energy.

These giants have the resources to make large capital commitments and, in many cases, skills that can be adapted and redeployed to deliver energy solutions at the immense scale that is needed. If leaders can redirect their organizations toward a new lower-carbon purpose and if they can successfully engage their staff, there is every reason to believe that they can be active participants in, or even drivers of, the energy transition.

The oil and gas industry has come a long way, but even today it accounts for a tiny share of low-carbon investment.

To accelerate the transition and reduce the risk of damaging climate change, the International Energy Agency has estimated that the rate of investment in the energy sector would have to double, with 85 percent of all investment allotted to renewable energy and energy efficiency.

To transform the pace and scale of investment, I have long advocated for a global price on carbon, most likely in the form of a consumption tax. This levy would need to be high enough to encourage the shift toward lower carbon energy sources on the supply side, and to drive adoption and improvement of efficiency measures on the demand side.

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