INTRODUCTION

  1. Discussion between industry and government is essential for the development and choice of sound environmental instruments. BP Amoco wishes to concentrate in this submission on our belief that emissions trading will form an increasingly important part in successful climate change programmes of the future.

  2. Sir John Browne, BP Amoco's Group Chief Executive, has underlined on a number of occasions BP Amoco's determination to take the issue of climate change seriously, and BP Amoco's acceptance of the need for both action and solutions. As he said previously:

—  To be absolutely clear, we must now focus on what can and what should be done, not because we can be certain climate change is happening, but because the possibility can't be ignored . . . The action is not for governments alone. It is for government, industry and consumers, working together and in parallel. I believe we all have a responsibility to take constructive, precautionary action." (Extracts from speeches on 19 May and 30 September 1997)

  BP Amoco therefore fully accepts that industry must play its full part in helping to achieve the targets which have been agreed internationally to reduce greenhouse gas emissions. We have also set ourselves clear goals as a company with the objective of reducing our own carbon and other greenhouse gas emissions, and we are undertaking a number of steps which will help contribute to emissions reduction.

  3. It is important that this takes place consistently with the needs of sustainability. This means paying attention to the imperatives of business efficiency and social cohesion as well as to the needs of the environment. If the wrong economic instruments are chosen for an environmental purpose, they will not only fail to achieve their environmental objective; they will simultaneously exacerbate social tensions, particularly by threatening employment and investment levels and damaging UK competitiveness. That is why it is also important that industry's contribution to reaching the UK's target is assessed in the overall context of the Government's approach to climate change at a national level and as part of a global and EU process. There is little point in seeking to make marginal additional gains at high cost from the industrial sector when there exist many significant untapped emission reductions options in the domestic and transport sectors.

  4. BP Amoco accepts the compelling environmental reasons for reducing greenhouse gas emissions from industrial processes and activities. But BP Amoco does not accept that energy should be perceived as a "bad" deserving to be taxed for its own sake. While accepting that energy consumption can produce harmful emissions in addition to greenhouse gases, it is difficult to exaggerate the positive contribution which energy services (such as heat, light and mobility) have made towards creating and spreading wealth, adding to human basic needs and comfort and towards fighting disease.

EMISSIONS TRADING

  5. BP Amoco's basic assertion is that emissions trading offers the best way forward, and would deliver the required environmental outcomes with more certainty and at less economic cost than taxation. An allowance trading system provides Government with a guarantee that a specific abatement volume of emissions will be achieved, through the acceptance by industry of caps on emissions. This aligns precisely with the Government's obligations under the Kyoto Protocol. Indeed, from an environmental standpoint, the caps are what matters; trading is simply a mechanism to ensure that the caps are delivered at least cost. The certainty provided by emissions trading is in marked contrast from environmental taxes where the resultant levels of emissions are unknown. Ultimately, trading can be extended to all greenhouse gases.

  6. There are further attractions of an emissions trading system. It goes with the grain of business activity, rather than works against it. It means that rather than regard emissions reduction as an irritating distraction from the pursuit of new business opportunities or as a financial cost, it actually becomes a commercial opportunity in its own right. It also provides the best available safeguard against damaging the competitiveness of the companies and industries concerned. To some extent, a decision by government to achieve higher emission reductions than other countries imposes an automatic competitive threat in terms of higher costs, whatever means is ultimately chosen to implement the decision. But this cost will be minimised by emissions trading, while the choice of either regulation or taxes involves greater risks to companies' ability to compete in global markets.

  7. BP introduced its own Pilot Emissions System which was launched in September 1998. It is our belief that this will enhance our and others' experience and understanding of emissions trading. The experience so far has shown that:

—  environmental outcomes are delivered—and at lower cost than through alternative systems;

—  the accompanying monitoring and tracking systems are not burdensome;

—  the system acts as a spur to innovation.

  8. Several practical obstacles to BP Amoco's Emissions Trading System have been identified. We have already resolved many of them, and we are confident of overcoming others. The basis of the scheme is that each participating Business Unit is required to ensure that its emissions are covered by permits for each annual compliance period, plus or minus purchases or sales of rights. There will be a penalty (designed to have a real internal BP Amoco impact) for failure to comply. Business Units will be permitted to bank unused permits at the end of the year for future use, but borrowing against a future year's permits will not be allowed. Trading is in carbon dioxide equivalent units, and will be limited to CO₂ initially, although methane will be brought in as soon as practicable. OTI (BP Amoco's oil trading arm) is acting as the broker with whom all trades have to be registered. The system is subject to external audit. The system was developed in partnership with the Environmental Defense Fund, a respected United States NGO, and expert on the practice of emissions trading.

  9. Emissions trading requires a system for monitoring and compliance. This need not be heavily bureaucratic—indeed, it should be much less burdensome than currently experienced in administering environmental regulation. And once in place, a properly operating Trading System offers potential certainty that the required emissions reductions will be achieved. Equally important, it provides an incentive to achieve more than the minimum, and it ensures that the easiest and cheapest options for reducing emissions are identified first. Our preliminary work suggests that there appear to be significant potential emissions reductions available and which are consistent with achieving good economic returns.

  10. BP Amoco does not deny that there are technical issues that would need to be resolved before a UK-wide trading scheme could be launched. We have already tackled some of them in the context of our own system; work has also been done under the auspices of the Association of Electricity Producers. We shall be engaging in discussions with Government in order to assist the speedy introduction of a UK scheme. We believe that BP Amoco's own reporting protocol could provide constructive guidance on formulating the common reporting protocol which would be necessary.

  11. Voluntary Negotiated Agreements can prove a valuable and low cost adjunct to emissions trading, and it ought to be acceptable for certain sectors to volunteer to negotiate an emissions cap. This would be the equivalent to an allocation of emissions permits for the requisite amount but where allocation of the reductions is undertaken voluntarily within the sector. As emissions trading proves its value, sectors should see the benefits of trading and therefore wish themselves to convert their voluntary agreement into part of the trading scheme. But the fundamental attraction of both is the certainty that the emissions cap offers and the freedom for participants to find the least cost responses within the sector.

  12. It is not only BP Amoco that is trying out emissions trading. Examples of emissions trading exist in the United States. Other jurisdictions are also experimenting with emissions trading: Canada has a pilot programme, New South Wales has a scheme for the electricity sector and Norway also has an embryonic trading system. Other countries such as New Zealand and Denmark have also indicated interest in the development of trading and trading systems. All this suggests that emissions trading will be an important component of the global response to Kyoto—and UK firms will suffer if they do not enjoy the same flexibilities and opportunities offered to their competitors.

  13. Emissions trading in Greenhouse Gases could offer similar benefits. We welcome the fact that flexibilities which permit national emissions trades were included in the Kyoto Protocol, and believe that the UK can benefit from flexibilities at national level.

CONCLUSION

  14. BP Amoco shares and applauds the environmental objective of reducing greenhouse gases and other emissions. We accept the principle of action on greenhouse gases by industrial and commercial energy users. We believe that the UK can achieve its objectives at the lowest cost through an emissions trading scheme for industry, supplemented in some cases by sectoral voluntary agreements. Such schemes should be an integral part of a national climate change policy where all sectors contribute on a comparable basis.

  15. If wrong or inferior instruments are chosen to reduce greenhouse gas emissions, they will not only fail to achieve their environmental objective; they will run the risk of imposing unacceptable economic, commercial and social hardship at the same time. BP Amoco, for example, now assesses its overall performance against the yardstick of a "triple" bottom line—economic; environment; and social. Failure to perform in any of these categories militates against success in the other two. The same concept could also apply to meeting the UK's environmental targets. If the price of doing so is economic inefficiency and social hardship (for example, in terms of unemployment), then ultimately the nation's policy for meeting its environmental targets will become unsustainable. The same applies to a commercial company seeking to achieve its commercial targets at the expense of its economic and social responsibilities. This too leads to an unsustainable business.

  16. We believe that the emphasis should be based on efficiency and flexibility. Measures should be designed on a least cost basis, and designed to affect competitiveness as little as possible. Moreover, any system for controlling and reducing emissions must not only provide disincentives to current behaviour, but also positive incentives for change. Measures should therefore include incentives for the development and use of renewable energies, and for the development of new, cleaner technologies.

  17. BP Amoco is firmly of the view that Emissions Trading and Voluntary Agreements provide the most economic and the most effective route to reduce environmental industrial emissions. We believe they will deliver better results and greater volumes of reductions than any alternative because the focus is on a direct solution to the problem at hand: cutting total greenhouse gas emissions.

  18. BP Amoco is convinced by its internal work (which exceeds anything undertaken by any other company) that the Pilot Trading System will confirm in practice the theoretical case for Emissions Trading and demonstrate that significant reductions in greenhouse gas emissions can be achieved without damaging either corporate performance or competitiveness. It is an approach which the UK and EU should consider and adopt above all others.

6 January 1999