Climate Change Policy

Gordon Harvey

2

The extent of the challenge

• Global emissions need to peak no later than 2030 and be lower in 2050 than they are now.

• In the developed countries there is increasing alignment that GHG emission reductions of 60 to 80% vs 1990 will be required by 2050.

• We recognise that these targets will have profound implications on our business.

3

Climate change context: BP’s point of view

• Climate change is happening; there are costs of both mitigation and adaptation. Doing nothing is not an option

• Policy needs to be put in place to reduce emissions over time, significantly in the case of developed countries.

• A carbon-constrained economy creates business opportunities for BP as well as potentially creating some additional costs.

• But

• The provision of cheap and reliable energy has been a major factor in the economic and social development of the world

• New technologies will increasingly be needed to supply low carbon energy

• Fossil fuels will play an important part in energy supply for several decades to come

4

Oil

Gas

Chemicals

Refining

Market positions

An opportunity and a responsibility

Our global presence

5

BP in the North Sea

• 15% of UK production

• 45 producing fields

• 33 platforms in operation

• 10 pipeline systems

• 3000 BP staff + contractors

• >$2bn Capex + Opex per annum

• Production over 400mbd

• Total resources circa 3.5 billion barrels

bn boe

6

The climate change journey

1997 BP publicly acknowledges the need for precautionary action to cut GHG emissions after exiting the Global Climate Coalition.

1999 BP initiates the CO2 capture project with other companies and governments, studying methods of capturing and storing CO2 at power plants.

2001 BP achieves its 2010 target nine years early, having reduced GHG emissions by energy efficiency projects and cutting flaring of unwanted gas.

2003 Based on work at Princeton, BP sets out a range of technology options to stabilize GHG emissions over 50 years, including increases in solar, wind, gas-fired power and carbon capture and storage.

2005 BP announces plans for the world’s first industrial-scale hydrogen power plant. BP launches BP Alternative Energy

1998 BP sets target to cut emissions from our operations to 10% below 1990 levels by 2010

2000 BP begins funding the Carbon Mitigation Initiative at Princeton University, exploring solutions to climate change.

2002 BP announces plans to build a wind farm at Nerefco, the Netherlands.

2004 BP’s solar business moves into profit and announces plans to double production. BP launches CO2 capture and storage project at the In Salah gas field in Algeria.

Schiehallion

Foinaven

Magnus

SHETLAND ISLANDS

Sullom Voe

Gas to Market

FLAGSLive Crude

> 400,000 tonnes p.a. reduction in greenhouse gas (CO2) emissions

Gas Export Line

Gas Injection

Line

Innovation: Magnus EOR project

8

Cost curve

5

2030Marginal abatement cost in the different scenarios*

550 ppm 450 ppm 400 ppm

AbatementGtCO2e/year in 2030

• Technically possible to solve global warming only addressing measures below 40–50 EUR/tCO2e

• However, politically very challenging, due to fragmentation of opportunities across sectors and regions

31–3624–2916–21

* Assuming opportunities are addressed in order of increasing cost

Source: Team Analysis

Abatement required beyond business as usual 2030, Gton

0

7654 35

50

100

98 27 333231303 2928262524232221202 1918171615141312111010 34

-50

-150

-100

Lighting systems

Fuel efficient commercial vehicles

Insulation improvements

Industrial feedstock

substitution

Biomassco-firing Avoided

deforestationAfrica

Re/afforestation• Africa• America• OECD

Industrialmotor

systems

CCS;Coalretrofit

High costindustry

abatement*High costland use

abatement*

Air Conditioning

Water heating

Fuel efficient vehiclesStand-by losses

Nuclear

Solar power

IndustrialCCS

CoalCCS

Soil CO2Wind

AvoideddeforestationAmerica

Cost of abatementEUR/tCO2e

Smart transit, air, fuel subst., non CO2

Marginal cost:35-40 EUR/tCO2

Marginal cost:30-35 EUR/tCO2

Marginal cost:50-60 EUR/tCO2

9

Carbon price “funnel” is the key framework for future explicit carbon prices and transitional incentives

CO2 price€/t

Time

“Mainstream” marginal cost of supply

Ceiling on carbon price

Floor on carbon price

Additional incentive Required for new technologies

20102007 2020 2030

ILLUSTRATIVE

Learning curve for key emerging technologies

0

20

40

60

80

100

120

Floor driven by• Need for investment

incentives• Market viability

concerns

1

4

2

3

Short term CO2 price driven by political acceptability and targets • Longer term CO2

price driven by economics of supply and demand, and fiscal regime

• Ceiling driven by– International

competitiveness– Consumer

acceptability– Marginal social

cost of carbon– Oil price