John Browne, former CEO of BP and member of Critical Resource’s senior advisory panel, called for fossil fuel companies to take stronger action on climate change at a Critical Resource event this week – as featured in the FT.
Extractive industries need to take climate change more seriously or face an existential threat to their business, Lord Browne, former CEO of BP and member of Critical Resource’s Senior Advisory Panel, warned on Wednesday 19th November. Speaking at a Critical Resource-hosted seminar, Lord Browne called on fossil fuel companies to accept the scientific evidence for man-made climate change and support the development of low-carbon solutions. The full transcript of Lord Browne’s speech can be found below.
The seminar formed part of Critical Resource’s broader efforts to encourage industry action on climate change. Critical Resource is planning an initiative to catalyse progressive climate leadership within the fossil fuel industry. Launching in 2015, the initiative will develop ambitious and practical recommendations for forward-thinking companies on this critical issue. The recommendations will be published in advance of COP 21 in Paris next December.
For Financial Times coverage of Critical Resource’s climate change seminar click here.
Please find below the full text of Lord Browne’s speech.
Title of event: “Turning up the heat on the industry: What more should far-sighted extractive companies do to tackle climate change?”
Ladies and gentlemen, good evening.
It is a great pleasure to be here in Prince Philip House, the home of the Royal Academy of Engineering, of which I am a past President.
It is also a great pleasure to be speaking at an event organised by Critical Resource, expertly led by Daniel Litvin.
Daniel has asked me to give some advice on what companies in the extractive industries might do to tackle climate change.
There is something very unattractive about a former CEO preaching to his successors. So instead I thought I might sketch out a letter to the CEOs of today with four broad points, and leave others to give whatever advice seems appropriate.
My first point is that the question of scientific evidence should be treated as settled.
But secondly, this conclusion is not accepted by many in our industry because they do not want to acknowledge an existential threat to their business.
Third, while the pace of development of low-carbon solutions has been impressive, we have by no means reached a final destination.
And fourth, progress in the future will come from partnerships between business and government, but business must take the lead.
Let me begin with the science. In a speech at Stanford University in 1997, I said that:
The time to consider the policy dimensions of climate change is not when the link between greenhouse gases and climate is conclusively proven but when the possibility cannot be discounted.
That link will never be conclusively proven, because climate science will always be a study of probabilities.
But we are well beyond the point where possibility cannot be discounted.
The Intergovernmental Panel on Climate Change once talked about a merely discernible human influence on the climate, but it now has enough evidence to identify clear human influences as the dominant cause of recent warming.
It has gone from giving anthropogenic climate change a 50-50 chance of even existing, to describing its impacts at a 95% confidence level.
Selective use of some of the evidence can undermine some of that confidence, but I have seen no cogent, holistic argument to unsettle the scientific case for anthropogenic climate change.
As a scientific consensus solidifies, and the potential costs of inaction become clearer, public debate has become less emotional and more practical. It seems to me that attention has turned to the costs of mitigation and adaptation, and to the question of where accountability for action should lie.
That represents a step-change in attitudes compared to the state of uncertainty which prevailed in 1997.
The extractive industries were at the forefront of society’s response to climate change, starting in the late 1990s. But it seems that attention spans have waned, and that some of today’s energy leaders have been somewhat absent from contemporary debate. That is my second point this evening.
In my opinion, some companies’ resistance is part of a broader struggle against government intervention, rooted in a belief that man should remain master of his environment.
Others play little part in the debate not because of ideology, but because they do not want to acknowledge a long-term threat to their business. That is because a CEO is unlikely to be held accountable for their company’s fortunes many decades into the future, but will be held responsible for action which costs money today.
Both camps are wrong, and demonstrate a failure to grasp the opportunities created by changing circumstances.
New policies and regulations will be written by governments whether business likes it or not. And the policies and regulations which affect the future of our industry are being written now. If business fails to engage constructively in that process, it will miss the opportunity to shape its own future, and will stop being master of its environment sooner than it thinks.
This month’s agreement between the US and China underlined the need for companies in the energy industry to act. The targets agreed by President Obama and President Xi will not be achieved with the policies currently in place. They will therefore require new policies, which could reduce the two countries’ oil demand by more than 15 billion barrels of oil over the next 15 years.
That represents a huge potential destruction of value, and is a major long-term risk to any oil producer. But many operators remain largely insensitive to the potential consequences of new policies. Small and medium-sized companies in North America, for example, should be admired for their innovation and entrepreneurialism. But in my experience, very few of them publicly accept the science behind climate change, and even fewer think of climate change as a risk to their business.
This means that when new rules and regulations are being written, these companies will be absent from the negotiating table.
It means that potential customers will have a choice between forward-thinking suppliers planning for the future, or those seeking to preserve the status quo.
And it means that these companies will find it harder to recruit young executives who have a vision for the future.
In spite of all of this, low-carbon technologies have been developed at an impressive pace, my third point this evening.
As co-head of the world’s largest renewable energy private equity fund, I have seen this progress first-hand.
The cost of a wind turbine, for example, has fallen by more than 20 per cent in 5 years, and the cost of a solar module has fallen by 80 per cent over the same period.
That sort of learning curve has had a dramatic impact on the cost of electricity from renewable sources, particularly solar, which has fallen by 9 per cent every year since 1990. Its cost is expected to fall by at least another 20 per cent in the next two years, as the balance of systems is reengineered.
Progress has not been confined to renewable energy. The shale gas revolution in the US has pushed significant amounts of coal out of the country’s energy mix, contributing to a 10 per cent fall in the country’s carbon dioxide emissions. This has happened without official federal climate policy or targets.
And as carbon capture and storage systems improve, they could carve out a long-term place in the energy mix for hydrocarbons, including coal.
So progress has been impressive, but the task is by no means complete.
As low-carbon technologies mature, subsidies which support the output of electricity should be phased out in a measured and transparent way, because they risk the diversion of resources from more productive ends.
Public money for R&D, for example, represents an investment in productive capacity rather than output. But in the UK, we spend ten times as much subsiding power generation as we do on support for long-term innovation and improvements to low-carbon technologies.
These priorities should be rebalanced. I recently co-authored a report which calls for a grand global challenge, aiming to stimulate research into solar generation and electricity storage technologies. Investing in the development of technology, rather than just deploying it, could have remarkable long-term results.
If governments refocus their attention, then so too should industry.
I work with the University of Cambridge as an advisor to their Energy@Cambridge initiative. In collaboration with industry, their research teams look closely at energy demand, which is poorly understood.
The EIA, for example, produces annual forecasts of energy demand which underpin many strategic decisions in the energy industry. But since the mid-1990s, it has consistently overestimated energy demand, virtually every year, sometimes by as much as 20 per cent.
Energy companies which help their customers to invest in efficiency, demand management or even demand reduction will incur short-term costs. But by acting in the wider interests of society, they are less likely to fall foul of public opinion and government regulation.
If governments and business make these efforts, they must not operate in isolation. Progress will only come from productive cooperation, my final point this evening.
Throughout history, societies have prospered when the public and private sectors have worked together towards a common goal.
That was true in ancient China, it was true during Britain’s industrial revolution, and it is true for the shale revolution in the United States.
But governments have developed a track record of changing the rules of the game, which affects the risk that low-carbon investors face and increases their cost of capital.
I have seen the effects of this instability first hand in Spain, where the government has imposed retroactive tariff cuts and failed to adhere to the Energy Charter Treaty. Decisions like that make everything else a government does less credible, and damage the vital bond of trust between government and business.
But companies in the energy industry also have to play their part. Signals of resistance do not help, because they place you firmly in the past.
That is bad for society, because only business can deliver the solutions to our shared problems.
And in my experience, business prospers when it leads by example, rather than allowing others to drag it into the future.
So ladies and gentlemen, my letter to today’s CEOs would contain the following four points.
Great leaders are experts in the art of delegation, and they have delegated scientific analysis to scientists. So they should accept the conclusions.
They should take advantage of the business opportunities presented by low-carbon energy systems.
They should reverse recent trends, and continue to participate in the development of low-carbon solutions.
And they should cooperate with governments and the rest of society.
Ladies and gentlemen, thank you very much.