Profit of doom: it’s the end of the world as we know it, and BP’s doing fine

It must be rewarding to present the BP annual statistical review of world energy, as their chief economist did in Brussels yesterday. For all of the impressive data gathering and authoritative explanation, he is basically describing what happened last year, but it’s blown up to seem like pronouncements from the Oracle at Delphi. Predicting the past is notoriously easy; Brussels however is a city focused creating the conditions of the future. This endeavour came in for a sound pooh-poohing from BP, particularly regarding any attempt to reconcile energy trends with a desire to avoid dangerous climate change. Fighting against the status quo (which by some remarkable coincidence is exceedingly profitable for his industry) is just wild-eyed irrelevance.

Renewables, he declared, are probably like nuclear energy, which plateaued in places like France as soon as the subsidies were pulled. The United States is doing more to fight climate change by using shale gas than the EU with its ‘so-called good intentions’ on climate. Like any good lie, these have truths buried within them. Nuclear took off in France on the back of massive subsidies, and has indeed stalled. Not least of which for the simple fact that with every passing installation the technology gets more rather than less expensive: negative learning. Or rather, learning about the negatives, and what it costs to avoid them.

Renewable technologies on the other hand are top of class learners: every doubling of PV capacity cuts costs by more than 20%. Last year the price of a PV wafer fell 70% and of a module by 50%; installations jumped 65%. In a single year. Subsidies have sped this process by increasing volumes sold, but the success is so dramatic that countries are speeding up declines in support: when done in a rational way, this is a process that even the PV industry backs. Competition is already fierce internationally and is forcing European manufacturers either to go out of business or to innovate – this the energy equivalent of the internet revolution (a government-sponsored invention), and last I checked, the fact that many a dot com went belly-up in 2000 doesn’t prevent me from watching funny cat videos on youtube.

It’s unsurprising that BP is going around the world trying to push the genie back in the bottle. But over time they will seem like the guy trying to sell us a 100-volume set of encyclopedias while the rest of us use wikipedia.

Of course BP would love to rebrand gas as a low-carbon fuel. So the US story, where shale gas is pushing coal out from electricity generation, is attractive. Emissions have indeed fallen by a few percent. If the US continues at this rate they may even get back to 1990 levels (a goal they signed up to back in 1992). The UK went through a similar transition years ago, in the ‘dash for gas’. It had a head-start on many other countries in reducing CO2. But that head start has played itself out, and the decarbonisation debate is only really beginning in earnest, with renewable energy and efficiency front and centre (and nuclear waiting in the wings for illicit subsidies). Gas can buy you time, much as replacing the first three bullets from a revolver with blanks can, before aiming at your foot. But the day will come when we ask ourselves, did we just fire two shots or three? Are we feeling lucky?

The purpose of such BP statements on renewables and climate, none of which is the focus of the annual report or the subject of rigorous analysis, is to sow the seeds of doubt – a global roadshow of pessimism masked as information. It is true that like any good business they are hedging their bets – they have a commitment to spend about $800m a year on alternative energy between 2005-15 (largely biofuels – not uncontroversial themselves). Of course, once numbers get big you lose a bit of perspective. In 2010 they incurred a $37bn charge associated with the Gulf of Mexico oil spill. In 2011 alone they committed to $14bn of new exploration in the North Sea, they bought part of an Indian oil company for $7bn and they had profits of $40bn. Their alternative energy guys are probably lucky to get invited to the office Christmas party.

Yesterday, BP had particular disdain for the idea of ‘backcasting’ exercises like the EC’s energy roadmap 2050. The notion of ‘starting out with where you want to be’ was spat out like a dirty epithet. Of course where we want to be is a world not suffering from 6 degrees of warming, the EU almost fully reliant on external energy suppliers, and fossil fuel costs draining our pocketbooks. The oil industry’s long-range outlooks, of which I’ve seen presentations from BP, Shell and Exxon, are uniformly presented as ‘realistic, fact-based, business cases.’ None of them foresees solving the climate problem.

BP’s chief economist, who travels the world presenting the report, says the only two places that climate gets mentioned is Berlin and Brussels, a change from a couple of years ago. He stated it in a manner that seemed to say – ‘well, that’s put that issue to rest.’  Perhaps this is indicative of a corporate culture that only seems to pay serious attention to something once it blows up. His industry is definitely the cat that ate the canary at the moment – production dropped 4% last year and profits jumped 75%: what a deal! Gas is giving them a half-story about carbon reductions, and they can afford to dabble in renewables while they focus on milking the petroleum cash cow.

Somehow though, just under the surface, is the nagging sense that, with the help of new technology deployment and a democratic process that has the power to make choices about the consequences of our actions, they may just yet be blind-sided by history.

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