BP's emissions trading scheme

BP is often derided for vacuous slogan’s like “Beyond Petroleum”. However, the oil major was a pioneer in implementing unconventional ideas that have since been instrumental in cutting emissions.

In a speech at Stanford University in May 1997, BP CEO John Browne (now Lord Browne) announced that BP would reduce its greenhouse gas (GHG) emissions, becoming the first oil and gas major to formally recognise climate change and the contribution played by burning fossil fuels. In September 1998, BP set a target of cutting emissions 10% below 1990 levels by 2010, broadly consistent with national emission reduction proposals considered at the time as part of the Kyoto Treaty.

One of the main tools the company established to help achieve this collective goal was an internal emissions trading system. BP's individual business units were to be allowed to trade emissions credits between themselves, the theory being that by doing so they would find the most efficient way of cutting emissions and meeting BP’s overall emissions target.

There were of course other motivations behind the launch. First, BP was looking to gain an advantage over their competitors, gaining experience using mechanisms which they suspected might form the foundation of future nationwide programs. Second, BP’s executives were hoping to demonstrate that an ETS would be more effective and more economical than any of the alternatives, such as a carbon tax or product standards.

It’s hard to imagine right now, but in late 1997 as diplomats were preparing to meet at Kyoto, the United States was proposing an international ETS. The US of course had experienced the benefits of implementing an ETS following its use in cutting sulphur dioxide emissions from power plants (see The great sulphur dioxide allowance bull market). In contrast, the EU wasn’t even considering carbon trading at the time, instead putting forward a complex array of policies and measures.