A legacy of greenwashing haunts BP’s end-of-oil vision

BP chief executive Bernard Looney Image: BP plc

BP plc is probably the first oil major that has made concrete plans for the end of oil—or at least the shrinking of its role. The company announced a big strategic pivot last month that would see it turn from an “integrated oil company” to an “integrated energy company.”

The labelling is mercifully less flamboyant than its previous attempts to look green. Whenever I tweet about BP, my mentions are inevitably full of references to “Beyond Petroleum,” the corporate slogan developed and endlessly advertised under Lord John Browne, three chief executive officers and two decades ago. Cynicism is warranted; its foray into what was then known as “alternative energy” was later mostly sold off or closed by new management.

This time might be different. BP plans to cut its oil and gas output by about 40 per cent over the next decade and increase its renewable energy generation capacity twentyfold. It’s also given up on luring investors with the high dividends of the past, cutting its payout in half and lowering its expected returns on capital from the low-to-mid double digits that conventional oil once achieved to a more modest eight per cent to 10 per cent, closer to what big renewable energy investments yield.

There are niggles, of course. The cuts to its oil and gas extraction exclude anything produced from BP’s stake in Russian oil and gas company Rosneft, which equates to about 30 per cent of its current emissions. And BP’s plans for the next decade will include not just a big expansion of solar power, wind farms, and electric vehicle charging infrastructure, but also building up its liquified natural gas businesses, investing in methane-based hydrogen, and developing carbon capture and storage.

Even in spite of all that, BP’s commitment stands apart from other oil companies’. Most are at best pledging to cut their “emissions intensity,” a relative measure that allows them to keep extracting more oil and gas overall. On top of that, BP intends to reach its new 2030 target without relying on activities like planting trees to “offset” its emissions. Offsets are a popular tactic in many corporate sustainability plans but inadequate to the problem, in part because there’s nowhere near enough land available to offset the world’s current fossil fuel use.

The response from environmental groups was probably the warmest that an oil company has had for a long time. Greenpeace UK welcomed the plan to cut emissions, while pointing out problems such as Rosneft’s exclusion; Oil Change International said it was a “major step up in ambition” but also noted that the bar was low in an industry that has little credibility.

The commercial part of BP's rationale was underlined earlier this week with the publication of the company’s latest annual “outlook,” which projects long-term scenarios for how the energy landscape will change. Even in BP’s worst case for the climate—i.e. the best case for oil—demand for the polluting fuel will stop growing within a few years, much sooner than most energy forecasters expect. The International Energy Agency still sees growth until at least 2030 in its central scenario.

This date matters—it determines when those who are still holding onto oil assets will start having a hell of a time unloading them. Selling off oil and gas fields is likely one-way BP will cut its output in the coming decade. Other cuts will come from the natural depleting of its reserves.

Whoever buys BP’s assets will want to keep pumping oil and gas, and will likely be obligated to anyway by leasing arrangements with governments. As BP learned with the Deepwater Horizon disaster, it can be very difficult to plug wells if they can still be pumped, and retiring older ones safely can be expensive. If oil producers achieve their emissions reductions targets by shifting the burden onto someone else’s balance sheet, the planet heats up regardless.

Once it’s reduced its emissions, what could BP do next? Something more radical. The oil industry has over the past century helped shape the world around it into the kind of place that suits its business model, not least by influencing lawmakers and even other industries. While it’s made some tentative moves to confront this legacy, it still contributes to industry groups that routinely oppose policies to cut emissions. To truly move in the direction CEO Bernard Looney has mapped out, it needs to work its political muscle. Otherwise the ones yelling “greenwashing” will be right—again. 

© 2020 Bloomberg L.P.

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