Oil giant BP rejects investors’ “oversimplistic” fears about unburnable carbon

Oil giant BP has rejected investors’ fears about ‘unburnable carbon’ saying it both oversimplifies the issue and overstates the financial impact.

BP was one of 45 global energy firms targeted by a group of 70 investors managing more than $3trn last October in the first coordinated effort to get them to assess the financial risks that climate change poses to their business plans.

The project, dubbed the Carbon Asset Risk (CAR) initiative, was coordinated by US sustainability advocacy group Ceres and the Carbon Tracker Initiative, the UK-based NGO, with support from the Global Investor Coalition on Climate Change

The investor campaign was built on Carbon Tracker’s work on ‘unburnable carbon’ that has influenced the 350.org campaign to get endowment and pension funds to exit coal, oil and gas stocks.

The argument is that the carbon dioxide from burning all known fossil fuel reserves would raise global temperature by more than 2°C – and that the potential regulation to prevent this from could cut the value of the reserves and the companies that own them.

“Investors in 2013 raised a concern about unburnable carbon,” BP says in its new Sustainability Report.

It continued: “We agree that burning all known reserves would probably cause global temperatures to rise by more than 2°C – and that addressing this issue will require the efforts of governments, industry and individuals.

“However, we believe that the unburnable carbon approach to assessing the impact of potential climate regulation on a company’s value oversimplifies the complexity of the issue and overstates the potentialfinancial impact.” It did not go into further detail about the financial impact.

The company says it considers various factors when making investment decisions. These include potential GHG regulation: it assesses carbon policy at a regional level, and applies a carbon price to larger projects and “those for which emissions costs would be a material part of the project”.

That internal carbon price is currently $40 per tonne of CO2 equivalent: “The standard cost is based on our estimate of the carbon price that might realistically be expected in particular parts of the world.”

BP also undertakes “deep dives” into potential innovation in the 2030-50 timeframe, collaborating with external bodies.

It summarizes that the approach allows it to “optimize our portfolio to meet the world’s energy needs and to alter our investments to reflect changing policy, market and technology conditions”.

The report was prepared following dialogue with a range of stakeholders, including industry associations, government, investors, NGOs and trade unions.

Helen Wildsmith, Head of Ethical & Responsible Investment at UK charity fund specialist CCLA, who is spearheading the ‘Aiming for A’ initiative on climate disclosure, said: “In the transition to a low-carbon future, oil and gas companies will need to innovate and have portfolios which are resilient to sudden changes in public policy or technological breakthroughs.

“We encourage these companies to publish information on future energy scenarios which highlight critical uncertainties, while building a coalition of the willing to bring carbon capture from gas to economic scale.”