Mark Moody Stuart
Thank you very much indeed Greg and Frank. I thought those were both very interesting overviews of the situation as viewed from different corporations. I do not know about you, but I was ticking off the points of agreement and the possible areas of divergence. To me, it seems that you are both saying that there is an issue that needs to be addressed. You are both keen on controlling your own emissions, reporting your own emissions and ensuring that they are accurately recorded. You both acknowledged that the major problem is not actually in your own emissions but in what customers do with our energy - it is the 87%, as you said. So I think those are all points of agreement.
On points of difference, clearly there is a point a difference, which you can see physically, on renewable energy. One invests in it and the other does not at the moment. The one who does not says that it does not make any money and I suspect the one who does will agree that it does not make much money. That is my experience.
Frank Sprow
We like BP spending money on things that do not make much money.
Mark Moody-Stuart
And then I detected a bit of difference on the role of government in channelling this. On the one hand, Greg referred to necessary government frameworks and Frank, rather more pejoratively, referred to the fact that renewables would only work if you subsidised them. You are both looking at longer-term sequestration and technological activity into new areas, for example hydrogen and so on. I will leave it now to you to see if I missed anything.
Greg Coleman
The only other thing I would point out is that we are much more interested in seeing emissions trading systems developing and I do not see Exxon as being as active in that area. I do not know that you are not active, but I do not see much involvement from Exxon in emissions trading or working with some of the regulators that will be regulating some of these emissions trading systems, which we think allows us to be able to optimise across a global portfolio more easily. One of the reasons why we believe that it is appropriate is because we believe it is the only way to ensure that the capital is deployed most effectively.
There is going to be a lot of capital involved in dealing with this and we feel that it is very important to make it most cost efficient by putting it in the most effective place. Another difference, and Frank pointed it out, is the way that we manage our different companies. We tend to have more of a target setting/look forward approach. I am not sure how I describe what you do, Frank, but it might be interesting to hear your views on how you have managed to achieve the energy efficiency that your company has gained.
Mark Moody-Stuart
Would you like to say something about Exxon's approach to trading and global market mechanisms or national market mechanisms?
Frank Sprow
We do a lot of trading and I think we are good at it. In areas where trading is required, as is increasingly the case in the UK – we are talking about carbon emissions trading – I think we will do it well. Even though we do not have the head start that BP has in this area, I have enough confidence in our people to think that we will be very adept carbon traders if that is required. For us, I think the matter of emissions trading has, for better or worse, got mixed up with Kyoto, which we think is a very bad idea. In parts of the world where Kyoto is ratified, we will be fully in conformance with it and we will optimise our business under those constraints.
But I do think that it has been hard for us to do much to talk about emissions trading without getting over the wall on Kyoto. I would like to see those two things separated. Emissions trading can play a role in optimising one’s own economics and driving the right kinds of things in one’s operations. However, I would say that at the core that emissions trading, in our view, is sort of ensuring that we are harvesting the low-hanging fruit on the tree effectively. In our view, and I suspect in BP's as well, to make a real dent in the issue of reducing climate risk, it is the majority of the fruit high on the tree that will need to be harvested.
That is going to take advanced technology and probably many other approaches. I guess we view emissions trading as having an excessive overlap with Kyoto and also being a bit distracting from getting on with the main job of doing the science and technology needed to make a real difference. I am just giving you an idea on this, but that is how we approach emissions trading.
Mark Moody-Stuart
Given the fact that Exxon is reducing its own emissions, reporting on them and would probably be, in own emissions, more than capable of dealing with Kyoto, what is it that you dislike so much about Kyoto? Why is it not just a harmless effort to start doing something?
Frank Sprow
I will make a comment about US law first and I hate to start with lawyers – that is a horrible place to start – but that is what came to mind immediately. I think Europe tends to be a ‘best efforts’ kind of society. If you say that you are going to cut emissions by 5% and you put in it your report and ultimately you do not succeed, either as a company or a country, in general the regulators will say “We know you tried hard but it did not work out so better luck next time”. In the US legal system, if you put something down as a commitment, or if the country puts something that is obviously important to us down as a commitment, and you do not make that commitment for whatever reasons, we will have people lined up in the courthouse to sue us for not meeting that commitment. Now you could say that is a good recognition of the US legal system, or it is appropriately paranoid on my part, but that is the reality of life in the US.
The other thing that I would say about Kyoto, now that you have got me going, is that it is a lot of fuss about something that really does not make much difference. If the international community is going to work on ways to mitigate climate risk, it is going to have to focus on science and technology. It is going to have to focus on developing countries and it is going to have to focus on a market basket of activities that have the potential to make a real difference in reducing carbon emissions to a level much lower than the current level.
To have countries focused on whether it is 7% or 5% or 11% is, to us, basically an international distraction. While it may get the ball rolling, is it rolling in the right direction and doing the right things? We are sometimes accused of being US?centric but I hope that is not right because we do business in 200 countries so I certainly do not think that I am US?centric. We are a little fearful of legal obligations – that is undoubtedly correct – and we also think that it is somewhat distracting from an international policy point of view. That is my anti?Kyoto speech for the day, perhaps.
Mark Moody-Stuart
I am sure we will have some response later. Greg, you mentioned government frameworks, which I believe are absolutely essential. Some of these things are not going to be delivered purely by the market. Could you say something about BP’s approach to that – not necessarily carbon taxation but perhaps regulatory frameworks?
Greg Coleman
First, there is some immediate experience that is underway in the United States right now, with the regulation of sulphur dioxide and nitrous oxide emissions. The amount of capital that is being invested by industry in the US to deal with these issues is billions of dollars. Unfortunately, as Frank has pointed out, the regulatory system in the US is pretty onerous but it has also focused all of the effort on places where there may not actually be the best opportunities. We believe that there is a critical need for an international framework to ensure that the best opportunities are the ones that are pursued.
There are not that many international frameworks, especially in the financial systems. The WTO has being trying to get reduced tariffs in trading and it is proving to be very difficult. But the alternative is to have every country fighting their own battle and we think that does not lead to a solution that is going to be quick enough or able to deal with all of the social impacts that we will have. We also believe that incentives are the right approach, as opposed to penalties. We do know that governments that use penalties, called taxes, to make things happen have a big need for money and they will do what they think is right with that money once it comes into their account.
We would rather that the market players, not just companies but all of the players including users of capital, have a chance to play off against each other. We think that it is important that the NGOs, the regulators and the communities that are affected play a part in the solution, as opposed to having it imposed. So although we would like governments to provide a framework, we would also like them to engage all of players in the development of those frameworks.
Frank Sprow
I might make a comment on that, if I could. I am going to say something about Kyoto again, and I apologise for that. In terms of the international or the governmental process, I would just like to make a couple of points. We do not think Kyoto makes sense as an agreement. We are definitely not against – and very much support – the framework convention and the idea that the only way this risk is going to be mitigated is through a successful international process. So I really want to differentiate those two things.
Whilst we sometimes quibble with the way some of the IPCC results are quoted in a political context, we very much support the IPCC process. We are involved in it and I can assure you that when the IPCC reports come out, we look them over. I, to my limited ability, look them over and I find that I am in agreement with 99.9% of the material in the individual scientific contributions. So that is not the question.
The role of government will be particularly important, as Greg points out, in trying to figure out how we are going to make things happen that are good things in reducing climate risk when it is not obvious who is going to pay for them. Sequestration is one of the best examples of that because, as I mentioned earlier, we may well need to be able sequester CO2 emissions from large coal-fired central generation stations, assuming it can be done in an environmentally sound way. Now that sounds really good but the coal companies, and to a large extent the utility companies, do not make much money.
So you have got what could well be the biggest need for action coupled with those with the thinnest pockets. How you pull those two things together to provide the incentives and the required actions clearly has to involve governments, one way or the other. I think that is just a classic example, to make your point Sir Mark, that governments have to be part of the solution.
Mark Moody-Stuart
You could see, for example, a climbing requirement, maybe coupled with some kind of tax rebate, for sequestration. For example, something like starting with a small amount and then climbing.
Frank Sprow
I am not allowed, as a good American, to use the words ‘tax’ and ‘government’ in the same sentence but we understand the point you are making!
Mark Moody-Stuart
I was talking about tax rebates.
Frank Sprow
Oh, that is all right.
Mark Moody-Stuart
Earlier, someone remarked on this question of tax neutrality. Most of us in the industry, when we hear tax neutrality, we do not believe it.
Frank Sprow
How that is dealt with is going to be an amazing question.
Mark Moody-Stuart
What about hydrogen? I get the impression, and this may be wrong, that Exxon and indeed the United States is backing on hydrogen more than BP is.
Frank Sprow
Greg and I discussed hydrogen over dinner last night. Our view is that hydrogen is not an energy source, it is an energy carrier. When we talk about hydrogen, particularly in a renewables context, we are really trying to take water and, at great cost and expense, split it up and produce hydrogen, and then put that hydrogen into a devilishly complex system, like a fuel cell, to make probably not quite as much energy as we put in and water. If you wanted to be a little cynical, you could look at this as a very costly water recycling system.
I am going to be more open minded than that because clearly one has the potential, using hydrogen as a carrier, of having the vehicle and the fuel free of pollution in all of its normal concepts. This is such an intriguing target that you have to, as people with technological confidence, be interested in pursuing it. How can we produce low cost hydrogen, either from natural gas or perhaps ultimately from renewables? How can we deal with the safety issues in hydrogen, which are very formidable? They are too easily dismissed but the idea of rather clumsy consumers – I do not mean anyone in this room – going to an un-staffed store and putting a high-pressure hydrogen line on their vehicle scares me a lot because I am in the safety, health and environment business.
I am not saying that with anything other than a lot of conviction. Is there the potential to deliver that hydrogen in a solid form, for example a hydrate or some other structure, which could be done at much lower risk? I certainly hope so. Are we enthusiastic enough about hydrogen that we are involved, as is Shell to a greater extent than we are, in some government demonstrations of hydrogen? Yes. Do we have a lot of concerns? Yes. Can I speculate now on whether hydrogen is likely to be a winner or a loser? Quite frankly, I do not know but we are spending money to find out.
Mark Moody-Stuart
Okay, I am about to hand over to you but before I do that, could I ask each of you a question? On the IPCC scenarios, you have various outcomes. If you take the low scenarios, which result in significant climate change but not as scary as the top ones, is the lower end of that doable or are we stuck on the higher end? Do you see a way in which the energy industry, which is responsible for most of this stuff, could actually deliver a world whereby carbon dioxide stabilises at 550 or 600 parts per million greenhouse gas equivalent, or do you just say that it is in the laps of the gods?
Frank Sprow
I do not know which of those scenarios are most likely or if in fact the actual scenario could be lower or higher than that range. I would see the band of uncertainty as being quite significant. I would say that when we pulled together the GCEP programme that I mentioned, we all did some back of the envelope work where we looked at different scenarios and processes. We have belief in science and technology and time to reduce climate risk, and believe there is nothing terribly frightening out there if we get on with it and do the right things. I think that if we waste a lot of time, that is the trap for us.
Greg Coleman
Our company’s position is that we believe that the planet needs to achieve stabilisation and that it can be done. It is going to require efforts on all fronts and, much as Frank has said, we have to move the whole piece to achieve that end. The work that the Princeton scientists have done does say that there is still quite a bit of uncertainty and it is not a one-way direction either. The CO2 can go up into the atmosphere and it can be reabsorbed back into the oceans, depending on the ocean cycles and things like that.
But I think we are optimistic because we have seen how much we have achieved in such a short period of time. At the same time, we need everybody to be moving in locked step pretty quickly. The longer these debates go on where people seem to be arguing about something that has a minor impact, the less attention we can put on the fundamentals.
Mark Moody-Stuart
Well, you have seen a fairly cosy interaction between us energy folk up here and now over to you.
Participant One
We just heard that it looks like we really have to do something and I was making the case in my talk that we have to get to zero. The public are going to pay. Industry is not going to pay because we are going to pay you and you are going to then just target us more effectively. If governments do it, it will be taxes that we pay. Have you all thought about actually going out and asking governments to really get to business on zero emissions? If this really is a problem, that will need to be done and I think you all carry a lot of weight. If you step forward and say “We need to get to zero emissions” and you are not going to bear the costs long term, what does it hurt to say that and do you believe that?
Mark Moody-Stuart
Can we take that? That is a challenge: why is industry not more proactive in saying there is an issue and this is how we need to address it?
Participant Two
My question relates to the emissions.
Mark Moody-Stuart
You do not have to ask a question. You can also make a statement but go ahead.
Participant Two
If, as we have heard, we do really need to keep carbon dioxide emissions at the level they are at today with the very worst case scenarios, and if they are going to grow at the rates that were suggested earlier this afternoon, then what role does the emissions trading have to do with all of this? Is that not really just passing the problem from plate to plate without addressing the fundamentals? Are we just diverting ourselves into discussions about taxes and negotiations to say that we are trying to do something when actually we are not really?
Mark Moody-Stuart
Okay, so is trading just a diversion?
Participant Three
Frank had a lot to say about the Kyoto Protocol and I was wondering what Greg’s position was. We heard a resounding no from Frank and I would like to know if BP support Kyoto. Frank seems to be quite scared of hydrogen but he is not really scared about climate change. I am wondering the [inaudible] seems to be an acceptance that we have a big problem, whereas if I quote you, Frank, you said, or your slide said, that the risk of climate change and its potential impact might prove to be significant. I am wondering if your company is still saying that there is not sufficient evidence to prove that we are causing climate change.
Mark Moody-Stuart
Okay, we are trying to note this down but I think I want to give quite a bit [inaudible].
Dr Alan Bullin, Deputy Editor, World Ethanol and Biofuels Report
Frank, you were rather dismissive of biomass but you also said that one area of big increase will be transportation requirements. Ethanol and bio-diesel don’t seem to be in your scenario at all, so I was just wondering what you thought about that.
Mark Moody-Stuart
It is one of these big research areas.
Participant Five
There was quite a lot on renewables, which would relate to practical resource requirements, which in addition [inaudible] practically achievable. If coal generation is a major emitter at the moment because it emits twice as much carbon dioxide as natural gas does, to what extent, given practical resources, is it possible to switch out of coal into natural gas? To what extent do we need to do something like [inaudible]?
Professor David Macdonald, University of Aberdeen
I have a point for us to consider as a profession. The Geological Society contains people who both look for resources and people who research the causes and effects of climate change. These two areas of research are commonly represented in the same department, and not uncommonly in the same person. We should recognise the coexistence of these “poacher” and “gamekeeper” strands. My personal observation, from a university department that produces a significant number of geology and geophysics staff for industry, is that most students who intend to enter the industry, and most oil company staff under the age of 50 (including ExxonMobil staff) believe that there is an anthropogenic dimension to climate change. This belief is partly a result of their education and partly a reflection of the general belief system of their generation. Is this amoral cynicism, desperation for work, or the discovery of a personal balance point?
Just as individuals have to balance contradictory beliefs, so do societies. We have to balance our need for energy against the potential harm that use of that energy may cause. To make that decision, we need unbiased research and a programme of public information which must precede an informed public debate. Universities have an important role here, independent of governments and companies.
Professor E.G. Nisbet, Royal Holloway College, London University
This is a Third World view. I am a citizen of that country with the leader who probably has the most effective greenhouse gas policy in the world, massively cutting emissions, and I am part of the strong opposition to him. I am a Zimbabwean. At a guess we have cut our anthropogenic greenhouse gas emissions by half since the start of 2000.
The Zimbabwe Opposition's Energy Policy has been thought out quite carefully. In our discussions in shaping policy, there is a strong belief that there is urgent need to alleviate poverty and to increase growth. But with care we probably can do it with Zero Emissions Growth on the basis of comparison with the national economy a few years ago, before the present collapse. We will have to achieve that zero-growth goal by a vigorous and varied set of initiatives. These will include re-growing a lot of vegetation that has been cut in the 20th century - I think there are quite substantial things to be done there - and many adventurous policies about the design of society and its transport needs. There is much that can be done in reducing the need for economic growth to be accompanied by massive growth in transport. Solar energy in rural areas, biofuels, public transport on the Swiss model, and a mix of various other strategies are all attractive in a nation that produces neither oil nor millions of cars.
I think similar ideas can be applied quite widely across the poorer nations. We do not need to grow our economies following the same path the United States followed; we can grow into economic wealth and wellbeing in a different sort of way. Wealth is about life, liberty and the pursuit of happiness - good health, security of food and clothing, education, knowledge that leads to wisdom. The test should be "does it add to Happiness?" - this test finds other things more valuable than SUVs.
However, there are possible dangers in alternative strategies. In particular detail, I am concerned about the use of hydrogen as a currency of energy because of the problem of hydrogen flux to the stratosphere and the resultant increase in stratospheric clouds. Management of stratospheric OH and water vapour may be quite a serious problem that I think has been totally ignored. The hydrogen economy may mean that there has to be a trade-off reduction in hydrogen input to the stratosphere by reducing methane gas leaks (which will also have greenhouse benefit).
Sequestration is a complex issue. Those who are familiar with seabed pockmarks must shudder at plans to sequester huge tonnages of CO2 in thousands of depleted reservoirs: blowouts will surely happen. When there are many such projects there will be accidents. This is more dangerous than nuclear waste storage and should have safety rules at least as rigorous.
From the African perspective, there is room for much African benefit from emissions trading, because I think that countries that have a long history of deforestation can recapture considerable amounts of carbon into trees, bushes, and soil carbon stores. The biggest 20th century sequestration success is in the South Eastern US forest. I think parts of Africa may like to copy that but you have got to prove the sequestration.
To do this, they (and the US and Russia) would have to PROVE the carbon recapture. This can only properly be done by atmospheric monitoring of CO2 and CH4. The stance of some western countries, especially the UK, against rigorous greenhouse gas monitoring is inexplicable. The US, supported by Australia and New Zealand and Germany, is carrying much of the monitoring burden and I think the rest of the world should help.
Finally, a point about methane: this gas has a short atmospheric lifetime and strong radiative warming impact, and easily reduced sources. It should be the first target of international action: cutting methane emission is cheap and means the global greenhouse warming can be cut within a decade, not two centuries as with CO2. The neglect of methane does much harm to the poor nations.
So I think the Third World does need a voice.
Mark Moody-Stuart
Absolutely – on the [inaudible], you saw the growth of transportation in the Third World. It will be interesting to see how that works.
Participant Eight
I have got a challenge for you. My impression was that the investment that your companies are making in this climate change issue are more marketing gloss to keep the NGOs off your backs whilst you go about making money out of oil and gas. I suspect that your core competence is in finding and producing oil and gas and that the companies in the new arena are not going to [inaudible] BP and Shell.
Mark Moody-Stuart
Well, there is a challenge.
Participant Nine
I had two thoughts also about renewables. One was that when Frank says that they are uneconomical, I assume that he actually means that they are profitable because they are only uneconomical if you do not cost the externalities involved in other [inaudible] production. To say that they are uneconomical is an aspect of bookkeeping; it is an aspect of under-pricing the externalities.
The other link question is for BP’s investment in [inaudible]. How does it set the level? Since Frank said it was a good idea for BP to waste money on anything that does not make them money, how do you set the level that you should be doing that at? Why is it not 10 times what you are spending at the moment?
Participant Ten
I have two points, one related to what has just been said. One is Frank, be careful when you step out of here because some of our taxis are running on hydrogen and I think [inaudible]
Frank Sprow
I will walk!
Participant Ten
Some of your buses are in America, and in many countries in Europe you can go into a filling station and fill up with hydrogen quite safely. I think the second point is to do with externalities. You have mentioned the current conflict in Iraq. The US Government spends hundreds of millions of dollars protecting oil supplies from the Middle East and both the US and UK government gain security of oil, one of their top foreign policy objectives. It already costs the taxpayer very large sums of money to protect oil supplies, which of course the oil industry gets free of charge. That also goes with the cost of climate impact and so on – it is not paying for that.
That is one of the reasons why maybe some of the renewables are more expensive compared to oil than they might otherwise be. The other thing is that, as with any kind of new technology, I cannot imagine how many trillions of dollars of government money has been spent on the nuclear industry, for example, since the early 1950s. I do not know if anybody has done that calculation but it must be absolutely enormous. So you can imagine if that was put into more renewable or cleaner forms of energy, like solar or wind, it would be quite enormous.
I think also that in terms of government regulation, there are actually some states in the US that are doing very good things on both renewables and fuel cells and it is really only that sort of regulation that is doing anything to create new industries and new technologies. Even if you look at the car industry, fuel efficiency has really only gone up because of government regulation. It certainly has not gone up because of any kind of voluntary agreement and I think that the higher the regulation set by government, the more the industry actually responds in terms of coming up with technological solutions, which otherwise they would not do.
Mark Moody-Stuart
Texas is one of those states incidentally.
Participant Eleven
Frank said that he thinks that 99.9% of what the IPCC says is acceptable to him. I wonder whether he could expand, therefore, on why his department at ExxonMobil lobbied the White House to have Dr Robert Watson, the chair of the IPCC, removed from his position. They lobbied successfully of course, as it turned out. Secondly, I wondered if he could expand on why ExxonMobil funds groups like the George C. Marshall Institute and the Heritage Foundation, groups that think climate change is a myth propagated by leftists to bring down western civilisation from within. I wonder if he agrees with that point of view and if he does not, why does he continue to fund those particular groups?
Mark Moody-Stuart
We are going to run out in a minute.
Frank Sprow
We can handle those.
Professor Miriam Kastner, Scripps Institution of Oceanography
It is interesting that despite the fact that in several recent speeches President Bush has mentioned hydrogen as one of the important future energy sources, BP seems to have a more positive attitude about it than ExxonMobil.
Frank Sprow
That might show that ExxonMobil and President Bush are not as hard-wired as some might assume.
Professor Kastner
I would like to hear more about how BP views hydrogen as a potential future energy source and why the two companies have such different views.
The second question: it concerns me that methane hydrates did not appear on the list of “other resources”: wind and solar energy were on the list – why not methane hydrates? It particularly surprises me because in the past few years deeper water exploration and oil drilling, where gas hydrates are encountered, has become important at both companies. In order to succeed the companies had to learn how to deal with potential slope instability problems caused by gas hydrate. Why not use the hydrates there as well as the oil and gas, or at least list it as a future resource?
Participant Thirteen
Mr Coleman talked briefly about the need for partnership and he showed a very interesting diagram that showed a four-cornered partnership amongst the industry, government, NGOs and customers, which I thought was very interesting for two reasons. One is that it takes the point that the NGOs are quite distinct from the customers – by no means is one a proxy for the other – but more interesting was what was not [inaudible], namely academia and industry organisations were not at the table at first thought. I noticed that they were there and you flicked through it in microsecond in the slide you skipped but why are they not at the front row of the table?
I would not be satisfied with a reiteration of the standard model as an answer, not least because if you look down to the bottom of the front-page [inaudible] of that particular website, it [inaudible] partners and also says [inaudible]. So that is a little short of the kind of partnership that I expect [inaudible] but that extended partnership [inaudible] academia bit and the industry association, let us extend [inaudible] to the professional society part of it does not work as well as it should.
Greg Coleman
Just for clarification, the slide was supposed to look like that and when we were clicking at the top there, it did not all show up. There are actually six players on this and there are probably others as well. So I would be fully in support of what you just said as far as the academia and partnerships with professional associations are concerned.
Participant Fourteen
I would like to make a comment about a group that does not even appear on that slide and we have had only one comment from them, from the Third World perspective. It is the biggest starting point and it is the general public. We have not talked [inaudible] today. We have sat [inaudible] people who are educated in geology, people in the oil industry and whatever about what we are going to do about this. The people it is going to affect is the general public in all of our countries and they are the people who in the end – at least if they are in democracies – we would hope have the responsibility for making the decisions about this when politicians stand up and say “This is how we would like to act”.
We have not really talked about them and one of the things that worries me greatly is that I have seen a lot of very interesting [inaudible] very detailed science on the complicated arguments being talked about today and the set of people that really need to understand them are the people who are outside this building. We have not talked about how we are going communicate this knowledge to them so they can make good decisions as political actors in our democracies. Important in my question is what responsibilities we have, as geologists, professional scientists or as oil and energy companies, to communicate our knowledge about climate change or climate risk to them. We have not really debated that and I would like to know why.
Mark Moody-Stuart
Okay, I am just going to take a couple more, otherwise you will never get all of these answers.
Participant Fifteen
It follows on from what has immediately been said. I think that one thing that one sees being a pessimist is that people are people and they have aspirations. If we generate in China, to take one country, the sort of middle classes that we have in the West and they have the same aspirations that we have, the idea that we can keep to any of these low number scenarios I find complete unbelievable. They all want cars and they will all, therefore, burn large quantities of hydrocarbons, whether we want them to or not. It follows directly from what has just been said.
Eric Wolff, British Antarctic Survey
I heard from ExxonMobil that they believe that most of the science about climate change has been presented but there are still some uncertainties. It seems to me that those uncertainties get propagated and amplified if you go upwards to the chief executive and chairman of Exxon, and then eventually until you get to the President of the United States and so on. They then provide an excuse for not treating the problem very urgently.
You said that we should unite around solving the uncertainties so I would turn that around and ask what do Exxon see as the uncertainties that are stopping us from acting urgently? We know what we as scientists see as the urgent uncertainties, but we are not sure that they are the ones that are stopping people from believing the stories that we are telling. So we need to be told, as climate change scientists, what are the things that are seen out there as being uncertain?
Mark Moody-Stuart
Okay, one more.
Participant Seventeen
Just a point of clarification, Frank, about the Stanford Project. I would like your comment on an article in Nature magazine, which was written by another professor of physics at Stanford University who was very upset at the project going ahead because of the strings attached to it. He warns of that universities entering into such arrangements in the future should be alert to the pitfalls inherent in the Stanford model and should avoid being tempted by donations into acquiescing to inappropriate restrictions. It seems to me that the Stanford Project has Exxon directing the project, as opposed to an independently certified project.
Also, the renewables that are mentioned in that project, as another speaker said earlier, if you poured the same sort of money into researching renewables, you could change the charts that you showed us earlier. With the climate science being what it is and as uncertain as it is, the certainty of it is surely that Exxon has a responsibility to put that money into the research.
Bryan Lovell, University of Cambridge
Mark, can I just make one comment?
Mark Moody-Stuart
I did not call you because I thought you were waving to me about the time.
Bryan Lovell
I just wanted to say that I provoked this debate originally in the Petroleum Group, hoping that there would be a prize fight when we came to the public spectacle. In fact, we have had the boxers embracing at the weigh-in at the restaurant yesterday evening before they even climbed into the ring here today. But I think we may have had something rather more exciting than a fight – we may have had agreement. If I may, Mark, I would just like to say why I thought there was a qualitative difference between BP and ExxonMobil that led us to this afternoon’s discussion.
I think that we have reached the overwhelming scientific consensus in this room, notably expressed by Hans Ziock at the climatic moment when he said we had not got any time left, that we think as a group that there is a big problem and that urgent action is required. I think there may be others here who share with me the belief that if your companies do not do something about this, then we really do not have much hope. I do not see anybody else besides the oil industry actually doing anything about it on the sort of scale required. So, can we have a statement of intent from ExxonMobil that they will emulate BP in taking responsibility for the carbon dioxide emissions resulting from the use of their products? Then we can start doing something as an industry about this problem.
As long as there is not a clear recognition that the responsibility of the oil companies is for the use of their products, I do not think we have much hope. I don’t give that much credit to people simply taking responsibility for emissions in their own operations. I run one of Britain’s smallest companies and I certainly take responsibility for ours and I would hope anybody running an organisation would do the same.
Frank Sprow
Absolutely. Let me start with Bryan’s point and then I am just going to choose three others here for at least an initial response. I think we very much do take responsibility for the use of our products. I think the programmes that we have undertaken with automobile manufacturers and other device manufactures are responsive to that. I think we were one of the first companies to point out that the lion’s share of fossil fuel emissions came from the use of products. That is not to mean that we should not do our best to reduce our emissions in our plants but it really is in product use that we will make a difference.
I think we were the first of the oil companies to engage with automobile manufactures in fuel cell research. We did that back in 1990 or thereabouts when we set programmes in place with Toyota and others. So we are definitely committed to working on improvements in the product consumption sector and we will definitely take your pledge, Bryan.
Let me take three other questions. First, I will take one that I thought was quite important, which was if we are going to reduce climate risk we are going to need to take steps to switch from coal to lower carbon forms, particularly natural gas and how do we do that? The problem is that the gas is in the wrong place. We have used up much of the gas that is near the places where people want to use it or where the infrastructure is there to use it effectively. There is lots of gas available for growth in Europe. What the industry needs to do is to develop resources in areas where LNG is the desirable route of transport. Society needs to be able to effectively permit LNG receiving facilities and to carefully consider the risks of those facilities in a realistic way so that those resources can be brought to market.
Another area that we are working on in that area is advanced metallurgy. We have developed some very high-strength steels that will allow methane to be transported at low cost over much longer distances than was previously the case. We have collaborations with Japanese steel companies to bring that technology to the market. So getting gas that is in the wrong place to where people want to use it is the critical aspect to backing coal out of those markets.
Let me now address a question that is more contentious – it is the one on Bob Watson and the IPCC. It is a very good question. I have looked into that very carefully. For those of you who are not familiar with that, a memo showed up that was transmitted by an ExxonMobil employee in our government relations office in Washington with some questions about Bob Watson and how the Government could affect the process of choosing a new chairman of the IPCC.
Our employee transmitted a memo that he had received from another organisation to someone in the administration who had asked for it. I can defend that process. But was the use of the company reputation and name in that way appropriate? I would say no. So I regret it happening; I can defend it from the point of view of political scruples but I do not like it.
In terms of some of these institutes, George Marshall was noted as one organisation that we supported and Heritage Foundation was another. We support a wide number of organisations, primarily in the US where this is a normal part of business support, who are free-market, basically pro-capitalist and conservative. Those are two; there are a number more and we list them all on our website, www.exxonmobil.com, so there is nothing secret about them. We look at what they do over a process of time and ask whether the good outweighs the bad for those organisations. Do we agree with everything they say or do? Absolutely not – we speak for ourselves on all public policy issues and we do not hide behind any other organisations.
Another one I wanted pick up was the Stanford Programme and there are two things specifically there. Is ExxonMobil directing the programme? The answer to that is clearly no. We had our first meeting of the sponsors and the Stanford administration and faculty. There is no question in my mind or in the minds of anyone who is familiar with the process that Stanford is directing the programme. They are proposing the programmes and the sponsors are endorsing them. I can say for a fact that every programme that Stanford proposed at our initial meeting was accepted and that ran the range of renewables to advanced vehicles. The broad range of companies involved almost assures that outcome and that was our intent.
If this was a consortium of oil companies, I think people would have the right to be a bit concerned, but even so I think that the nature and prestige of an organisation like Stanford should outweigh that. But it does not need to in this case because there is a broad range of companies and interests, companies like General Electric who have a tremendous interest in fuel cells, renewables and advanced power sources. Toyota is a major player in the auto industry and Schlumberger has a great interest in being the primary provider of sequestration technology. So you have many interests represented there, far from just the interests of ExxonMobil.
The subject of Stanford patents was questioned. That is a convenience for the sponsors. We do not want, as sponsors, to negotiate patent rights with 20 or 30 different universities. We want Stanford to own all of those patents. Stanford will undoubtedly enter into intellectual property discussions with other institutions involved and make arrangements with them for compensation for the intellectual capital the bring to the party and the sponsors will look at that and have some comments on those arrangements. It was from a simplicity for the sponsors point of view and the anticipation is that Stanford will do what it takes to ensure that a broad range of universities around the world are involved in the programme and intellectual property discussions will no doubt be a part of that.
Greg Coleman
Let me try to take the same approach. I will not take as long – it is obvious that ExxonMobil have a lot to say on the subject here. I will just add a few things. First, on solar and the question of what level of investment is appropriate [inaudible]? We have been in the solar business for 25 years and, in fact, Graham Baxter is here today and he has been working at developing solar solutions in the developing countries. It is proving to be a very difficult sell, partly because some of the places where we are trying to sell solar panels do not yet have the capacity to use electricity yet. So we are starting in some places with a very low demand level.
In 30 years, we have now come a place where we are still not making money. We have put several hundred millions dollars in to help give Exxon a head start on ROCE calculations. We will catch up quickly enough and we believe that in time it will become economic in niche markets. I cannot actually disagree with some of the projections that Frank put up there; we are assuming that our business will grow at 30% per year for a few years – that is more aggressive than the 20% you [inaudible]. That means that we are going to be taking market share and this will require technological breakthroughs. We are optimistic that they will come and we are talking orders of magnitude cost reduction, as opposed to 10% per year cost reduction. That is what will be required to make it a viable business.
We might see the solar business breakeven this year or possibly next year. We are one of the largest users of our own products and one of the reasons we are doing that is so that we can get scaled up and get the manufacturing capacity to a level where we can actually then supply customers, who do not want to wait fives years if they decide that they want it. There are a lot challenges in growing a solar business. If you go back to what happened in the IT industry in California two or three years ago, overbuilding before the market is ready is no better a solution than being slightly behind. But we believe that it is an appropriate area in which to have an option, which may or may not come to pass in 30 or 40 years. 100 years from now, solar energy will probably have a share in the energy market that you will able to see of Frank’s graphs. It will be more than just a thin pencil line on the graph in the energy market graphs of the future.
With respect to hydrogen, probably in our own way we tend to do things in partnership. Despite the problem with my slide there, we are working with the engine manufacturers and we are one of the founding members of the California Fuel Cell Partnership and a couple of months ago I was riding around in a hydrogen?powered fuel cell car. There are 22 in California and they cost over $1 million per car to put on the road. There are a few companies that are planning to bring them out and market them on a subsidised basis so they can build up the size of the fleet. To put a car on the road, if you are Ford or GM or Toyota, you may well have to spend several hundred thousand dollars of your own money to sell a car for $25,000, which is what a consumer can afford. There is a big investment up front.
The other challenges with hydrogen are things like the fuelling infrastructure and how you get hydrogen to the right place, how you put it in the vehicle safely and all of those things that caused trepidation in Frank’s thinking. They will be possible to overcome. The demonstrations say that it can be done but it does require some wider thinking. For example, in California right now we are training rescue crew on dealing with cars with a hydrogen pressure tank in the trunk. You do not take an axe and knock it into the end to get people out of the car. So there are some very practical things that need to be put in place before we could see widespread use of hydrogen.
Mark Moody-Stuart
We had one question on trading that said trading was worthless. Would you like to address carbon trading?
Greg Coleman
Our view on trading is that it is a way to optimise the use of capital. The analogy for me is actually a very simple one: we load crude oil in Asia and in the Middle East and it works its way to the Gulf of Mexico or to Britain or to Europe for use. If we had to take every tanker of crude oil from Asia all the way to the US to use it, the cost to do that would be significant. If, through trading, we can optimise the use of the trade routes to put oil to where the customers are through the liquidity of the market, then we can significantly reduce the cost of supplying the product to the customer.
That is the purpose in trading. It will actually allow the cost of reducing emissions to be lower, we believe, if you believe the analogy of shortening the supply chain. That is effectively what we are trying to do with emissions trading, to shorten the supply chain between the user and the provider and if we can do that it will make these things even more attractive than they would otherwise be.
Mark Moody-Stuart
Okay, could I just say something about Bryan’s challenge because I think it is very important? Given the position in which most of the major oil companies find themselves in relation to the work done by the IPCC, which is that it is a sound piece of science and it has a range of outcomes with error bars on them, it is a certainty that we quite often invest on. I think it would be a great help in addressing the consumer side if, in some way, we could collectively say that we acknowledge this work and we need to come out at the lower-end scenario, although we do not exactly know how we will do it.
I do not think that we energy companies believe the person who said that we need to stop where we are now, and nor does the IPCC, I think. The earliest you could flatten out that is somewhere around 550ish ppm. I think it would be constructive if collectively we could actually say that and say that we think, given that work and its uncertainties, that we need to level out somewhere around 550ppm. There would immediately be a bunch of people who would ask why not 500ppm or 450ppm or whatever but frankly I do not care what the number is. I think a commitment would have an impact on consumers.
The second thing I think we need to be quite clear about is something that I encourage business people to acknowledge – and this was raised at the back – which is that we do need these government regulatory frameworks within which the market can operate and deliver solutions, including flexible mechanisms. The person at the back said these things will not happen unless there is some channelling of the market and that has to be in transportation, in housing, in renewables and in fuel cells. Some kind of framework guiding the market and if we in major corporations could support that, it would help the consumers to support their governments in setting these things.
I mean we cannot sell things to our consumers that they do not want and governments, as Gordon Brown in this country found out, cannot do certain things to consumers because they rebel if they think that you have gone too far. Our consumers and governments’ voters are the same people and that is where we need these partnerships to let us set up frameworks that allow us to work and deliver solutions within that. That is the second thing. So first, a collectively commitment to a target of some sort – that will take us a while, second, an acknowledgement of the role of government frameworks and third, this hugely important thing about the developing world.