Published on October 14th, 2018 | by Joshua S Hill0
BP CEO Raises Fears Of Divestment & Disclosure In “Petroleum Executive Of The Year” Speech
October 14th, 2018 by Joshua S Hill
BP CEO Bob Dudley, in his keynote speech given as the “Petroleum Executive of the Year” on Wednesday, raised his concerns with the global divestment and disclosure movements that have risen up around the fossil fuel industry, saying that they “could lead to bad outcomes.”
Bob Dudley, CEO of multinational oil and gas company BP, formerly known as British Petroleum, was announced as the Energy Intelligence Petroleum Executive of the Year in January, the 22nd winner of this peer-selected award. “Bob Dudley has provided calm and effective leadership for BP during a period of unprecedented risk following the 2010 Deepwater Horizon disaster,” said Jim Washer, Executive Editor of Energy Intelligence, in January. “He skilfully steered BP through the legal, financial and political challenges that ensued from the tragedy, and has led the company’s recovery as it rebuilt its reputation and returned to growth. His selection as this year’s winner of the Petroleum Executive of the Year award reflects the respect of his peers for the grace under pressure he has shown during seven uniquely challenging years at the helm.”
The award was presented on Tuesday, October 9, during the 39th annual Oil & Money conference held in London, and Dudley’s keynote speech was delivered on Wednesday (PDF), in which he championed the need for continued investment in the oil and gas industry as essential to addressing the “dual challenge” of meeting global energy needs as well as reducing carbon emissions.
Dudley’s Trinity of Woe: Divestment, Disclosure, & Stranded Assets
Dudley’s contention was that the energy industry has reached a “fork in the road, and we need to decide which way to go.” His two options create a false dichotomy: “We could go the way of people who want to drive a wedge between the energy industry and investors – between oil and money, if you like … Or we could take a different, more innovative and collaborative path. One that recognises many fuels must play a part in meeting the dual challenge – albeit made much cleaner, better and kinder to the planet.”
Dudley outlined exactly who were those “people who want to drive a wedge between … oil and money,” describing them as those who “push for potentially confusing disclosures, raise the spectre of a systemic risk to the financial system from stranded assets, and campaign for divestment. All in an effort to squeeze oil and gas out of the fuel mix.”
“They are driven by good intentions,” Dudley explained, “but my concern is that their suggested recommendations could lead to bad outcomes, particularly for some of the most vulnerable people in the world.”
Dudley continued, referencing comments he made at the conference last year, saying that “a race to renewables is not enough to meet the Paris goals on its own. Instead, we must be in a race to lower emissions by all means possible. Faced with that stark choice, you can probably guess which path I think we should take.” According to Dudley, “We must pursue the second one – where energy providers, investors, governments, NGOs, and everyday citizens are all working together to advance a low carbon future.”
A False Dichotomy
It is unfortunate to see Bob Dudley so plainly reveal his true colors and allegiance to the fossil fuel industry at the risk of unchecked global warming — especially as his comments come only days after the Intergovernmental Panel on Climate Change released a report warning that “Limiting global warming to 1.5°C would require rapid, far-reaching, and unprecedented changes in all aspects of society.”
“Once again the fossil fuel industry has shown its true colours,” reiterated May Boeve, Executive Director grassroots climate campaign, 350.org. “It is utterly staggering that the week the IPCC release a major scientific report detailing the catastrophic impacts of a 1.5°C rise, BP choose to argue for further fossil fuel extraction. We are standing at a fork in the road, and it’s simple- to keep global warming below 1.5°C, coal, oil and gas needs to stay in the ground, the fossil fuel industry has to go.”
Tim Buckley, Director of Energy Finance Studies at the Institute for Energy Economics and Financial Analysis (IEEFA), who spoke to me via email, was similarly frustrated with Dudley’s comments, describing the BP exec’s trinity of woe as “A straight case of effective climate denial and abrogation of corporate responsibility. Like most global private multinational fossil fuel firms, BP has long funded denialist lobbyists while at the same time distorting the tax and royalty systems globally to minimise their public contribution so as to inflate their own personal profits at the cost of humanity.”
It’s also disappointing that Dudley so wildly relied on the creation of a false dichotomy — scaling up renewable energy or lowering emissions by all means possible.
Suggesting that there is only a binary choice borders on the insane: What we need is scaling up renewable energy at all costs and lowering emissions by all means possible. It is not a choice between the two, and suggesting that you are taking the common-sense approach by choosing the latter of these two paths is not only disingenuous, but it’s also dishonest. The moment these fossil fuel companies attempt to make a case for anything close to business-as-usual activity for their fossil fuel assets — which is what Dudley is essentially arguing for, suggesting that oil and gas are vital ingredients moving forward — the movement to limit global warming to 2°C or 1.5°C is immediately placed on the back foot, having to contend with continued fossil fuel emissions.
“The beguiling olive branch using calm rational logic to suggest we all work together in the pursuit of joint collaboration and innovation,” continued Tim Buckley, lambasting Dudley’s hypocritical double-speak. “So when has an incumbent private, profit-oriented industry involving massive, uncosted externalities ever worked towards a just and humane solution for the greater good at their own cost?! Seriously, only a massively overpaid tobacco, land mines manufacturer, or fossil fuel senior executive could parrot such words of wisdom without a shred of sincerity.”
Bob Dudley’s comments are doubly disappointing when you consider BP’s recent moves into the renewable energy and electric vehicle space. In July, BP acquired UK electric vehicle charging station network Chargemaster only a few months after it invested into an ultra-fast-charging battery developer called StoreDot and a few months before that, a $5 million investment into FreeWire and its mobile EV charging station Mobi. More importantly, BP acquired a 43% stake in British solar developer Lightsource in December of 2017 at a cost of around $200 million, putting the company squarely into the low-carbon energy transition.
Any goodwill that BP might have garnered for itself, however, has been thrown out the window with Dudley’s comments this week.
Growing Divestment Concern
Bob Dudley’s speech also highlights the growing concern of the global divestment movement from within the fossil fuel industry.
Royal Dutch Shell published its Annual Report in March of this year, and buried deep within the Strategic Report section were a few illuminating words concerning the divestment movement. Specifically, Shell highlighted three specific issues it believes could impact the company’s future financial performance — greenhouse gas emission regulation, fossil fuel divestment, and legal challenges.
Specifically, Shell explained that it expects a “growing share” of its greenhouse gas emissions “will be subject to regulation, resulting in increased compliance costs and operational restrictions.” Additionally, the company highlighted concern that “some groups are pressuring certain investors to divest their investments in fossil fuel companies.” Finally, the company noted that “in some countries, governments and regulators have filed lawsuits to hold fossil fuel companies liable for costs associated with climate change.”
Unfortunately, Shell’s concerns with the divestment movement are not limited to a buried note in its annual report. I reached out to Shell for comment in the aftermath of Bob Dudley’s speech in an effort to discern where Shell stood on the fears Dudley raised. Its comments were less than comforting.
“Shell fully supports the Paris Agreement and we agree on the objective of a transition towards a net-zero emission energy system,” a Shell spokesperson said. “We are taking concrete steps to address our own carbon footprint with our industry-leading Net Carbon Footprint ambition, as well as investing in lower-carbon energy options and advocating for smart policy solutions.”
Relatively harmless, so far, and about what you’d expect from one of BP’s competitors. However, Shell’s spokesperson continued, saying:
“Whilst we welcome constructive efforts to work together to advance the energy transition, the potential of divestment campaigns to effect meaningful change is questionable. Such campaigns conveniently ignore that access to reliable, affordable energy benefits all of society, by enabling the world’s economy, raising living standards and improving lives. As demand for energy continues to grow, there is a risk that over-simplifying this issue discourages the pace and scale of collaboration needed to address this global, societal challenge.”
Shell isn’t quite as upset with what Bob Dudley described as “potentially confusing disclosures,” and the company pointed me towards its June 2017 letter of support for the final recommendations set out by the Task Force on Climate-Related Disclosures (TCFD). BP also claims to “support transparency in this area, as well as the need to improve the quality and consistency of these disclosures” but, one wonders just how committed it is after Bob Dudley’s comments.
For both BP and Shell, therefore, an underlying assumption drives their primary argument — namely, that oil and gas are both necessary long-term energy sources. Unfortunately for them, this is not an assumption that everyone holds as gospel, and over the last few years numerous studies and forecasts have been published, showing that renewable energy can be scaled up a lot faster, and can account for a lot more of the planet’s energy needs, than people think.
Taking a single reputable example, global quality assurance and risk management company DNV GL published its Energy Transition Outlook (ETO): Renewables, Power and Energy Use report in September of 2017 showing that renewable energy sources will provide 85% of global electricity production in 2050. (Bloomberg New Energy Finance (BNEF) also sees renewable energy sources accounting for more of the globe’s electricity demand, with wind and solar alone accounting for close to 50% by 2050.) A year later, DNV GL published its Outlook 2018 which forecast the world’s energy demand will begin to decline from 2035 onward. Further, as renewables continue to increase their share of the energy mix, fossil fuel spending will drop by around a third through 2050, resulting in oil peaking in 2023, and natural gas will meet 25% of the world’s energy needs by 2050 (while coal has already peaked). By 2050, DNV GL expects fossil fuels and renewables will each provide 50% of the globe’s energy mix.
This one example casts doubt on what is being presented and assumed by the fossil fuel industry, and it represents a conservative approach, where fossil fuels still remain vaguely relevant through 2050. A more optimistic approach, as highlighted by independent financial think tank Carbon Tracker, expects fossil fuel demand to peak some time between 2020 and 2027, most likely in 2023. Specifically, Carbon Tracker sees demand for coal, gas, and oil falling because “the cost of renewables and battery storage is falling fast, emerging economies are pursuing clean energy, and governmental policy is being driven by the need to slash emissions, control climate change and reduce air pollution.”
“The 2020s will be the decade of fossil fuel demand peaks, as one bastion after another is stormed and overwhelmed by the rising renewable tide,” explained Kingsmill Bond, Carbon Tracker New Energy Strategist and author of the report. “This will inevitably lead to trillions of dollars of stranded assets across the corporate sector and hit petro-states that fail to reinvent themselves.”
These forecasts are in stark contrast to those put forward by BP, the Organization of the Petroleum Exporting Countries (OPEC), and the International Energy Agency (IEA), each of whom believe fossil fuel demand won’t peak for another generation or so but which, in doing so, seem to ignore the explosive growth of renewable energy and the dramatic declines in technology costs. It’s important to remember, as Tim Buckley explains, “The IEA has multiple scenarios. So one can selectively quote the IEA as saying almost anything.” These assumptions similarly inform Bob Dudley’s view of the risk of stranded assets which, if his view of the future were to come to pass, might bear some semblance of truth to them. But, as Tim Buckley explains, “Dudley is deliberately and massively understating the stranded assets risks by his ongoing assumption that the world will collectively fail to take the actions needed to deliver on the UN IPCC report conclusions.”
In light of forecasts by DNV GL, BNEF, Carbon Tracker, and others — as compared to those propagated by the IEA and BP — the assumptions that underline fears around the divestment movement fall apart. Divestment, instead of stealing money away from necessary oil and gas expansion, begins directing money towards the necessary scale-up of renewable energy.
Half-Truths and Blind Ignorance
According to Dudley’s speech, he has “A better way” forward — a path of “innovation and collaboration.” To his credit, he is more than willing to acknowledge that “this is not a call for business as usual” and that “It requires significant and rapid disruption to our industry.” But again, Dudley relies on the importance of oil and gas rather than acknowledging the role that a wholesale shift away from fossil fuels could play in scaling up renewable energy technologies.
“Technology and finance combined with government policy leadership can drive a successful resolution of this growing global climate crisis,” explained IEEFA’s Tim Buckley. “A US$20-30/t on carbon emissions globally across all major industries would drive an immediate solution and develop massive new zero emissions industries of the future. It would also incentivise all global financial institutions to follow and build on the Norwegian SWF, AP7, Amundi Assets, Storebrand, Standard Chartered, Marubeni, Nippon Life, Allianz, Swiss Re, ING, Westpac, and Deutsche Bank’s lead. Imagine if Blackrock actually delivered on its long-term fiduciary duty to protect investors and moved its US$6.3 trillion. The world would pivot overnight!”
In the end, Dudley’s argument — his fears, his concerns, and his better way forward — are built on half-truths and false assumptions. “As always, some of what Dudley says is true,” added Buckley. “The fossil fuel industry loves quoting part-truths.”
“Renewables are not nearly enough,” Buckley concludes. “Even adding massively up-scaled energy efficiency efforts and electric vehicles are no where near enough, as the UN IPCC outlines. The IEA has very quietly said this for the last three years, painting a picture of a choice – we stay on the current 2.7 degree C path and all go off the cliff together, or we change radically, and rapidly.”
I reached out to CDP, Carbon Tracker, and 350.org for further comment, but each either declined or were unable to reply by time of publication.