How BP sold Emission Trading Scheme to EU - Putting the Fox in Charge of the Hen House

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Putting the Fox in Charge of the Henhouse: How BP'S Emissions Trading Scheme was Sold to the EU A Case Study In January 2008 the European Petroleum Industry Association (EUROPIA) sounded a warning to the European Commission. In a press release, the industry body said: “It is vital that measures taken to address GHG [greenhouse gas] emissions do not undermine the competitiveness of European industry,”1. Oil companies were unhappy with proposals to force refineries to pay for emissions permits und
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  Putting the Fox in Charge of the Henhouse, Corporate Europe Observatory and PLATFORM, January 2009 1   Putting the Fox in Charge of the Henhouse: How BP'S EmissionsTrading Scheme was Sold to the EU A Case Study In January 2008 the European Petroleum Industry Association (EUROPIA) sounded a warning tothe European Commission. In a press release, the industry body said: “It is vital that measurestaken to address GHG [greenhouse gas] emissions do not undermine the competitiveness ofEuropean industry,” 1 . Oil companies were unhappy with proposals to force refineries to pay foremissions permits under phase three of the Emissions Trading Scheme (ETS), permits which hadbeen allocated for free under phase two.Flaws in the EU’s ETS have been apparent from the start. According to Transnational Institute(TNI), “The first phase has been a disaster. One of the main problems of the scheme is that everystage of its design and implementation has been subjected to intensive industry lobbying,” 2 . Thiscase study shows that BP lobbying on the EU ETS dates back at least to the Commission’s firstproposal for a scheme. The company has intentionally helped shape a scheme which fails todeliver cuts in greenhouse gas emissions while diverting attention from meaningful action onclimate change. Historical Context From the late 1970s onwards climate scientists have raised concerns that burning oil, gas and coalis largely responsible for rising global temperatures 3 . By the 1990s the political climate had shiftedtowards action, with the publication of the first report by the UN’s Intergovernmental Panel onClimate Change (IPCC) and the UN Earth Summit in Rio de Janeiro 4 .The oil industry’s response was stark: In 1989 BP with Exxon, Shell and others formed the GlobalClimate Coalition (GCC), a lobby group which aimed to cast doubt on the scientific consensus andundermine political action on climate change 5 . 1 European Petroleum Industry Association (2008) The European Commission's Climate Change andRenewable Energy package - Uncertainties about European competitiveness still to be resolved, PressRelease, 29 January 2008,EUROPIA_Press_Release_29012008_Climate_Change_and_Renewable_Energy_Package-2008-00190-01-E.pdf - EUROPIA Press Releases,http://www.europia.com/content/default.asp?PageID=400  2 Smith, K. (2007) Pollute and Profit, Parliamentary Brief, May 2007, p30http://www.thecornerhouse.org.uk/pdf/document/ParlBrief.pdf  3 The Times (1976) World's Temperature Likely to Rise, 22 June 1976, p9 4 Rekacewicz, P. (2005) Kyoto Protocol Timeline and History, UNEP and GRID-Arendal - Maps andGraphics Library,http://maps.grida.no/go/graphic/kyoto-protocol-timeline-and-history  5 Sourcewatch (2008) Global Climate Coalitionhttp://www.sourcewatch.org/index.php?title=Global_Climate_Coalition   Putting the Fox in Charge of the Henhouse, Corporate Europe Observatory and PLATFORM, January 2009 2   BP left the GCC in 1997 and became the first major oil company to openly acknowledge the linkbetween its core business and a major global problem. John Browne, then head of BP, announcedin a speech at Stanford University in May 1997, that it was time to consider the policy dimensionsof climate change, 6 . But BP continued to lobby against substantive action to curb greenhousegas emissions, as this case study illustrates. Momentum Gathers International climate talks, hosted by the UN, led to the Kyoto Protocol in 1997 a global agreementto reduce greenhouse gas emissions to five percent below 1990 levels by 2012. The agreementwas ratified in 2004 7 .The principle of emissions trading was enshrined in the Kyoto Protocol, based on the idea thatgovernments would set limits on greenhouse gas emissions, but the market would then find thecheapest ways to make those cuts 8 . Carbon Taxes Gain Support Following Kyoto, the EU was legally bound to reduce emissions and needed “to establishinstruments which ensure that the overall reduction is effectively achieved”. There was fiercedebate about what sort of measures should be adopted, with several member states favouring acarbon tax 9 . Finland had enacted a carbon tax in 1990, the first country to have done so 10 , and theNetherlands followed shortly after 11 . Sweden, Norway and then Denmark later took similarsteps 12,13 . Weight Moves Behind Trading Despite the enthusiasm for carbon taxes among so many member states, the EuropeanCommission seemed reluctant to introduce such a tax across the EU. Policy momentum seemedto be gathering instead behind the idea of an emissions trading scheme 14 .An earlier proposal for an EU wide carbon tax in 1991 had led to some of the most ferociouslobbying ever seen in Brussels and a year later the idea was dropped 15 . Some of the strongestobjections came from the UK government, and the British remained sceptical when similar 6 Browne, J. (1997) Addressing Global Climate Change, Speech at Stanford University California - Part 1,BP Press Office, 19 May 1997,http://www.bp.com/genericarticle.do?categoryId=98&contentId=2000427  7 UNEP and GRID-Arendal (2005) Kyoto Protocol Timeline and History, Maps and Graphics Library,http://maps.grida.no/go/graphic/kyoto-protocol-timeline-and-history  8 DG Environment (1998) Climate Change - Towards an EU Post-Kyoto Strategy, European Commission,COM-98-353, p17http://ec.europa.eu/environment/docum/pdf/98353_en.pdf  9 Barrett, S. (1994) European Union Carbon Tax, London Business School,http://archive.wri.org/item_detail.cfm?id=2531&section=markets&page=pubs_description  10 Carbon Tax Centre (2008) Where Carbon is Taxedhttp://www.carbontax.org/progress/where-carbon-is-taxed  11 National Centre for Environmental Economics (2008) Energy and Carbon Taxes, US EnvironmentalProtection Agency - Economic Incentives for Pollution Control, 11-1-5-2http://yosemite.epa.gov/EE/Epalib/incent.nsf/c484aff385a753cd85256c2c0057ce35/0483a144da8fa434852564f7004f3e68  12 Morris, D. (1994) Green Taxes Report, Institute for Local Self-Reliance, Washington DC, 'In 1992Denmark introduced a carbon dioxide tax'http://www.ilsr.org/ecotax/greentax.html  13 Bruvoll, A. and Merethe-Larsen, B. (2002) Greenhouse Gas Emissions in Norway - Do Carbon TaxesWork, Discussion Paper 337, Research Department of Statistics Norwayhttp://ideas.repec.org/p/ssb/dispap/337.html  14 DG Environment (1998) Climate Change - Towards an EU Post-Kyoto Strategy, European Commission,COM-98-353, p19http://ec.europa.eu/environment/docum/pdf/98353_en.pdf  15 Birger-Skjaerseth, J. and Wettestad, J. (2008) EU Emissions Trading, Ashgate, Fridtjof Nansen InstituteNorway, p4,http://www.ashgate.com/pdf/SamplePages/EU_Emissions_Trading_Intro.pdf   Putting the Fox in Charge of the Henhouse, Corporate Europe Observatory and PLATFORM, January 2009 3   proposals again surfaced in 1997 16 . Political weight in Britain was gathering behind the idea for anational emissions trading scheme, which was eventually launched by the UK Department for theEnvironment (Defra) in early 2002 17 and Britain actively pushed for a similar scheme to be adoptedby the EU 18 . BP’s Role in the Scheme Britain’s emissions trading scheme was not developed by the UK government but by BP. In 1999the company had launched an internal emissions trading scheme 19 , overseen by BP's ClimateSteering Group 20 which was headed by John Mogford the company's Vice President for Health,Safety and Environment 21 . Mogford was part of the 600 or so strong Group Leadership team at themost senior level within BP 22 .BP opted for an internal emissions trading scheme because it thought it was likely that thecompany along with many of its customers and competitors would be compelled to participate inwider national, European or international trading schemes in the future. BP’s Alternative Energybusiness unit - which sells electricity to industrial consumers - now uses the company’s earlyexperience to market its services to potential customers on the back of their “long track record inemissions management and trading” 23 .From the beginning BP hoped to influence government policy. In 1998, Chairman Peter Sutherlandgave a speech detailing the interface between polity and the oil and gas industry. He referred toBP's internal emissions trading scheme saying: We are hopeful that the experience which we gainwithin our own company will be of assistance to governments in framing their practical response towhat was agreed at Kyoto 24 . The Mogfords Other European companies watched BP’s internal scheme with interest. Margaret Mogford, Headof Environment at BG Group (formerly British Gas) 25 was able to learn from the scheme moredirectly than most, as she is married to John Mogford of BP. In 2000 Ms Mogford was secondedby BG to the UK Department for the Environment to become head of the Emissions Trading Group 16 Whitford, L. (1997) EC Carbon Tax, Case Study No. 226, Trade and Environment Database, Informationsub-programme - UN Climate Change Secretariat,http://www.american.edu/ted/eccarbon.htm  17 Department for Environment Food and Rural Affairs (2008) Emissions Trading Schemes, Climate Changeand Energy, UK Government, 28 July 2008,http://www.defra.gov.uk/Environment/climatechange/trading  18 Leigh, E. in (2004) The UK Emissions Trading Scheme - A New Way to Combat Climate Change, Forty-sixth Report Session 2003-2004, House of Commons Committee of Public Accounts, Evidence Q12, p20http://www.publications.parliament.uk/pa/cm200304/cmselect/cmpubacc/604/604.pdf  19 BP America (2008) Gas Power and NGL - Wholesale Power, Emissions Tradinghttp://www.bp.com/sectiongenericarticle.do?categoryId=3050070&contentId=3050082  20 Victor, D. G. and House, J. C. (2005) BPs emissions trading system, Elsevier, Program on Energy andSustainable Development Stanford University California, Energy Policy No. 34 (2006) 2100-2112, 20 April2005, p6http://law-stage.stanford.edu/program/centers/enrlp/pdf/victor_and_house_bp_trading_2006.pdf  21 BP (2008) John Mogford Executive Vice President Safety and Operations, About BP - Who we are -Board and executive managementhttp://www.bp.com/sectiongenericarticle.do?categoryId=9021819&contentId=7040638  22 Marriott J. (2007) Year Zero in St James, PLATFORM Carbon Web Newsletter, Issue 8, 24 October 2007,http://www.platformlondon.org/carbonweb/showitem.asp?article=302&parent=296  23 BP America (2008) BP Gas Power and NGL - Wholesale Power, Emissions Tradinghttp://www.bp.com/sectiongenericarticle.do?categoryId=3050070&contentId=3050082  24 Sutherland, P. (1998) Oil and Gas in the Global Economy, BP Chairman, Speech, Institute of PetroleumConference on Oil and Gas after 2000, 16 February 1998http://www.bp.com/genericarticle.do?categoryId=98&contentId=2000387  25 United Nations Conference on Trade and Development (2001) Participants, 5th UNCTAD/Earth CouncilPolicy Forum on Trade and Climate Change, Rio de Janeiro Brazil, 29-31 August 2001, p6http://r0.unctad.org/ghg/events/forario2001/participants.pdf   Putting the Fox in Charge of the Henhouse, Corporate Europe Observatory and PLATFORM, January 2009 4   (ETG) secretariat 26 . The group had been established as a joint project involving the Department forthe Environment and the Confederation of British Industry (CBI), the self-proclaimed “voice ofbusiness” in the UK and was chaired by BP’s deputy chief executive Rodney Chase 27 .Mogford, under Chase’s chairmanship, spent two years devising the national scheme, effectivelyscaling up BP’s model. In January 2002, BP suspended internal emissions trading, just before theUK national scheme went live, stating that it wanted to “make space for the transition we could seehappening to external GHG trading” 28 .The UK-wide scheme recruited 34 voluntary participants, mainly large industrial emitters, althoughthe scheme was open to firms of any size and to all sectors of the economy 29 . The 34 were paid toreduce their emissions under what was the first multi-industry carbon trading system in the world 30 .BP was the fourth largest participant in the scheme and received £18.9 million in incentivepayments 31 .Under the scheme, participants agreed to hold sufficient allowances to cover actual emissions ineach year, with each company allocated an emissions baseline based on a business as usualscenario. In the bidding process that followed companies committed to reduce emissions from thatbaseline in exchange for incentive payments. Each participant could then cut emissions to exactlymeet the target, or buy allowances from other participants to cover any excess. Participants, suchas BP, that reduced actual emissions below the target, could sell allowances at the market price 32 . British Scheme Criticised by Committee Two years into the UK scheme, it was examined by the House of Commons Select Committee onPublic Accounts. Labour MP Gerry Steinberg described the scheme as a mockery and an outrageous waste of [public] money 33 . BP was one of a number of UK companies which hadlobbied so successfully for a generous emissions allowance that it massively over-complied in thefirst year of the scheme, leaving the company free to profit from the sale of its surplus allowances.The fact that emissions were already limited by the government's Climate Change agreements ledEdward Leigh, the Conservative chair of the Public Accounts Committee, to observe that thescheme seemed to be paying these companies 111 million pounds for keeping emissions down to 26 The Engineer (2000) Clearing The Air, Centaur Media, 22 August 2000http://www.theengineer.co.uk/Articles/282728/Clearing+the+air.htm  27 The Engineer (2000) Clearing The Air, Centaur Media, 22 August 2000http://www.theengineer.co.uk/Articles/282728/Clearing+the+air.htm  28 Nicholson, C. C. (2003) Emissions Trading - A Market Instrument for our Times, BP Group Senior Advisor,Speech, Royal Society of Arts London, 28 October 2003http://www.bp.com/genericarticle.do?categoryId=98&contentId=2015103  29 Derwent, H. in (2004) The UK Emissions Trading Scheme - A New Way to Combat Climate Change,Forty-sixth Report Session 2003-2004, House of Commons Committee of Public Accounts, Evidence p29http://www.publications.parliament.uk/pa/cm200304/cmselect/cmpubacc/604/604.pdf  30 Thomas, J. (2004) The Role of the CDM in the UK - An Active Market, Presentation - Djerba - Tunisia,September 2004http://www.cd4cdm.org/North%20Africa%20and%20Middle%20East/Region/Jerba%20Investment%20Forum/21-UKroleCDM_Thomas.ppt  31 National Audit Office (2004) The UK Emissions Trading Scheme - A New Way to Combat ClimateChange, UK Parliament House of Commons, Appendix 1, p35http://nao.gov.uk/publications/nao_reports/03-04/0304517.pdf  32 House of Commons Committee of Public Accounts (2004) The UK Emissions Trading Scheme - A NewWay to Combat Climate Change, Forty-sixth Report Session 2003-2004, Figure 1, p3http://www.publications.parliament.uk/pa/cm200304/cmselect/cmpubacc/604/604.pdf  33 Steinberg, G. in (2004) The UK Emissions Trading Scheme - A New Way to Combat Climate Change,Forty-sixth Report Session 2003-2004, House of Commons Committee of Public Accounts, Evidence Q26and Q33, p22http://www.publications.parliament.uk/pa/cm200304/cmselect/cmpubacc/604/604.pdf 
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