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Speaker: Lord John Browne, group chief executive, British Petroleum, p.l.c.
Moderator: Jesse H. Ausubel, director, Program for the Human Environment, Rockefeller University
Council on Foreign Relations
New York, N.Y.
June 24, 2004
JESSE AUSUBEL: I’m Jesse Ausubel, the presider this evening. I’ll have an easier time than normal. Normally I would deliver the statement about that this is a meeting off-the-record, non-attribution and so forth, but in fact this meeting is on-the-record. So there are no special ground rules except to ask good questions when we come to the question and answer [session].
Let me say, this is one of a series of CFR actions and events to focus on climate change.
The present issue of Foreign Affairs features John Browne’s article, “Beyond Kyoto.” I hope you’ve picked up copies of that on the way in. It’s—I think, as you’ll see, it’s a significant statement on these issues.
On Thursday the 8th of July, in Washington, D.C., economist Paul Portney from Resources for the Future and environmental activist Fred Krupp will debate what to do about climate change.
Council fellow David Victor also has written a Council Policy Initiative in the form of three presidential speeches about climate change, three different potential positions. That is available now from the meeting staff and also on the CFR website.
We’re here because of a guest of great distinction. John Browne will speak for about 10 minutes. I will then interview him for about 20 [minutes], and then we’ll have question and answer for about 30 minutes.
Lord Browne.
LORD JOHN BROWNE: Ladies and gentlemen, it’s always a privilege to come and speak at the Council.
The topic of energy security has become an issue of high salience over the last few years. In part, of course, that’s been driven by the combination of growing demand, instability and terrorism in the Middle East, and rising oil and gas prices, and in part by the increasing awareness that within 10 years’ time growing world oil demand, in particular, will have to be met with supplies from a limited number of exporting regions. By 2015, on the estimates of the IEA [International Energy Agency], 80 percent of the oil traded globally will come from just three areas: Russia, the Persian Gulf, and West Africa. The world will need around 65 to 70 million barrels a day of traded crude oil, on their projections, and at least one out of every five barrels will come from Saudi Arabia.
Now that’s part of the energy security issue, but there is another element, which is the environmental impact of burning hydrocarbons and, in particular, the potential effects on the world’s climate. The detailed science is provisional. There are many things we don’t know. But science is always provisional, and in business we’re used to working in circumstances where we don’t know all the facts for certain. You have to make judgments in conditions of uncertainty and, in my view, the right judgment on the basis of the available evidence is that there is a powerful case for precautionary action. It would be too great a risk to stand by, do nothing, and to wait so long that when the impact on the climate really does begin to be felt, you have to take action which is so disruptive as to cause serious damage to the world’s economy.
There is a very strong case for precautionary action, and I believe the aim of that action should be to limit any increase in the world’s temperature to around two degrees Celsius. That translates into a stabilization of greenhouse gases in the atmosphere at around 500 to 550 parts per million sometime in the early next century. That is the best current estimate, and, of course, as knowledge advances, that estimate could be adjusted and refined.
Can that stabilization be achieved? The answer is yes. It would mean putting ourselves on a trajectory to the point where, in 2050, 50 percent of global needs would be met by conventional fossil fuels and the other 50 percent would come from fuels with lower carbon emissions, in some cases with zero emissions. Each of those two halves would be about the size of today’s energy industry. I believe that’s achievable.
A great deal of work and experimentation has been undertaken over the last few years by governments, by academics, and in the business world. We may not have an international agreement as anticipated at [the 1997 climate change negotiations in] Kyoto, but we do have a great deal more knowledge and experience than we did seven years ago. People have demonstrated that [carbon] emissions can be reduced at very low cost simply by reducing waste and inefficiencies. We did that in BP [British Petroleum], and we found that we actually made money in the process.
Cutting out waste is a first step, but beyond that, people have also begun to demonstrate that there are practical ways of managing the problem.
I think the most interesting work is that done at Princeton [University], which identifies a range of opportunities, each of which could contribute to meeting the overall challenge. They are wide-ranging and have all been demonstrated at scale. None of them would require a material advance on currently available technology, just a continued reduction of the engineering cost curve comparable to the gains the energy industry has achieved at the time; for instance, in Arctic and deep water oil production or the long distance transportation of gas as LNG [liquid natural gas]. The task is to reduce by 2050 the amounts of carbon dioxide, which on current projections would be entering the atmosphere each year by half, some 25,000 million tons.
Is such a reduction feasible? Yes. Numerous different steps could contribute to the displacement. Each of the following could reduce emissions of carbon dioxide by 1,000 million tons per year, and each could be scaled up from there:
--400 power plants using natural gas rather than coal, each generating 1,000 megawatts—that is, in total, roughly equal to China's current power capacity.
--200 coal-fired power plants using carbon capture and storage.
--600 million cars, that is, a third of the world's anticipated car numbers by 2050, each running at 60 miles per gallon rather than 30 miles per gallon using hybrid engine technology.
--The replacement of 200,000 megawatts of coal-generated power with nuclear.
--A 20-fold increase in wind power capacity.
--A 12 percent per year growth in solar power, half that of the last 25 years.
And there are many other things which could be done to improve the efficiency of energy use—from the development of smart grids making more efficient use of electricity transmission, to a greater use of waste heat in factories and homes; from the development of a coal gasification technology [which converts coal into synthetic natural gas], to the construction of more energy efficient buildings, an important step given that a third of all energy use is actually in buildings.
Of course, there are many uncertainties. The decisions that require changes in lifestyle may be quite unacceptable. The technology of carbon sequestration [the uptake and storage of carbon by various methods so as to keep it out of the atmosphere] may be unattainable. The development of a new generation of nuclear stations may raise unacceptable risks of proliferation and terrorism, as well as raising, again, the question of waste disposal. But equally, there are uncertainties on the positive side. Technology is moving very quickly and would almost certainly offer new opportunities over the next half century—possibilities we can’t even envisage now.
The important thing to recognize is the challenge and the fact that we have to make a start. Different countries and different industries can do different things. I’ve no doubt, given the depth and quality of the technical base here in the United States, that much of the technology that will make this possible will come from America. But everyone can make a contribution, and the best way to encourage that is to have all the alternatives valued through a cap and trading mechanism.
In particular, that is what will encourage business to use its knowledge of technology, markets, and consumer preferences to transform possibilities into a reality. That is the key contribution which business can make: the commercialization of better choices. And that applies both to the application and development of existing technologies and to the process of finding longer term solutions.
Valuing carbon through a trading mechanism [whereby countries are allocated credits to emit certain amounts of carbon and may trade those credits to other countries in order to regulate worldwide emissions] would encourage the development of a new set of energy sources, from photovoltaics [solar cells which absorb light and convert it directly into electricity] to fission-based reactor technology to energy from biomass [organic energy resources] to the use of hydrogen. These new technologies, as they’re developed, should compete with each other and with fossil fuels. This shouldn’t be about subsidies; the objective should be to encourage open competition in a free market.
Of course, it would be unrealistic to expect to see a single global trading system overnight. But a good business principle to start is to start from where you are and build from there. I believe that the European system, though it still needs to be completed in full, is a pretty effective base from which to begin. It can be developed and strengthened and eventually linked to other various creative schemes which are being established in different parts of the United States and elsewhere.
A cap and trading system initiated successfully in the developed world can also be extended to the emerging economies, whose current per capita energy consumption is low but rising. And to expect such countries to participate immediately when their priority is to lift their populations out of poverty is unrealistic, but equally unrealistic would be a system which looked to the developed world for all the solutions. An effective system gradually extended is the equitable answer.
All in all, then, I believe there is a case for cautious optimism. I know many people who care about this issue are dismayed by the fact that the Kyoto agreement has never been ratified. I understand that disappointment, but I still believe that the whole process is a very long-term enterprise, comparable in many ways to the development of GATT [General Agreement on Tariffs and Trade] and the WTO [World Trade Organization] after the Second World War. That process took decades and is still incomplete. But progress was made, starting with the 23 countries who took the first decision to reduce tariffs between themselves when they met here in the United States in the spring of 1946. Gradually people saw what was possible and the benefits it could bring.
In terms of climate change and long-term energy security, we’re now beginning to see what can be done, and there are ways to meet the challenge at a manageable cost. I do think that one of the real challenges of this issue is that it seems almost too big, too global, and too full of uncertainty to be susceptible to the normal policy process. And that’s why I think the answer lies not in finding a single instant solution but in taking an incremental approach supported by market forces, setting some objectives, doing what we know we can do, learning from experience, and then doing more. This isn’t an insoluble problem. We can find a solution, and we should start now.
Thank you very much. [Applause.]
AUSUBEL: John, I started working on this problem in 1977. I’ve heard many speeches about it. Not many of them have been newsworthy. But I think you’ve just made a very significant, perhaps historic statement. I’ve never heard a [representative from a company that is a] major emitter [of carbon] accept the idea of a threshold—a two-degree threshold in this case—as a target, in this case connected with the 500 to 550 parts per million range of concentrations in the atmosphere. Am I correct that this is news?
BROWNE: It probably is. But I think it’s equally a logical conclusion from the state of analysis as we see it today. Let me say immediately, as I say in my piece in Foreign Affairs, that what is being studied here, what is being simulated, what is being analyzed keeps changing, and it changes based on better models, better information, better understanding. But as you look at it today, it seems to me this: that the objective of everything we’re doing is not only to reduce carbon in the atmosphere, it’s actually to stop the Earth[’s] temperature rising too much. So we need to remember: we shouldn’t lose the plot here.
So I think we ought to sort of start from this basis and say, “Around what sort of rise would there be—is the least-worst, as it were, not damage-free, but something which could be at least handled by the world?” [We should] work backwards from there and say, “Well, the state of our knowledge today says we need to reduce, over what we would otherwise put into the atmosphere, the amount of carbon that goes in there.” And that amount varies according to our state of knowledge, looks like 500 to 550 parts per million is the steady state level you have to get in the next century, but in order to get there, we have to do something starting now.
AUSUBEL: Let me stay with this theme of the 500 to 550. On the one hand, it’s a limit; on the other hand, as you explain in your paper and in your remarks, it in fact allows increase in emissions over the next two or perhaps three decades, and then a decline beginning in perhaps 30 or 40 years. Does that mean that, for companies like BP, in fact, [it will be] business as usual for the next 10 or 20 years? Do you really need to do anything different tomorrow?
BROWNE: It is a very good question, because you could be lulled into a sense of real false security, which is, well, you can carry on, and then it’ll be someone else’s problem, and as long as we take action at some stage, it will all be fixed. The problem is that it is—on the basis of all evidence, carbon hangs around a very long time. So we need to do something now to moderate the action in the future.
So how does this affect our business? And I can speak just of my own experiences. It very much does change the way we think about our business and what we actually do in our business.
I remember both as the child of an oilman being in Iran in the ‘50s and ‘60s. I also remember living in the oil fields, and I remember being unable to go to sleep because of the light of the huge flares of gas that burned 24 hours a day. And this was gas which is produced with the oil. In those days, it was a nuisance, and it was being burned, and it was enormous. The light just made the day dusk—it didn’t make it—it made the night dusk, not day. But it was extraordinary. Now those practices have all stopped, but they were extant for some time. But latterly they’ve stopped.
The change in what is produced from oil is dramatic. It’s not apparent, I think, to most people, but the gasolines and diesels that are made today actually do much less damage, because they are a little bit more efficient in the engines of today than they were even five years ago. So much of business is pointed towards making things efficient and conserving resources and not wasting them unnecessarily. And this theme goes through business completely, I believe.
AUSUBEL: You’ve mentioned the flaring of natural gas. You’ve actually said less about oil, and in your prepared remarks you also didn’t say too much about oil. Many politicians, the media, many people in the public treat oil and gas as Siamese twins. Is part of what you are saying is—that natural gas, methane, is going to become relatively more important in the energy industry, and to BP in particular, and oil and the coal, of course, the heavier carbon fuels, will become less important?
BROWNE: Well, let me say there was no advertent ignoring of oil. It is—it remains a very important fuel for the future, will remain in the—being used by the world, because of its energy density, its ideal use in transportation. We have to carry it around before you actually use it.
Gas is, of course, a hydrocarbon, but it is very different from oil in that it is incredibly simple. It has a lot of hydrogen for the amount of carbon that’s in it. And so it, in burning, correctly burned, produces far less carbon dioxide for every unit of work that is generated by burning natural gas.
And of course its prime use has become in so many societies the generation of electricity, because a combination of advances in using all the heat in the burning of natural gas, not only to produce electricity but steam and things like this, has meant it can be converted very efficiently.
Gas is very different. When you look at consumption trends in the world, natural gas consumption is growing far faster than oil, and will continue to do so and will, in a period—probably it’ll take some time, but I think about 20 years—will surpass oil, probably, in the amount of—in its percentage of world energy.
AUSUBEL: Anywhere with your colleagues from Shell or Phillips-Conoco or ExxonMobil or other major energy companies around the world, do you feel their thinking resembles that of BP, or do you feel there are real very divergent views within the industry?
BROWNE: When BP looked at what it was doing and concluded that continuation of business as usual was not possible and not correct and not right, we at that time were a member, along with most of the oil industry, in a coalition to fight any restrictions on the industry relating to analysis of climate change, carbon dioxide. We left that group. We were the first to leave. And then we made a very clear statement that we needed to do something, some precautionary actions, to begin to reduce the amount of carbon going in the atmosphere and therefore to change the business in a way which was appropriate. But at that time it was difficult for us with out partners. It was a surprising act, and one which obviously changed relationships.
I would say where we are today is that the oil industry has come an awfully long way in the way it behaves, the way it conducts its affairs. We should become much more efficient, much more conserving of energy, and much less emitting of carbon dioxide. They are very much voluntary agreements. Not everybody says it the same way. But the progress over the last seven years has been more, I think, than I expected when we started this, which is very pleasing.
AUSUBEL: Let me turn to my side of the world. I come from the research world. We consume lots of taxpayers’ money that is channeled through Washington or Brussels or Tokyo for doing research.
In your paper, you speak about the known and the unknown. At the same time, is it possible that much of what we would like to know now, the additional knowledge that we wish to have, in fact is not unknown but unknowable? Is it possible that the models, the climate models, these large simulation models, have become so complex, have so many equations, so many parameters, so many fudge factors, that we really know about as much as we’re going to? You know, is all the research money just to buy off the intelligentsia now? In a way, it seems to me you’re saying the real question is, “How risk-averse are we?” At least in BP we know enough to make the major decisions. So should the world be spending whatever it is now, 3 or 4 billion [dollars] a year, on climate research?
BROWNE: Well, I think—if I may say so, I guess you know the answer to this, but let me try.
Without wishing to go into areas where I’m no longer current—I’m not a researcher—is that research in these areas is about—not about analysis of history where everything is bolted to the ground and all we know is laid before us because it is the past. It’s just not like that. Everything is about estimating the future, and the future is of course actually unknowable. And so we are limited in some ways by the limits of our minds on how we can model that future based on limited experience of the past. And so we find from all this analysis that there’s a reasonable range of outcomes, and each one has a risk attached to it.
Over time you can get greater and greater understanding, but in the end you are in diminishing returns because the difference between having a—let’s take a case of—the difference between a 10 percent chance of something happening and an 11 percent chance of something happening wouldn’t, I believe, change people’s behavior. The difference between a 10 percent and an 80 percent chance would change people’s behavior. So at this stage, I think people are trying to find out just what exactly this is, and can we do a bit better?
In our industry, we spend billions of dollars based on models of the future, models of things we can never see, that are in the minds of our scientists and engineers. It’s called exploring for oil and gas. You can never see and never touch a reservoir. It exists as a figment of the imagination, nowadays as a projection in three dimensions, built on simply remote sensing. We can never see it. We don’t know whether it exists. But we have to try to model it, and then we make some tests to see whether it’s there.
Our modeling is all about working out—reducing the risks of failure. This is not unsimilar. So you think about modeling in some ways this analysis as a different form of insurance policy.
AUSUBEL: Let me ask one more question before opening the discussion to the floor. You spoke about carbon capture and sequestration. I’d like to ask you on what scale you and your colleagues think this really is feasible. You know, each American now emits about 14 kilos per day of carbon dioxide. That’s about five times the amount of trash that a New Yorker creates. The total waste would be a brick of about 15 cubic kilometers. It’s a lot of waste. Do you really think carbon capture and sequestration can become a big industry? Is it 10 percent of the solution, or does it really have the potential to be 50 or 70 percent of a solution?
BROWNE: Well, let me talk about what we’re doing, which I find is—which helps. There is a lot of work going on to see which is the right technological solution to store away carbon forever, so we’ve concluded rather than just sit at a desk and do it, we’re doing—we’re now—BP has just started, I think, last month, the world’s—arguably the world’s largest carbon dioxide sequestration project in Algeria related to a gas field. This carbon dioxide is to be captured and stored away forever, and this is being done at some cost, about a hundred million dollars, but it will be something which will, I believe, prove out a lot of technology.
Carbon sequestration is very necessary. It is, of course, only applicable to very large sources of carbon dioxide being generated, but if you think for a moment that we don’t know whether this will work—we have no idea it will work, but if people think that hydrogen should be a fuel for transportation, hydrogen is not a primary energy source, it is a secondary one, and it has to be made from something, and the chances are it will be made from something with carbon in it. And in order to make it worth making, if you will, the carbon which is stripped off the hydrogen needs to be stored away. And so we need theses technologies for a variety of applications in the future.
Right now I’d say it’s an open question about exactly how it is to be done. But enough work, I think, is happening.
AUSUBEL: OK. I would guess that there are going to be quite a few questions. I’ve tried to avoid some of the obvious questions about the politics in Europe, the U.S., and China, but I hope some of those in the audience will raise those issues.
Maybe we should begin with a cluster on the geopolitics. Are there any questions that people would like to ask in that area? On the right? Please stand and identify yourself first.
QUESTIONER: Randall Rothenberg from Booz, Allen & Hamilton. Just a very obvious one. How do you persuade the developing world that this is not a tax on their development prospects?
BROWNE: Probably not by some of the ways that were conceived at the time of the Kyoto Protocol. But I think my observation, at least, and I believe proved out by some analysis, is that the so-called developing world, emerging economies, do not start at the same places when we were emerging economies. There was a massive tunneling through of technology and behavior that actually starts economies off as they emerge with the right GDP [gross domestic product] per capita at a position which is very different. And so you see extraordinary effects taking place for one reason or another: restrictions on automobiles of too large a size in China, partly environmental, partly—environmental in the wider sense: congestion, air, carbon dioxide; partly, of course, cost: import bill for a very large amount of crude oil. So there are a lot of things that happen which are not, as it were, a replication of the past. There’s something different about the future.
People, I think, increasingly become more responsible as they become—I suppose they have time to think about it. It goes beyond survival to sustainability, and this becomes part of everybody’s agenda. I think people are aware of it and they will pick it up much as any other society will when the sense of the society is its right to do.
AUSUBEL: On the left? Doug?
QUESTIONER: Douglas Murray. I’m on the board of several China-related organizations. A softball question, but you made the point that we must start now. It seems to me this comment has been made for a good 20 years or more. And the question is, what would give you serious optimism that the chances for starting now are better than they have been?
BROWNE: Well, I spend quite a lot of my life overseas sitting in Europe, in the U.K., and I see that there is something going to happen in Europe; that is, the European trading system for carbon dioxide permits. Now, [inaudible] to make sure that this trading system is about the market and is not a compliance and regulatory system dressed up as a trading system, it really is something which gets the resources in the right places and allows the market to work. But this is going to happen. It is absolutely agreed. And this is going to change, I think, the way in which behavior occurs in now what is a very large population in the world.
There are some signs, I think, in different parts of Canada and the United States that different states and provinces want also to do something in this area. They may well relate to the European trading system in due course. If you will, there are different currencies that simply need exchange rates to make them interrelate.
AUSUBEL: And I finally follow up with a question on the trading system. The European Greens have been able to block the inclusion of nuclear energy within the European—proposed European trading system for reduction of emissions. Of course, the building of nuclear power plants is the main way that France, for example, has been able to keep very low emissions. Even in the U.S., nuclear power provided 6 percent of electricity at the time of [the 1979] Three Mile Island [nuclear power plant meltdown], 10 percent at the time of [the 1986] Chernobyl [nuclear power plant explosion] and more than 20 percent today. What’s your view and the BP view on whether nuclear should be part of the trading system?
BROWNE: Well, there are so few choices for energy sources in the world. It’s all gas, coal, and nuclear fission, is the vast bulk of today’s energy. Alternatives and renewables globally amount to under 3 percent. And certainly for the next decade or so, it’s not going to grow that much. It may well do in several decades’ time. So to do it partially, without considering all energy sources and how you can trade one against the other, is probably not a logical or effective way to go.
And what I would say about the energy trading system in—or the trading system in Europe is that phase one, which is ‘05 to ‘07, is a learning period. The actual process becomes much more effective in ‘08. So I think, again, there’s a lot of understanding that has to take place with what is now a wider Europe.
AUSUBEL: All right.
QUESTIONER: I’m Dick Stewart with New York University. How long can a cap and trade system in Europe or in a few American states or voluntary efforts like BP’s or the Chicago Climate Exchange sustain itself if major competitors are outside such a system? And how can they be included?
BROWNE: I think the answer is, “Who knows?” It depends exactly on whether the trading system first induces—which is quite possible—could actually induce more productivity. It’s just possible that what it will do is cut waste and improve efficiency. It’s very possible over a period.
Long-term, this—the question of the atmosphere is global, and it cannot be solved simply by one part of the world operating. So it’s going to have to have everyone in it. But it doesn’t have to happen immediately. It certainly can take a few years for people to come in. But I suppose, in the end, if the world is divided, longer-term, between those who want to do something and those who would then be construed as free riders on the problem, then it won’t—it will not sustain. It will not sustain.
AUSUBEL: All the way here on the right.
QUESTIONER: [Inaudible.] There is one dimension in your article that I found fascinating. It is, you know, environmental impact on shareholder value creation. And you mentioned—which is something I’ve observed with some of my clients—that you were able to meet your environmental target and to create shareholder value. Could you comment on that, please?
BROWNE: Well, again, I think there is a lot of—simply on the mathematics of what we did, I think any company of scale can always find new ways of doing things which are more efficient. And everything we do in life involves energy. And we, as an energy company, have to be as efficient with energy as anybody else, if not more. We should understand it a bit better.
So inducing people internally to value the externalities then really puts another piece of incentive on them to use less of something if they don’t need to use it, or to create the technology to make that possible. So that is what we’ve done. I expect there’s lots more in this area to do. It changes the pattern of investment. People think of different priorities, and they actually generate real value.
I think there’s a second level of value generation, which is [that] we’re in a business where we have to predict in our business probably a little bit longer-term than many.
Very practically, I recall going to Azerbaijan some 14 years ago to set up the first contracts that we had to redevelop an oil field and a gas field. It will be 15 years, pretty well to the day, that the first delivery of oil will come in the way we imagined from that field, so our time scale is very long.
In order to operate in this very long time scale, we do have to minimize the risks that we have an unsustainable position in the societies, the economic arenas that we work in, which means we’ve got to think about things that we have to take care of so we may be, in one way or another, accountable/responsible for. So this is another part of building a longer-term environment in which we can do our business, which I believe is what we should be doing for shareholders.
AUSUBEL: All the way on the left, by the window.
QUESTIONER: Thank you. Vijay Vaitheeswaran with The Economist. Lord Browne, thank you for your comments today. In making your observations about the target of two degrees, you’ve continued a tradition that dates back at least to ‘97 of being ahead of your industry on climate change—in breaking with the Global Climate Coalition [a group of large business interests which opposed the ratification of the Kyoto protocol] on Kyoto, I believe a speech you made in ‘97 at Stanford [University] set out some of your concerns and principles; internal emissions trading at BP, which you pioneered. But I wonder, are you too far ahead of your industry? Might there be a first-mover disadvantage? Speaking again in the context of a CEO responsible to your shareholders, have you seen results by being so far ahead of your peers and perhaps of legislation in the U.S., for example? Are you taking your low-hanging fruit and not necessarily being able to monetize them in America, where there isn’t a national system that might reward you for acting early?
BROWNE: We’ve—I mean, it won’t surprise you, Vijay, that we look at this and ask ourselves, “Let us suppose, if we did something different, what will be the cost-benefit?” But actually, I think we’ve concluded that we can find nothing that has disadvantaged the company by what we’ve done. Rather, what it has actually done is to provide for us a clear—a much clearer, balanced focus on what we actually do. And in the end, when you do business you have to look around you and ask yourself not just, you know, you make products and leave them behind or you do something and say, well, that’s someone else’s problem. You actually have to look at the whole context.
In looking at the whole context, I believe we do better business, and I believe, also, you get better opportunities to do business that way. But more specifically, what we’ve done is, I believe, we are continuing to improve the quality of the company through its efficiency and through the generation of a new product.
I think people are surprised when I say this. This is neither the place nor time to advertise our goods—[inaudible]--but it is the case that everything can be made better. Gasoline may sound to an awful lot of people like a very old commodity, but I can assure you, at least if you’re in the oil industry, it’s far from that. You can actually improve it. You can make it something that actually produces less carbon dioxide, less all sorts of other things, makes you go farther [and] faster in a cleaner way. And these sorts of things are the product of technological innovation, which can only come about because [you] think about all the things you are doing. So I am very confident that it has added value to the shareholder, not subtracted value.
QUESTIONER: It’s not the threat of [inaudible] regulations—[inaudible].
BROWNE: Well, probably. I mean, I think in the end, you know, the threat would be there if you just looked around. It’s, like everything, a hypothetical question about what if? I’d like to think that, in the end, if you attend to the things around you, you actually understand your business better. I’d go further: You’re able also to have better people work in that environment. I believe that people inside corporations—I firmly believe when they can actually see their impact as part of the world, not simply as a factor of production inside some sort of large apparatus, when they can actually see that they are people, do an entirely different job in an entirely different way, think about much better things, and do things better.
AUSUBEL: Dan Esty, on the right.
QUESTIONER: I want to push you—Dan Esty from Yale. I want to push you beyond the low-hanging fruit, the early efforts that might yield efficiencies, and go to the point you raised earlier about how hard a problem this is. It’s across a great amount of space, global; it’s inter-generational. Some of the models are showing that those who are likely to cause the greatest harm may bear the lowest burden of that harm—the United States particularly, where the models are showing, perhaps, not very great damage. So isn’t this ultimately a terrible problem to attack from a cost-benefit point of view? Because, from every politician’s point of view, the costs are borne locally, the benefits are spread broadly, and it doesn’t look good. So how do you overcome that? And I guess maybe you were hinting at it at the end of your last answer. Is it really a moral question?
BROWNE: Well, I could add some more difficulties to your set, which include, critically here, the enormous time difference between doing something and seeing the benefit, which can’t be an easy thing for anyone in political life to preside over, for it is always their successors that gain the benefits for the incumbent’s cost. So yes, indeed, there are lots and lots of difficulties. But so, too, have there been in many other agreements between nations where there appears to be the need to give and to take and to lose something and maybe gain something on a [inaudible] time scale.
I have a sense that as people look at what is going on, and as they see other people working, it is very difficult to see people just ignoring action. And in the end, in the big nations, the highly developed nations of the world, this is about what populations think; it isn’t necessarily about what individual leaders think.
AUSUBEL: [Rodney] Nichols.
QUESTIONER: You pointed to Africa and the Middle East as two of the major regions producing oil. Would you care to give us your corporate risk assessment of those regions?
BROWNE: Well, all I would say—I won’t give you that because I think it would take too long, and it may send the wrong impression.
What I would say, of course, is that risk is relative everywhere. There’s no absolute high risk—absolute risky—absolutely risk-free place to do any sort of business. And it all very much depends on what is going on. They certainly have risk profiles which are exceeding the risk profiles probably of doing business in the United States. I say probably because you never know about the future, but the track record has been pretty good so far. So there certainly are things to think about.
Equally, these nations are very aware that these are—the possession and production of hydrocarbons is very important to them. So a lot of work has to be done to build bridges and to see how both diplomacy and an understanding of mutual advantage can keep a supply system going. These are things that have to happen continuously over—year-by-year over the next coming decades. Russia is particularly important in this matter. It’s sitting between China and Europe, and presently, of course, today and probably for the foreseeable future, being the single largest producer of oil and gas in the entire world.
AUSUBEL: I’d like to follow up on this question. Accepting the 2-degree warming limit or the 500 or 550 parts per million concentration, it seems to me strategically it would push any player to favor draining her or his territory first. So wouldn’t it seem likely that if this position becomes widely accepted over the next few years, then a drain-American-first policy makes sense? Those who sit on their oil will never be able—or gas—will never be able to sell it. So could there be a kind of funny rearrangement of the geography of the industry where people, rather than sitting on reserves, want to pump as fast as possible?
BROWNE: I think an impossible question to answer, really. It’s the balance of supply and demand. I mean, you can produce all the oil you want, but if there is no market, there is no price. And so we’ve been—we’ve had—the world has had experiments like that in the past. So I think the question of the utility of producing everything at once, even if you could, would be highly questionable, because I wonder what people would do if they had to give it away for free.
The other problem, I think, is one simply which is physical. The investment cost needed to produce oil is enormous, is simply enormous. And to do all that is necessary to produce the oil of the world rapidly would probably be something that could not be achieved, simply could not be financed.
AUSUBEL: There was a question here. Yes.
QUESTIONER: Lyndsay Howard, Howard Communications. You spoke about technological innovations, and indeed there are so many that are almost barely being used at the moment, the digital grid, the digital oil field, of course, is being used, even offshore wind power. Could you speak a little bit about why you—your view of the United States’ slow progress in using technologies that are mature, that are there, that would contribute to reducing carbon emissions, why are we actually promoting coal once again? And could you also pinpoint the most powerful business and financial drivers within the arguments of your article applying to U.S. businesses doing more now?
BROWNE: Well, I think in terms of the uptake of technology, the U.S. is very good at this. I mean, the capital stock turns over faster, the residential stock tends to turn over faster than in lots of other places, and so in fact people are prepared to use technologies that are at least proven in a more rapid way than they may be in other parts of the world. Certainly in our own business we find that we’re able to apply very rapidly technology advances in the United States primarily to do with energy efficiency and capture the emissions than we can in the rest of the world. It is ubiquitously available, the workforce is very highly skilled, and therefore changes in work behavior in order to make technology really work are more easy to implement here than in many other parts of the world.
So, your second question I didn’t quite follow, but let me see if I can get there and answer it. The biggest driver, I think—there seem to be two very big drivers that could be presently available. No. 1 [is] the innovation that takes place in the United States, the invention of technology and its use either here or exported to the rest of the world. This is an important piece of business, climate change, the control of emissions; energy efficiency is no exception, and that would, I think, create a driver for activity.
Second is actually trying to get further productivity, which has the consequence of reducing emissions into—[inaudible]--that is done, either in industry, automobile sector or, as the housing stock turns, the residential sector. It seems to me those are things which are presently available, do not require any change at all. They are simply things that improve value. Did I get your question?
QUESTIONER: [Inaudible.]
AUSUBEL: We’ll take the question all the way in the back, and then next we’ll come up to the front. No? OK, then come to the second row on the left here.
QUESTIONER: Thank you. Ruben Kraiem from Paul, Weiss. I know that you’ve avoided speaking about public policy and have focused specifically on what business can do and what can happen more or less spontaneously, but I’m concerned if I imagine a legislator or a senior member of the executive branch of this country listening to your presentation. I might come to the view that, in fact, it sounds like things are going to get themselves worked out and haven’t heard in the presentation what, as a matter of public policy, the governments of the world, and particularly the United Sates government, ought to be doing. For example, is it necessary in order to achieve these objectives, that there be a massive investment in certain types of renewable energy technologies that is supported by government, or is the cap and trade system going to, assuming it came into effect, going to address the problem more or less on its own?
BROWNE: I would—well, the first point I would make is that there is no denying that in due course, at some stage, with everyone working at a different speed, people will have to come together. There has to be some sort of policy umbrella. Otherwise, surely, there are no rules of the game, and the rules of the game will effectively establish the market.
The second is, I do believe very firmly that it should be a market-based approach. You would expect me to say that; I still will repeat it. And therefore it requires a sensible framework, regulation and principle, and not subsidy and not intervention, picking winners which may not be winners.
Thirdly, I think it requires development of an understanding that that is where governments can come in, which is to continue to support the basis for understanding the basic science of the technology and the basic science of the phenomena itself.
But in the end, governments will have to come together. Governments do have to set the framework within which business works. But quite a lot can happen over a period of time. It is not as if Kyoto is a litmus test, is it? It’s a binary switch, on and off. It would be very good if we could learn from the past and spend perhaps less than getting on for 50 years developing the WTO. Hopefully there’s a learning curve, and we’ll get there a little faster. But maybe it’s not unexpected that we didn’t get there in one leap.
AUSUBEL: We have two questions on the right, here and then—
QUESTIONER: Yes. James Harmon. I support your position, and I’m delighted to hear about it. However, my own experience as chairman of the Export-Import Bank of the United States was not as successful. For four years, we tried to negotiate environmental standards within the G7 [Group of Seven]. We could not reach agreement. We still cannot reach agreement on a simple thing as World Bank environmental standards.
So as I listen to you, I think how much more effective this would be were you to be on this platform with the chairman of Chevron or some other oil companies. Had there been a group of oil companies making this statement, maybe the pressure would be that much greater. Otherwise, I’m afraid you will have what happened to me. And the United States Senate [said] to me, “If you cannot get the European export credit agencies to agree to your environmental standards, then we will drop our environmental standards, we will all drop to the bottom.” Sadly, we were not able to reach agreement. So I wish you more success, obviously, in this area.
BROWNE: I can just say there are many groups of corporations that get together and are working under the umbrella of governmental action, notably in Europe but also on different world councils. And I do not believe that this is something which is being done by single voices disconnected. There is a tremendous amount of energy behind, if I can use that word, doing business better. And this is an aspect of doing business in a way which is better and therefore more sustainable.
AUSUBEL: I think the last question of the session—here, all the way on the right. And let me remind you that there will be a reception afterwards as well, again, across the hall. So—
QUESTIONER: Nick Bratt with Lazard. Has the recent treatment of [Russian oil company] Yukos [whose former chief executive Mikhail Khodorkovsky is being charged by the Russian government with $1 billion in fraud] in Russia caused you to reconsider your own strategy in that country?
BROWNE: I can answer that question very simply. No, it has not. [Laughter.]
AUSUBEL: Well, John, you have privileged us with, I think, sharing an announcement that I think will be in the newspapers and magazines and perhaps in the history books. So thank you very, very much, and good luck. [Applause.]
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