Global Climate Change at BP

1
Global Climate Change at BP

• Professor Doug Cerf
• Donald Bren Graduate School of
• Environmental Science and Management
• Corporate Environmental Management (ESM 281)
• Winter 2009

2
Issues

• BP has a long history of oil and gas operations
  in the face of uncertainty and risk.
• Vertically integrated oil companies face an
  environmental challenge for the entire value
  chain
• Extraction and production in sensitive areas
• Transportation risk
• Refineries have improved their environmental
  standards but the environmental risk is high
• Use of oil creates additional environmental
  damage
• However, BP has been a leader in the development
  of environmental strategies

3
Issues

• Because there is such a contradiction between a
  vertically integrated oil company and
  environmental stewardship, is BP straying from
  its mission as an oil company?

4
Is BP increasing or decreasing risk with their
environmental strategy?

• By acknowledging the link between CO2 and Climate
  Change, BP is potentially increasing their
  business risk?
• The environmental risk BP is managing is not the
  physical threats of climate change but the
  stakeholders perception of this risk
• Are BP competitors at less risk, at least in the
  short-term, by hiding in the weeds?

5
Questions

• Why did BP make the voluntary pledges it did? How
  does BP expect to get rewarded for those pledges?
• How do you think BP will be rewarded?
• How do you think other oil firms will react? How
  does BP want them to react?
• Class discussion

6
Reasons for BP strategy

• Long term firm value
• If there is a cost placed on carbon globally
• Risk Mitigation
• A climate change initiative is a form of risk
  mitigation as the production and distribution of
  crude oil becomes riskier and more highly
  regulated
• Differentiation
• What is the value of differentiate themselves
  from competitors on climate change?

7
Reasons for BP strategy

• Legislation
• implement systems that will protect them when
  climate legislation is enacted
• influence the legislative process in their favor
• their internal trading program gives them the
  experience to evaluate the options
• provide access to exploration possibilities as a
  result of better government relations with
  countries that have oil reserves
• Improve relations with NGOs

8
Reasons for BP strategy

• Industry Influence
• Start the shift of industry attitudes on
  climate change.
• Will reduce product differentiation
• Will improve climate change
• If the industry self regulates there will less
  need for government regulation that the oil
  companies can not control
• Implementation
• learn how to deal with climate challenges
• create a method to manage climate change that can
  be replicated by other firms on a voluntary basis
• Prepare for post-Kyoto 2012 regulatory environment

9
Reasons for BP strategy

• Customers may reward BP (some day)
• BP is correct not to expect their climate policy
  to increase customers willingness to pay.
• BPs climate policy does not provide customers
  with an easy to identify public good
• Will customers prefer green gas if price and
  quality are equivalent?
• Will there be a change in culture that will lead
  to customers that prefer gasoline produced by
  green companies?
• Customers may punish firms that do not have
  climate policies
• When the oil industry has challenges the backlash
  may impact BPs competitors because they perceive
  BP favorably
• Improve customer relations

10
Reasons for BP strategy

• Take attention away from other environmental
  challenges
• In 2005-2006 BP had a number of environmental
  problems in the US
• Manage product risk, avoid the possibility that
  their products will be rejected in the future.

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Reasons for BP strategy

• Although climate change policy began to improve
  reputation it has evolved into strategy

12

• Should the new CEO (Hayward) continue the
  previous CEOs (Browne) strategic direction on
  environmentalism?

13
Questions