A Big-Oil Man Gets Religion When John Browne broke ranks on global warming, he did more than shock the industry--he began to convert it.
(FORTUNE Magazine) – Sir John Browne, chief executive of BP Amoco, was the first oilman to declare, in a speech at Stanford University in May 1997, that global warming may indeed be real. In doing so he clashed with his own industry, which by and large maintains that there is little or no proof that human activity is responsible for an observable rise in temperatures around the world. Browne pledged that by 2010, BP would reduce emissions of carbon dioxide, a so-called greenhouse gas linked to global warming, by 10% from 1990 levels. He has also led the industry to adopt a more pro-environmental attitude on everything from developing cleaner fuels to disposing of wastewater. In a conversation with Janet Guyon, FORTUNE's senior writer in London, Browne outlined his views on the environment and the future of the oil and gas industry.
What prompted you to split with the industry and declare that global warming could be real?
Several factors. The first was that in my mind it was by no means clear from the data that global warming didn't exist. A lot of people were saying, "No, no, no global warming," but we did seem to be adjusting the balance between the amount of carbon dioxide the earth was producing and the amount being absorbed. So if we were unsure about the evidence, then we were unsure about how to go forward. We decided to take a position that said, "Nobody knows for sure that global warming is taking place, but it's not right to let this run to its conclusion, because the damage may be very great and irreparable. So why don't we begin now to take precautions?" At that moment I think I opened up a new way of thinking about our business.
What is BP Amoco actually doing about global warming?
We started with the easy things--reducing flaring of gas at production and exploration sites, improving efficiency of turbines, making sure vapors weren't escaping into the atmosphere. And we started studying our processes, trying to find ways to use the CO2 that we produce to recover more oil. All of this culminated in our goal of reducing emissions of greenhouse gases by 10% by 2010 from 1990 levels. That's about 30 million tons.
One way we're meeting this goal is by setting up an internal market for emissions. Under the system, business units have limits on how much CO2 they can emit and a business that can reduce emissions by spending a modest amount can make a profit by trading its rights with one that would have to spend more to reduce its own. Internally, so far we've traded about 75,000 tons of CO2 at a price of $10 a ton. We'd like to be able to trade emissions with companies outside BP, but we have had little luck persuading governments to adopt it. There's a sense that it's wrong to sell permits for pollution, which I don't agree with. If you trade emissions, you get rid of the emissions that are cheapest first.
Aren't your targets to reduce CO2 actually less ambitious than your competitors', namely Royal Dutch/Shell, which has pledged to cut emissions by 10% by 2002 from 1990 levels?
We are not in the business of competing with targets. I would argue that we all have the same objective: recreating the future of the business by changing the mix of energy and minimizing its effects on the environment. Besides, when you hit one set of targets, you then establish another.
So is reducing CO2 emissions the industry's main environmental issue?
No. Actually, the main issue for most people is air pollution in their own cities, resulting primarily from automobiles. If you go anywhere in China or India and ask about global warming, the intelligentsia will say, "Absolutely, I want to talk to you about that, but first could we just talk about what we could do to clean up the air around our major cities and how to get good drinking water and to make sure industry doesn't pollute our rivers?" Things like that. In some places, like Atlanta--where we are introducing clean fuels without sulfur or carcinogens such as benzene--conditions are tough because there isn't enough natural air movement. If you go to other parts of the world, Beijing for instance, the atmospheric pollution is intense primarily from burning sulfurous coal.
Why not simply reduce the consumption of hydrocarbons and increase use of renewable fuels such as solar or wind power?
For the foreseeable future--at least for the next ten years--hydrocarbons are going to be the main energy source in the world for light, heat, and mobility. Alternative energies are slow in coming: Solar is expensive, and to be efficient, it needs lots of hours of sunlight, although I think it will begin to make real sense in ten years. In 50 years it will make very, very great sense. Our own solar business--we are the largest producer of solar cells in the world--will turn a profit this year, and we will pour all that plus more back into research and development. Wind power needs wind, plus it's visually and sonically polluting--it just doesn't look good, and it makes a lot of noise. The general public fear of nuclear power is very high, and the cost is enormous; it takes about ten years to get permits for and build a nuclear plant. Even in 20 years' time, I think we'll still see a huge amount of energy produced from hydrocarbons. There simply are no known substitutes that produce as much power at such low cost, no form of energy that is fully acceptable to the world that will produce a perfectly green fuel, if you will.
But is there enough oil and gas to meet future energy needs?
Yes. The supply of some forms, such as natural gas, is essentially infinite. We predicted in the 1970s that we'd have run out of reserves by now. As it turns out, we misinterpreted the data, and we have more reserves now than we had then. There are many things to worry about, but running out of hydrocarbons isn't one of them.
What will change is the mix of use between oil and gas. The newest fuel for the future is one of the oldest: natural gas. Gas consumption is growing by about 3% a year, while oil consumption is growing at about half that rate. We haven't used more gas before now because of the cost of transporting it. It takes more space than oil, it has to go through pipelines, or you have to freeze it. But with the infrastructure in place, the marginal cost of gas is very low. And the technology for consuming gas has improved by leaps and bounds. The amount of energy converted into power has doubled in the past 15 years, thanks to new gas-turbine technology. Gas is becoming the perfect fuel to produce electricity, and it's far cleaner than some of the alternatives, such as coal. The increased demand for gas is one reason why we merged with Amoco a year ago and why we are pursuing the purchase of ARCO. [As FORTUNE went to press, the deal still faced legal and regulatory hurdles.] Together, the two acquisitions would increase the percentage of our total production coming from gas to 34% from 20%.
What about alternative fuels for cars?
It's too early to tell. Right now there are all these competing technologies: Fuel cells, methanol, or some form of hydrogen, which will require a whole new fuel infrastructure. One way of producing hydrogen is through natural gas, called syngas production. It's a very clean fuel, but you have to figure out what to do with the carbon monoxide you produce as a byproduct. But these technologies do work--they just need to be scaled up and made effective economically. We hope to begin producing on a small scale in Alaska.
But it is clear that we will have new, cleaner forms of gasoline and diesel. We already do. And they make good business sense. All things being equal, people prefer to buy environmentally friendly products. When we introduced our clean fuels in Atlanta, we saw an immediate increase in volume. That's given us a competitive advantage; none of our competitors are selling similar gasoline, but how long that advantage is sustainable, we don't know.
What's the relationship between the oil and auto industries now? It seems as if you have been at loggerheads with each other for years.
It's much improved. There was a fairly big fault line between the two, with each blaming the other for the pollution produced by automobiles. Now we recognize that the ultimate customer for gasoline is the engine and that the design of the fuel and the engine go hand in hand. People like Bill Ford have helped a lot by taking a very progressive stand on the environment. He has opened a dialogue with the oil companies. Just a couple of months ago, I appeared by videocamera in front of their executive committee to discuss our views on the environment.
What is the ultimate goal of your environmental policies?
In the end, it's just good business. We know that people are concerned about the environment, that they want to buy products that don't pollute, that governments want to deal with companies that are sensitive to environmental issues, and that people are motivated to work for companies that respect the environment. The big thing is to get the timing right. Our ambition is always to be ahead of the curve, though of course you can get too far ahead of it.