A Global Carbon Market PerspectiveCarbon Sequestration Workshop

Mark Proegler, BPNovember 3, 2005 Houston

2

Who we are

…market capitalisation $225 billion (on 24 Oct 2005)

BP is an oil, gas, petrochemicals and renewables company

We employ around 102,900 peopleWe have operations on 6 continents and in over 100 countries

…annual revenues of $285 billion (in 2004)

…with approx 30,000 service stations worldwide

…the 2nd largest oil & gas company and one of the 10 largest companies in the world

…serving 13 million customers every day

3

Where our people are located

Latin America & Caribbean

4,500

NorthAmerica39,200

(7400 in Texas)

Africa3,500

Europe42,600

Asia &Australasia11,600

Middle East,Caspian & Russia

2,950 (100,000+ TNK-BP)

4

Our global presence

Oil

Gas

Chemicals

Refining

Market positions An opportunity and a responsibility

5

EnvironmentClimate change context

• World’s estimated annual emissions from hydrocarbon consumption is nearly 25 billion tonnes of CO2

• Emissions from BP’s productsaccount for approx 5% of global CO2 emissions

• BP’s operations contribute less than 0.4% of annual global emissions

• We are looking at ways to reduce emissions from our products as well as our operations

6

EnvironmentOur position on climate change

We will continue to focus on three main areas:1. Provide leadership

− Engage Governments and Industry (e.g. Lord Browne’s Stanford I & II speeches, Beyond Kyoto)

− Increase customer awareness− Fund scientific research (e.g. Princeton, Tsinghua, CO2 capture, etc)− Collaborate with auto-industry to increase fuel efficiency

2. Continue to reduce the carbon content or impact of our products− Natural gas growth− Cleaner fuels (e.g. Ultimate)− Renewables & Alternatives (e.g. Solar & Hydrogen)− Lubricants that enhance fuel efficiency

3. Continue to minimise our operational emissions− Energy efficiency improvements within existing operations− Efficient technology deployment in new major projects

Our position is that there is no single solution!

7

Climate ChangeThe need for integrated policies

• Market Development

− Engagement of business and consumers

• Technology Development

− R&D and demonstration projects

• Business Development

− Creation of incentives and support to establish new and competitive businesses

8

Market Development Policies

• Cap and trade systems are a more effective engagement tool than taxes-- and are proven

• Mandatory caps create effective carbon property rights, as do well defined reduction projects

• Need for a carbon price that is global in reach, but probably not a single global system

• EU ETS has the potential to become the strong global carbon currency

• Cap and trade systems are ONE policy tool, they engage and facilitate trade

9

Market DevelopmentEmissions Trading: BP History

• Set 10% reduction target on internal GHG emissions

• Advocate precautionary action to mitigate risk of climate change

• Internal global GHG emissions trading system, develop externally verified GHG baseline

• Achieve 10% GHG reduction target

‘98

‘99

‘01

‘02

‘03

‘97

‘05

• Entry into UK ETS

• Engage in developing regulations for EU ETS

• Start of EU ETS

10

Market DevelopmentLearning by doing – BP’s ET Experience

Flexible mechanisms are a primary tool to address environmental issues

A range of targeted initiatives is required to underpin the trading system – trading by itself does not reduce emissions

The development of a robust futures market will be essential if the value of carbon is to drive significant capital investment in emission reduction projects

Compliance enforcement is criticalProcess takes time to implement and requires:

Strong reporting and monitoringConsistent and harmonious application between

installationsStable and predictable allocation mechanismInvestment in training e.g. accounting, trading,

verification

• BP’s experience:

• Internal GHG trading system 1998-2001

• US NOx, SO2 (1995+)

• UK ETS 2002

• EU ETS 2005

11

Market DevelopmentThe ETS: here today EU

• EU ETS started January, 2005

− “cap & trade” system; permits inclusion of project-based credits

− represents 45% of EU emissions

− 12,000 installations

− two phases: 2005-2007; 2008-2012

− GHG reductions of ~ 8% below 1990 levels by 2012

• A few start-up issues

− delays in country allocation plans; registries

• Many signs of success

− active trading

− new exchanges (6 to date) and increased participation

12

Market DevelopmentCurrent EU ETS activity

Weekly volume EU allowances 2005-2007

0.001.002.003.004.005.006.007.008.009.00

10.0011.0012.0013.0014.0015.0016.0017.0018.0019.0020.0021.0022.0023.0024.0025.0026.0027.0028.0029.0030.00

3-Jun

1-Jul

29-Ju

l26

-Aug

23-S

ep21

-Oct

18-N

ov16

-Dec

13-Ja

n11

-Feb

11-M

ar

8-Apr

6-May

3-Jun

1-Jul

29-Ju

l26

-Aug

23-S

ep

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Volumes all vintages EUA 2005 (€/tonne)

Volume: tonnes/weekPrice 2005: Euro/tonne

13

Market DevelopmentImplications of growing GHG regimes

Planning today for the future:

• Build knowledge & capability for measuring & forecasting GHG emissions− WRI/WBCSD protocols

• Consider GHG impacts in future investment decisions− Carbon will have value in a carbon constrained world

• Monitor legislative developments− Government frameworks for market solutions

14

Market DevelopmentOther GHG markets & future growth

UK Norway EU ETS

Actual or imminent New South Wales

CCX(Voluntary)

SwitzerlandDenmarkEarly smallschemes

UK Norway EU ETS

Actual or imminent New South Wales

CCX(Voluntary)

SwitzerlandDenmarkEarly smallschemes

UK Norway EU ETS

Actual or imminent New South Wales

CCX(Voluntary)

SwitzerlandDenmarkEarly smallschemes

UK Norway EU ETS

Actual or imminent New South Wales

CCX(Voluntary)

SwitzerlandDenmarkUK Norway EU ETS

Actual or imminent New South Wales

CCX(Voluntary)

SwitzerlandDenmarkEarly smallschemes

California &West Coast Govs

Australian states

Proposed

CanadaLarge Emitters Japan?RGGI

Brazil

South Korea?

California &West Coast Govs

Australian states

Proposed

CanadaLarge Emitters Japan?RGGI

Brazil

South Korea?

California &West Coast Govs

Australian states

Proposed

CanadaLarge Emitters Japan?RGGIRGGI

Brazil

South Korea?

15

Technology & Business DevelopmentPolicies

• Technology

− Focus on technologies that can make a material contribution to emissions reduction

− Need for international collaboration, including non-OECD

• Business Development

− Build upon existing economic policies for: economic growth, employment, competitiveness, etc.

− Link OECD markets that can afford incentives with non-OECD markets, where economies of scale can be built without competing against heavily discounted existing infrastructure

16

TechnologyAn Active Sequestration Project

• CO2 capture and storage

− In Salah gas project, Algeria is injecting 1M tonnes of CO2 each year, equivalent to taking 200,000 cars off the road

− Leading the international CO2 Capture Project (CCP) and supporting the CO2CRC in Australia

17

Technology:Decarbonized Fuel is Becoming Reality

• BP’s first “DF” project: 350 MW power plant fueled by hydrogen (Scotland)

18

Thank You