Memorandum submitted by BP
1. BP is pursuing energetically a number
of parallel but consistent Technology Research and Development
options, as part of the transition to a Lower Carbon future. This
transition is centred on improvements in energy efficiency, decarbonisation
of fossil fuels, and increased use of renewable energy sources
as they become viable alternatives to current hydrocarbon based
energy. But it seems likely that fossil fuels will continue to
provide the world with affordable energy for many years to come,
and hence improvements in carbon efficiency of fossil fuels will
play an important role as we move to a Lower Carbon Energy future.
2. This Inquiry is specifically concerned
with the Research, Development and Demonstration (RD&D) aspects
of this business and activity. In a major sense, RD&D is integral
to everything that BP, as a technology-driven company, does. BP
spends around £270 million per year on Technology R&D
and approximately 10% of this is on non-carbon energy technologies.
However, many companies, including BP, undertake RD&D through
joint ventures, which means that the spend reported on Technology
RD&D will not be representative of the total activity when
it is supported by a number of different organisations. For this
reason, R&D expenditure in its narrowest definition is not
a particularly helpful measure in determining the total amount
of activity in the technological area.
3. It is necessary to define our understanding
of a non-carbon fuel economy. We consider the term to comprise
of the following three themes:
(a) Use of fossil fuels with no carbon emissions
[by utilising Carbon Capture and Storage (C&S) technology].
(b) Hydrogen Fuel which can be manufactured
from fossil fuel with Carbon C&S, or eventually as a renewable.
(c) Nuclear and renewable energy, primarily
in the form of hydro, wave and tidal power, solar energy, wind
5. The Terms of Reference ask which technologies
should receive support. At this time we believe a portfolio approach
across the three theme areas, described above, is appropriate.
There appears to be no one clear winning technology, and indeed
different technologies might be necessary given the different
circumstances and uses that exist for fuels. We would warn against
any central attempt to "pick winners"of more
importance is a general fiscal climate in which choices and decisions
can be made on rational, non-discriminatory grounds, but within
a supportive marketplace. In the latter regard, there is a special
role for public policy.
6. Specifically in terms of technology,
BP is currently concentrating on a number of areas where we have
expertise and that provide a portfolio of options for our business
and customers. So for each of the three themes defined above in
paragraph 4, we have:
(a) Technology development to remove carbon
from fossil fuels pre-and post- combustion and geologic storage.
BP is leading a joint industry project called the " CO2
Capture Project", which is an international project with
public private partnerships, developing technology to reduce the
cost of CO2 capture and geologic storage.
(b) Hydrogen Programme, which is working
on the technology challenges around manufacture, storage and distribution
of hydrogen for use as a fuel in the transportation sector and
for power generation. Much of this work is being done through
(c) Solar development programme, which includes
"state-of-the-art" photovoltaic products and system
components. The very nature of this business is dependent upon
access to the most efficient technologies and the ability to develop
products that meet the growing demands of a diverse international
customer base. In addition, BP is driving the use of Solar by
using it extensively in our own business. At a far smaller scale
we are developing a number of wind projects at existing BP sites
in Europe and potentially in the USA.
We envisage that, as with most new technology
evolution, R&D as well as demonstrations will be required
to prove viability and commerciality for all technologies being
7. Essentially, the priorities and resources
in this area are determined by market realities and customer requirements.
We do not invest irrespective of market realitiesbut of
course we are aware that R&D can shape and transform customer
priorities and options. That is why it is important that technology
development underpins business strategy, but doesn't seek to supplant
it. However, there is one important exception to the market driven
model, and this lies in the development of basic knowledge and
understanding. This aspect of R&D, really just `R', is a legitimate
place for public investment and should be conducted in the spirit
of research which is an "end unto itself". BP has an
extensive global universities partnership programme and is extremely
supportive of this fundamental research and would encourage discussion
about shared funding mechanisms.
8. In our view the most effective way to
promote R&D in technology is to ensure the existence of market
based mechanisms, which themselves drive and direct the technology
and skills development. Examples of this approach include:
"Customer-pull" for specific
types of technology.
Incentives to consumers either via
fiscal mechanisms or the removal of market and technical barriers.
For example, in the UK the issue of grid connection and net metering
is still crucial for the development of Solar Power.
This is consistent with a business approach,
which concludes that technologies should be developed to meet
specific business needs.
9. Sometimes, this will involve cost sharing
between different parts of our business and with different industries
and companies. For example, in terms of BP's hydrogen strategy,
BP is engaged in partnerships with vehicle manufacturers, including
DaimlerChrysler, BMW, Ford and General Motors. One practical manifestation
of this approach is our pan European Daimler Chrysler fuel cell
10. We also work in partnership with technology
providers, government agencies, and research institutes. These
can be crucial in, for example, establishing pathways to create
future markets for hydrogen fuel. Such activities take place everywhere
in the world.
11. There is always a role for government
in facilitating the processbut what requires remedies and
action will also vary between countries. Fiscal measures are almost
always of significancefor example, in ensuring that "green"
fuels receive fiscal encouragement through substantially lower
tax rates. BP's own internal experience of emissions trading supports
the view that an incentive-based approachrather than punitive
taxeswill offer the most effective and lowest cost encouragement
to move towards a non-carbon fuel economy. Government can also
play a role in supporting RD&D through cost sharing. This
can be particularly helpful in the demonstration of technology,
which is often costly, and can act as a catalyst to accelerate
12. There is a role for government in supporting
industry with the necessary infrastructure in respect of RD&D.
Examples of this include building regulations for energy efficiency,
capital allowances, net metering, etc. Another area where there
is often scope for government involvement is in preparing public
opinion for new and unfamiliar technologies and the regulatory
frameworks which accompany them. For example, in respect of encouraging
acceptance of a non-carbon fuel economy, there will be a particular
need to seek greater understanding of everything which the geologic
storage of CO2 entails. Similarly, legal frameworks
should be reviewed so that current legislation, which was written
before the non-carbon energy thinking was in place, such as the
London Convention, does not act as a barrier to new technology.
13. To conclude, technology is central to
every aspect of BP's business. It improves recovery in existing
oil and gas fields. It is enabling gas to be transported and sold
globally. It is facilitating the "capture" of carbon,
and promoting the development of cleaner fuels. And in the longer
term, it is developing the renewable forms of energy, which may
one day take the place of fossil fuels entirely.
14. BP does not support an interventionist
approach in this area from government. But a fiscal and regulatory
regime, which supports and is consistent with market mechanisms
and demands, will in itself hasten the development of technologies
to produce non-carbon fuels. Public private partnerships are required
to develop, demonstrate and successfully deploy non-carbon fuel