Select Committee on Science and Technology Appendices to the Minutes of Evidence


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 and biomass.

  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 technology partnerships.

    (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 considered.

  7.  Essentially, the priorities and resources in this area are determined by market realities and customer requirements. We do not invest irrespective of market realities—but 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 bus project.

  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 process—but what requires remedies and action will also vary between countries. Fiscal measures are almost always of significance—for 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 approach—rather than punitive taxes—will 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 technology readiness.

  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 technologies.

27 September

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