BP CEO Tony Hayward: We Need to be Realistic – The Transition to a Lower-Carbon Economy Wont Happen Overnight

BP CEO Tony Hayward told attendees of the Oil & Money conference that’s being held this week in London that the goal of a carbon-free economy is not likely to happen anytime soon, if at all.

Instead, in his speech Hayward soberly promoted a “lower carbon” economy rather than a carbon-free economy; An energy “evolution” and not an energy “revolution”; And the pricing of carbon through a cap-and-trade system.

Hayward said:

The sheer scale of the energy industry makes this impossible. To give you an example, it takes more than 30 years to turn over the capital stock in the power sector and 15 years for cars. Such long lead times mean that like it or not, fossil fuels will continue to play a very significant part in the future energy mix.

While Hayward’s predecessor, the charismatic Lord John Browne, was all about “beyond petroleum” and creating a pan-energy company that delivered oil and gas as well as sun or wind power. Hayward, who before taking over the top slot in May of 2007, headed BP’s exploration and production unit, has worked hard to refocus BP’s capital to grow its core business: the exploration, production, and distribution of fossil fuels. Hayward believes that oil and gas will deliver shareholder value now and for the foreseeable future.

Over the past year, BP has significantly reduced its green investments. In no particular order: it sold a wind farm in India, closed a solar panel factory in Australia, laid off workers at solar panel plants in Spain and the U.S., and curtailed a planned investment in biofuel maker D1. And, in a move that spilled a lot of ink, it closed its dedicated London-based cleantech headquarters, moving its entire staff back to the mother ship. Shortly after, Vivienne Cox, the BP veteran that headed the unit, retired.

So, are BP and Hayward turning their back on cleantech? No, of course not. Hayward has obviously seen the writing on the wall and knows that green energy will play a significant role in the future, just not as big of one as anticipated by some.

He does advocate for more green investments, especially through strong private/government partnerships. He says:

You’re probably wondering why a businessman is standing here suggesting greater government intervention — and please don’t misunderstand me! I’m a great believer in free markets — but the scale and complexity of this particular challenge is different from the usual workings of a market economy. Mitigating climate change and ensuring energy security are of such magnitude that the free market alone cannot provide them without assistance.

Ever the pragmatist, Hayward advocated for a number of “pathways” to the “energy evolution.”  They include the use of the usual suspects like energy efficiency, greater use of alternative energy (wind and solar, of course, but also biofuels), and not surprisingly for the head of an oil and gas company, greater use of natural gas, especially as a fuel source for power generation.

Until renewables gain a sizeable share of the power sector, and cleaner coal is available through Carbon Capture and Storage, I can see only one way of doing it — by increasing the use of natural gas.

Gas is the fuel that offers the greatest potential to provide the largest reductions at the lowest cost — and all that by using technology that’s available today.

Hayward is not turning BP’s back on green energy. Rather, we believe Hayward is joining a growing group of pragmatic and moderate Fortune 500 chiefs who know they can’t afford to ignore green energy and can actually profit from it. Albeit not at high enough levels to please shareholders, at least not right now.

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