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Powers and Responsibilities - the Role
of Corporations in Human Progress






Speaker: Lord BrowneSpeech
date: 04 October 2004Venue:
Princeton Environmental Institute - 2004 Taplin Environmental
LectureTitle: Group Chief Executive










President, Ladies and Gentlemen, good afternoon.
It’s a great pleasure to be here, and to have the chance to celebrate this
anniversary.
You have achieved an enormous amount over the last ten years. This Institute
is now recognised as one of the leading contributors to environmental science
and public policy in the US and internationally. That is a great tribute to
everyone who has been involved.
But, of course, the first ten years are just the beginning.
I believe that the work you’ve been doing here will become even more
important over the next decade as the world comes to terms with the fundamental
environmental challenge.
Can we transcend what appears to be a harsh and unacceptable trade off
between the goal of improving living standards – and on the other hand the
equally imperative goal of protecting the natural environment which sustains
human life?
Energy is at the heart of that trade off.
Over the last century global living standards have risen by a factor of five
on a per capita basis despite a growth in population of 4.5 billion. The average
human life is fully 20 years longer than it was a century ago.
That improvement has been made possible by the use of energy. Energy has
given us light and heat. Energy has enabled us to grow food, to improve health
care, and to enjoy the privilege of mobility.
Of course, not everyone enjoys all the benefits of energy. Many many millions
of people still lack the heat, light and mobility we take for granted. For their
sake we need to sustain the process of economic development and human
progress.
In that context what is the role of business? What do people expect of
companies – especially large, global corporations? Where can we contribute to
human progress? What is our capability and our legitimacy?
I’ll give a view from one company’s particular perspective.









For us the starting point is our strategy.
Our approach to power and responsibility is an integral element of our
strategic thinking – it isn’t a personal whim or a public relations
campaign.
It is about how we work in the places where we operate.
BP operates across 100 countries around the world. We employ 100,000 people
and we produce around 3 per cent of the oil and gas consumed in the world every
day.
We have a direct impact on the lives of millions of people.
We are major investors and our decisions can shape local economies.
We produce, process, transport and sell fuels; and at every stage in the
chain the way in which we work determines the impact on the environment.
We generate profits on behalf of our shareholders who are mostly pensioners
and those saving for the future.
So the role of business in society isn’t an abstract topic. It is a matter of
hard realities which we encounter every day.
Let me take just three of the places where we work. In each case we are still
in the process of learning.
The process of learning from experience is very important. Companies are made
up of human beings. That means that while we aim to get everything right there
are always unpredictable and unintended consequences. A large part of our
understanding of our role in society is about learning from the consequences of
our actions.
The three areas I’ll talk about are very different but in every case they are
crucial elements in the global energy balance. They are all important
investments for us as a commercial enterprise. And they all pose challenges
about the way in which we work.









The first is Russia where we’ve invested $8 bn dollars and created a new
company – TNK BP - of which we own 50 per cent. That is the largest single
international investment in Russia since 1917.
TNK BP is the third largest oil and gas company in Russia, and on its own it
would be the 10th largest in the world.
TNK BP produces 1.7 mbd of oil from fields mainly in West Siberia and employs
around 113,000 Russian staff and just under one hundred expatriates.
The investment has already generated good returns helped by the application
of international technology to increase production from existing fields and to
identify new reserves. There are also great prospects for new developments – new
production and new infrastructure to take first oil and then gas both to Europe
and to China.
In 2003 the company paid some $3.8 bn in taxes to the Russian
authorities.
So we bring direct benefits to the country in which we are working – jobs,
new skills, wealth, and export earnings.
But I hope we bring something more than that.
TNK BP will work to the best international standards – on safety and on
transparency and on environmental care. The first challenge is to stop any
further environmental damage – the longer term challenge is to begin the process
of improvement after decades of neglect.
We’ll invest in projects which help the local communities in which we work,
and we ’ll develop people. There is a very powerful base of skills in Russia and
many of the people we employ are extremely highly qualified. We will develop
those people – in Russia and beyond – and we’ll give the best of them the chance
to work internationally and to become part of our leadership
cadre.









We’ll invest in the people who work for us and in education more widely –
both through the leading universities in Russia and through the development of
links with other great universities across the world.
We’ve initiated a major education initiative with the main universities in
Moscow, including a fellowship programme which incorporates Russian universities
into the international network we have – a network which of course includes
Princeton.
Russia has made enormous progress in the last few years. It is only 15 years
since the Soviet Union began to collapse. There are many challenges and we can’t
solve them all but I hope as long term investors that the things we do and the
way we do them will help Russia to make more progress and will help to integrate
Russia with Europe, with the WTO and with the international community in
general.
My second example is the development of the most important pipelines in the
world – the BTC line which runs from Baku in Azerbaijan through Tbilisi in
Georgia to Ceyhan on the Turkish Mediterranean coast. That line will carry 1 mbd
of oil when it is completed next year – a flow which will be crucial for the
maintenance of global energy security.
The BTC line will also bring enormous environmental benefits by displacing
some 400 tankers a year which would otherwise sail through the Bosporus – one of
the most sensitive and crowded waterways in the world.
The oil industry in Baku has a long history, stretching back now for over a
century. For eighty years, however, it was a part of the Soviet system and
closed to western investment.









I vividly remember going there for the first time in 1991 when the picture
you saw was one of primitive oil development which had been left decades behind
international standards.
We and others have invested in the redevelopment of existing fields and in
exploration. Working with the state company SOCAR, we’ve identified substantial
reserves which can now be brought to the world market.
That has been a long term project which is just coming to fruition.
The BTC line is one of the great engineering projects of our time.
1,760 kilometres of pipeline through complex and sometimes difficult
territory.
But the challenge has not just been one of engineering. Getting the project
on time and on budget has required the project leaders to develop all the skills
of statecraft. They have to understand the interests of all the parties involved
in each of the three countries. They have to build trust.
They have to show to the local community and to the outside world that we
recognise concerns about security and environmental integrity.
They have to cope with changes of Government and with a complex pattern of
international relationships.
And most important of all they have to demonstrate that the pipeline will
bring benefits not just to BP and its shareholders but to all the communities
affected.
That’s why we’re establishing a development fund in Georgia which will
support local entrepreneurial activity.
And it is why we are helping the Government of Azerbaijan to understand the
issues involved in managing the substantial flow of funds which will come once
the pipeline is operational.









Some people talk about the resource curse – a burden of revenue which can
distort and destroy a local economy. There have certainly been examples of
that.
We want to help the Azeris to demonstrate that the resource curse is not
inevitable. Those revenues can be managed and used to the benefit of the local
community.
And that’s why we’re helping to create a new centre of resource revenue
management at Oxford University, which will be able to advise Governments around
the world on the ways in which, in each local set of circumstances, the revenue
can be used most effectively.
My third and very different example is the United States.
Here we are the largest producer and supplier of oil and gas employing some
43,000 Americans.
We work in Alaska, and throughout the continental United States. In total we
produce some 750,000 bd of oil and 3.5 bn cubic feet a day of natural gas.
And we have a retail business with 15,000 gas stations which operates across
the country and which supplies Americans with 46 million gallons of gasoline
every day.
We have $40 bn of fixed assets with operations in every state.
So again we bring wealth and jobs and tax revenue. Our wage bill alone is
over $3 bn.
But our contribution to human progress goes beyond that.
One of the greatest challenges for America is energy security. The avoidance
of dependence on any one single supplier for resources which are vital for the
day to day working of the American economy.
Our contribution to that challenge is four fold.









First, we are maximising what we produce from our existing fields. Twenty
five years ago the recovery rate of oil from Prudhoe Bay was just 45 per cent.
Now we expect it to rise to over 60 per cent and even that may not be the
limit.
Then secondly we are preparing to develop new resources here in the US –
including the huge volumes of natural gas in Alaska. That project is likely to
require an investment of up to $20 bn and the construction of a 3,500 mile
pipeline through Canada.
We still have work to do to ensure that the line is commercially viable, but
the signs are good and we believe that the project can make a substantial
contribution to long term energy security over the next decade with some 4 bcf
per day of natural gas also helping to move the US energy mix in a direction
which benefits the environment.
Energy security can’t be achieved in any one country alone. Self sufficiency
is a dangerous and costly illusion. But security can be achieved by creating a
strong network of secure suppliers, and we are contributing to that through the
development of natural gas in places such as Trinidad and Algeria and the
development of the infrastructure here in the US which can receive the gas in
liquid form and transfer it into the grid.









And then fourthly because energy security isn’t just a short term concern we
are investing in research on the next generation of energy supplies – including
photovoltaics and other alternatives and renewables. That research has some way
to go but we believe that one day one or more of those technologies will be able
to provide energy at a competitive cost, and nowhere is the research on those
technologies more likely to be successful than here in the United States.
Those are just three examples and I could quote many more.
The contribution we make to human progress differs from one country to
another but there are some important common threads. The development of people,
and of entrepreneurial activity, the application of technology and of the
principle of transparency so that people can see and understand what we are
doing.









Those are all contributions which business can make to human progress.
And then there is the overarching issue of the environment. There are
numerous environment issues which have to be dealt with – from air quality to
the protection of the areas in which we work. But the important issue is
undoubtedly climate change. In this audience I don’t think I need to dwell for
too long on the cause of concern.
The evidence that human activity is altering the world’s climate is mounting.
Year by year new studies add to the body of knowledge.
The detailed science of climate change – the precise understanding of cause
and effect – is not complete. The science is provisional but on an issue like
this we can’t afford to wait for absolute proof. We have to make judgments on
the basis of the evidence we have.
Given the weight of that evidence there is an overwhelming case for
precautionary action. That case is strengthened by the most recent authoritative
predictions of energy demand.
The International Energy Agency in their most recent long term forecast
predict that by 2015 – that is just ten years from now – total energy demand
will rise by 30 per cent to 240 mboe per day.
That demand growth is driven by the increase in population and by the spread
of prosperity.
By 2015 the world’s population will be around 7.3 bn – a billion more than it
is today.
At the same time economic growth in China and India and elsewhere is lifting
people out of poverty. That is a great achievement, a measure of real human
progress which we should celebrate, but it does carry with it consequences for
the environment because it means that more people can buy the energy they
need.









The energy required to fulfil the predicted growth will come from the four
principal sources which are already in place – oil, gas, coal and nuclear.
Some people hope to see a major role played by renewables and alternative
fuels. By wind or wave power, by photovoltaics, by some other process which can
provide energy and power without also producing a burden of emissions.
One day that hope will be fulfilled. But we have to be realistic about the
time scale.
At the moment, excluding hydro power, all the various renewable and
alternative sources of supply produce just 2.5 per cent of the world’s daily
energy needs.
The IEA forecast is that by 2015 that figure will have increased but will
still be only just over 3 per cent of the total.
We and others continue to work on those new sources. One day they will be
very important. But for the foreseeable future we will have to rely on the forms
of energy we know already. Some people put their faith in nuclear power, and
there has been renewed interest in the prospects for nuclear development.
The technology of nuclear power is certainly known but so too are the
problems - the costs, the risks in terms of terrorism and proliferation, and the
unresolved challenge of waste disposal.
In many parts of the world, including the US, those issues have brought the
development of nuclear power almost to a halt. Only two nuclear stations opened
anywhere in the world last year and in the US no new nuclear capacity has been
commissioned for more than 20 years.









Given the age of some of the existing stations the best forecast may be that
in the developed world in particular the contribution from nuclear will at best
be flat over the next decade. In terms of coal there is, of course, no shortage.
The problem in the absence of new technology is the level of emissions produced
by the burning of coal.
If the world turns back to coal we will accelerate the atmospheric
concentrations of carbon.
Coal will remain an important source of primary energy around the world. Work
will continue on technologies which could make its use less damaging, but the
immediate likelihood is that the bulk of the growth in energy demand over the
next decade and beyond will be met by oil and natural gas. On the IEA’s figures
that means almost 20 per cent more oil and a third more gas by 2015.
The resources are available – there is no shortage. There are at least 40
years of oil supply at current consumption rates and almost 70 years of gas, and
that does not include oil and gas yet to be found, or the extensive resources of
heavy oil in Venezuela and Canada.
In environment terms the challenge is clear. Unless we take action the
increased use of hydrocarbons will lead to increased emissions of greenhouse
gases. The atmospheric concentration of carbon which today is at around 370 ppm
will rise.
The best available science suggests that the concentration level above which
sustainability could be in question is around 500 - 550 ppm. Unless we take
precautionary action the concentration will inexorably rise towards that
level.
The challenge is serious but there is no need for fatalism. The problem can
be solved and the work done here has begun to show us how.









The work done here at Princeton University has demonstrated that there are a
series of different ways in which the projected increase in emissions can be
averted over the next few decades.
Each of a series of steps could remove a proportion of the emissions which
would otherwise occur.
I think of the steps in terms of three elements.
First, improvements in the efficiency of energy use – such as the relatively
simple step of ensuring that vehicles operated at 60 miles per gallon rather
than 30. If by 2050, 2 billion vehicles were upgraded to that level 1 GT of
carbon emissions per year could be eliminated. That is one seventh of the
reduction necessary on that timetable if emissions are to stay within level
judged to be safe.
The second element is a shift in the use of energy products. If 1,400 large
power stations used natural gas rather than coal that would eliminate another 1
GT of carbon emissions per year.
And then the separate challenge of carbon sequestration which I believe holds
some exciting potential. We are experimenting with that technology.
We have a very substantial natural gas project in Algeria – a joint venture
with Sonatrach. The gas being produced contains up to 10 per cent CO2 which has
to be removed to enable it to meet the specification for pipeline transportation
and sale to the European market, which is just 0.3 per cent.
As a result of that process 1 million tonnes per year of CO2 is produced.
Rather than venting that to the atmosphere, which would be the normal response,
we are reinjecting the CO2 into a gas reservoir at a depth of 1,800 metres. That
is the equivalent to taking 200,000 cars off the road.









The sequestration began just a few weeks ago – in August. Over the lifetime
of the project the plan is that 17 million tonnes of CO2 be geologically stored.
It is an experiment – an industrial scale test of what be done. We’ve had great
support from our partners and from the Algerian government and I believe that if
the experiment works we will have opened up a new way forward.
All the steps proposed offer a real prospect of progress. Of course some of
the steps may prove impossible – for technical or political reasons. But the
list demonstrates what is possible and helps to remove the sense of fatalism
which surrounds this issue. Climate change is a manageable problem.
There are ways of transcending the harsh trade off I talked about at the
beginning.
We can have economic growth, rising living standards and a clean environment.

But only if we start now.
If we delay precautionary action, the problem will get worse, and the scale
and speed of the necessary response will increase. We could reach a point where
drastic action is necessary which could seriously damage the global economy.
What does all this say about the role of business in human progress?
We are part of society – but only one part. What is our role in moving
society forward?
There are four elements:
Firstly, business must be realistic and open. We can’t pretend that problems
don’t exist, or deny the evidence, or cling to the last fragment of scientific
uncertainty in the hope that problems go away. We can’t pretend that we’re not
involved, and if we try to deny the problem we are not serving the long term
interests of our shareholders.









Secondly, our involvement must be about finding answers. We may not be as
powerful as some people think but we can’t deny that we command tremendous
resources and technology, or that we have a capacity to work and apply knowledge
and best practice on a global basis. We can’t watch a problem such as climate
change developing and simply walk by on the other side of the street. We can’t
just expect someone else to clean up any mess we leave behind.
Thirdly, we can make an informed contribution to the public debate. It is not
for business to make the decisions on behalf of society about how such problems
are to be resolved or about the distribution of the costs involved. That is the
role of Government. But we are witnesses in that debate. We can show what’s
possible, on the basis of direct practical experience.
And fourthly, business has the responsibility to offer new choices. Our role
in society is to innovate, to apply knowledge and technology to problems and to
turn them into opportunities.
Business is not a passive force. Business is one of the most creative and
progressive elements in society – providing the means and the choices which make
human progress possible. That is true in terms of the environment and each of
the other challenges I mentioned. Business cannot take society’s decisions but
we can provide the menu of choices.
That’s our distinctive role.
And it is an honourable role.
The caricature is that business is greedy, ruthless and unprincipled.
Of course, you can find examples to prove that. Of course business makes
mistakes .
But business as a whole is an indispensable contributor to the continuing
story of human progress.









We invest to create new wealth.
We take ideas and make them real.
We take problems and work to find solutions.
Those roles are unique to business.
They are honourable activities and that’s why I believe business at its best
is an honourable and noble activity.
And nowhere is that activity more necessary than in meeting the environment
challenges the world now faces.
The work done here has helped to define that challenge and to identify a way
forward.
Now we in business have the responsibility to deliver, to turn ideas into
reality and to transform possibilities into real choices.
Thank you very much.







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