BP 2013 Annual Report Download - page 260

Greenhouse gas regulation
Increasing concerns about climate change have led to a number of
international climate agreements and negotiations continue on defining
the scope and nature of the commitments to be entered into by those
subject to the next phase of international climate change regulation.
At the UN summit in Cancun in December 2010, the parties to the UN
Framework Convention on Climate Change (UNFCCC) entered into a
formal agreement on a package of measures to 2020. The Cancun
Agreement seeks deep cuts in global greenhouse gas (GHG) emissions
required to hold the increase in global temperature to below 2°C.
Signatories formally committed to carbon reduction targets or actions by
2020. Around 85 countries, including 69 developed economies (the EU
counted as 28 countries) and 16 developing countries, have made such
commitments currently. An additional 39 developing countries have
submitted pledges related to sectoral goals. Supporting those climate
efforts, principles were agreed for monitoring, verifying and reporting
emissions reductions; the Green Climate Fund was established to help
developing countries limit and adapt to climate change; and measures
were agreed to protect forests and transfer low-carbon technology to
poorer nations. In November 2011, parties to the UNFCCC conference in
Durban (COP17) agreed to several measures. One was a ‘roadmap’ for
negotiating a legal framework for action on climate change by 2015 that
would involve all countries by 2020 and would close the ‘ambition gap’
between existing GHG reduction pledges and what is required to achieve
the goal of limiting global temperature rise to 2°C. Another was a second
commitment period for the Kyoto Protocol, to begin immediately after the
first period. An amendment was subsequently adopted at the 2012
conference of parties (COP18) in Doha establishing a second
commitment period to run until the end of 2020. However, it will not
include the US, Canada, Japan and Russia and thus covers only about
15% of global emissions. The 2013 Warsaw meeting (COP19) agreed to
continue these processes with a view to agreeing to post-2015 and post-
2020 targets or frameworks.
Aspects of these international concerns and agreements are reflected in
national and regional measures seeking to limit GHG emissions.
Additional, more stringent, measures can be expected in the future.
These measures could increase BP’s production costs for certain
products, increase demand for competing energy alternatives or products
with lower-carbon intensity, and affect the sales and specifications of
many of BP’s products. Current measures and developments potentially
affecting BP’s businesses include the following:
• The European Union (EU) has agreed to an overall GHG reduction
target of 20% by 2020. To meet this, a ‘Climate and Energy Package’
of regulatory measures has been adopted including: national reduction
targets for emissions not covered by the EU ETS; binding national
renewable energy targets to double usage of renewable energy
sources in the EU including at least a 10% share of renewable energy
in the transport sector; a legal framework to promote carbon capture
and storage (CCS); and a revised EU ETS Phase 3. EU ETS revisions
include a GHG reduction of 21% from 2005 levels, a significant
increase in allowance auctioning, an expansion in the scope of the EU
ETS to encompass more industrial sectors and gases and no free
allocation for electricity generation or production but benchmarked free
allocation for energy-intensive and trade-exposed industrial sectors.
Finally, EU energy efficiency policy is currently implemented via
national energy efficiency action plans and the Energy Efficiency
Directive adopted in 2012. The EU recently started discussions on a
new framework for its energy and climate policies over the 2030 time
horizon which will succeed the current framework once adopted.
• Article 7a of the revised EU Fuel Quality Directive requires fuel
suppliers to reduce the life cycle GHG emissions per unit of fuel and
energy supplied in certain transport markets.
• Australia has committed to reduce its GHG emissions by at least 5%
below 2000 levels by 2020. In accordance with the Clean Energy Act
2011, Australia’s carbon price took effect on 1 July 2012 with a fixed
price of $23 Australian dollars per tonne. The fixed price phase is
scheduled to transition into a market-based price (emissions trading
scheme) by 1 July 2016. BP refineries and its share of the North West
Shelf Project are covered entities within the Clean Energy Act 2011
and are liable for carbon dioxide-equivalent emissions. With Australia’s
change of federal government in September 2013, there is significant
uncertainty that exists in relation to the future of the Carbon Pricing
Mechanism provided for under the Clean Energy Act 2011. BP
Australia continues to monitor this situation.
• New Zealand has agreed to cut GHG emissions by at least 5% below
1990 levels by 2020, with additional reduction conditioned on a
comprehensive global agreement for emissions reductions coming into
force. New Zealand’s emission trading scheme (NZ ETS) commenced
on 1 July 2010 for transport fuels, industrial processes and stationary
energy. New Zealand also employs a portfolio of mandatory and
voluntary complementary measures aimed at GHG reductions. New
Zealand made its recent commitments for GHG reduction under the
UN Framework Convention rather than the Kyoto Protocol.
• In the US, with the potential for passing comprehensive climate
legislation remaining very unlikely, the US Environmental Protection
Agency (EPA) continues to pursue regulatory measures to address
GHGs under the Clean Air Act (CAA).
– In late 2009, the EPA released a GHG endangerment finding to
establish its authority to regulate GHG emissions under the CAA.
– Subsequent to this, the EPA finalized regulations imposing light
duty vehicle emissions standards for GHGs.
– The EPA finalized the initial GHG mandatory reporting rule
(GHGMRR) in 2009 and continues to make amendments to the
rule. Reports under the GHGMRR are due annually. The majority
of BP’s US businesses are affected by the GHGMRR and
submitted their GHG emissions reports to the EPA under the
GHGMRR on or before the required deadlines. In addition to direct
emissions from affected facilities, producers and importers/
exporters of petroleum products, certain natural gas liquids and
GHGs are required to report product volumes and notional GHG
emissions as if these products were fully combusted. The EPA
has released direct emissions data since 2011, and in 2013
released aggregated site product emissions data. Certain
confidential business information protections remain for both
direct and product emissions data reported.
– The EPA finalized permitting requirements for new or modified
large GHG emission sources in 2010, with initial regulations taking
effect in January 2011, the second phase taking effect on 1 July
2011 and the third phase finalized on 29 June 2012.
– In a legal settlement with environmental advocacy groups, the EPA
committed to propose a GHG New Source Performance Standards
(NSPS) for GHG emissions from refineries by December 2011 and
to finalize the NSPS by November 2012. These deadlines were not
met and the new refinery NSPS deadlines were not proposed by
the administration when the electric generating unit (EGU) GHG
EGU NSPS deadlines were announced in a Climate Policy Directive
in June 2013.
– Legal challenges to the EPA’s efforts to regulate GHG emissions
through the CAA continue, including before the US Supreme Court
in the 2013-2014 term, along with active political debate with the
final content and scope of GHG regulation in the US remaining
uncertain.
• A number of additional state and regional initiatives in the US will affect
our operations. Of particular significance, California implemented a low-
carbon fuel standard in 2010 and is seeking to reduce GHG emissions
to 1990 levels by 2020 and to reduce the carbon intensity of transport
fuel sold in the state. Legal challenges resulted in a pause for 2014
carbon intensity targets at the 2013 level. Whilst these legal challenges
continue, the preliminary injunction stopping implementation was lifted
and implementation of the programme continues. The California cap
and trade programme started in January 2012 with the first auctions of
carbon allowances held in November 2012 and obligations
commencing in 2013.
• Canada has established an action plan to reduce emissions to 17%
below 2005 levels by 2020 and the national government continues to
seek a co-ordinated approach with the US on environmental and energy
objectives. Additionally, Canada’s highest emitting province, Alberta, has
been running a market mechanism to reduce GHG emissions since
2007. Controversy, partially driven by perceived GHG intensity regarding
Canadian oil sand produced crude, continues with some jurisdictions
contemplating policies to restrict or penalize the use of such crude.
256 BP Annual Report and Form 20-F 2013