The net-zero strategy unveiled by BP this week has received plaudits from a number of unusual suspects, with Greenpeace, sustainable shareholder group Follow This, think tank Carbon Tracke and U.K. envoys to the forthcoming COP26 climate conference all lining up to praise the sweeping new plan.
The plan — which outlines how the oil giant intends to slash its oil and gas output by 40 percent by the end of the decade, increase its annual spending on low-carbon technologies and energy tenfold, and reimagine the fossil fuel business as an integrated energy company — has pushed BP from net-zero laggard to what looks like a global leader.
But how significant is the strategy unveiled this week, and why is it being hailed as such a major milestone for the wider net-zero transition? BusinessGreen highlights the five key lessons from the new strategy.
1. BP's plan has scale
The figures contained in BP's new plan are big. The firm's plan to cut production of oil and gas by 40 percent over the next decade, represents a huge cut in its carbon footprint. It also wants to develop 50 gigawatts of renewables by 2030 — that's more than all the renewable electricity capacity installed in the United Kingdom to date.
The plans mark a huge step change for the company, which currently has just 2.5 GW of renewable capacity due in large part to its joint solar venture, Lightsource BP, which operates in more than dozen countries.
"To give some scale — the 50 GW of planned renewables by 2030 is roughly equal to the current installed renewables capacity in the UK [generating over a quarter of our power over the last year]," John Murton, UK COP 26 envoy, explained on Twitter. "The proposed cuts in O&G production are a little more than total UK oil output today."
2. It also has pace
The timeline of BP's ambition sets it apart from other net-zero commitments from oil and gas majors and has prompted Greenpeace to commend the firm for acknowledging the "immediate need to cut carbon emissions this decade."
While dramatic emissions reductions are required over the next 10 years to meet global climate targets, short-term goals have to this point remained largely absent from oil and gas majors' longer-term climate strategies, with some of those companies nominally committed to decarbonization talking about long-term transition strategies that will not really gather pace until the 2030s and beyond.
But the strategy unveiled by BP this week is decisively focused on the decade to come. The firm said it is aiming to cut emissions from operations by 30 to 35 percent by the end of the decade compared to 2019 and cut emissions associated with oil and gas production by 35 to 40 percent in the same timeframe. It also has committed to spending one-fifth of its capital on "transition businesses" by 2025.
Murton said the announcement was "akin to a corporate 2030 NDC," referring to governments' climate targets — or National Determined Contributions in the United Nations jargon — that must be updated every five years under the Paris Agreement.
3. An 'Integrated Energy Company' means more customers, more hydrogen and more biofuels
BP says that it is an "integrated energy company" focused on delivering solutions for customers instead of an international oil company producing resources. This new vision goes far beyond renewables, it says, and will require the company to invest heavily in hydrogen and biofuels, as well as the mobility and convenience sectors.
BP chief executive officer Bernard Looney stressed the firm would not be "starting from scratch," pointing to its existing partnerships with M&S in the U.K. and German supermarket chain REWE in Germany, as well as the electric vehicle charging network it runs in China with ride-hailing company DiDi.
Overall, it said, it is hoping to double the number of interactions it has with customers to more than 20 million a day.
While dramatic emissions reductions are required over the next 10 years to meet global climate targets, short-term goals have to this point remained largely absent from oil and gas majors' longer-term climate strategies.
Predicting a "revolution in mobility," BP plans to boost the number of electric vehicle charging stations it has from 7,500 to more than 70,000 worldwide. It also said it will forge energy partnerships with between 10 and 15 major cities and three "core industries" to help with their transition to net-zero, it said.
BP is also betting big on hydrogen and biofuels, with a plan to grow bioenergy production from 22,000 to 100,000 barrels a day while growing its hydrogen business to a 10 percent share of core markets.
Both markets are relatively nascent today and remain controversial among certain green groups. Hydrogen is expected to receive a major boost in the years to come, as major economies around the world — in particular Germany, the EU and South Korea — have bet big on the technology in their post-pandemic economic recovery plans.
4. There is still room for improvement, according to green groups
While the response to BP's new plan has been largely positive, there has also been criticism, with some pointing out that the firm's plan to reduce the carbon associated with the oil and gas it produces only applies to a share of the products it sells.
"BP's aim to reduce its own oil and gas production by 40 percent by 2030 is significant," campaign group Culture Unstained said on Twitter. "But in 2018, BP's production was 2.7 [million] barrels per day while the volume of the products it *sold* was a much higher 8.6m barrels per day. On those products BP sells but hasn't produced itself, it is only committing to a 15 percent reduction in 'carbon intensity' by 2030. Under that carbon intensity measure, it's entirely possible for actual emissions to remain the same — or even increase."
And despite largely commending BP's new plan, Greenpeace has called on the firm to "ditch or account for" its 19.75 percent share in Russian oil and gas company Rosneft. But BP insisted it would retain its ownership of the Russian energy firm, dubbing it a "fundamental part of BP's broader portfolio."
More generally, the big question hanging over BP's new strategy is whether it can deliver. Will it be able to hold the line and divert investment from fossil fuels to clean energy if demand recovers and the oil price starts to spike upwards? Can it deliver on its promise to continue to deliver for shareholders even as it undergoes a complex transformation of the business? The success of BP's strategy ultimately will be determined by its execution.
5. So far, the markets seem to like it
Despite announcing crushing financial losses of $16.8 billion in the second quarter, shares in BP jumped 6 percent early the day the new strategy was disclosed. Analysts have suggested the market reacted positively partly due to BP's decision to accompany its financial results with a plan that clearly outlined how it planned to move away from fossil fuels claw back revenue using low carbon investments and technologies.
Others noted that markets could be responding to the fact BP delivered a less aggressive dividend cut than rival Royal Dutch Shell, which slashed pay-outs by two thirds earlier this year.
"The loss BP announced this morning, linked to the write-down of its valuation of assets, was no worse than analysts had expected, prompting a measure of relief," AJ Bell investment director Russ Mould told trade magazine Shares Magazine.
However, with growing numbers of investors concerned about stranded asset risks and the potential impact of the net zero transition on the bottom line, it is likely the company also was being rewarded for delivering a clear long-term strategy for the business at a time when credible voices think global oil demand may have peaked.
In its strategy, the firm went to great lengths to explain that increasing investment in non-oil and gas and a commitment to allocate a fifth of all capital in "transition businesses" ultimately would have a positive impact on shareholders' revenues.
The firm said it is targeting 7 to 9 percent annual growth in cash earnings per share over the next five years and stressed that its "resilient dividend" could be topped up by a commitment to distribute surplus cash through share buybacks.