Emission Incentives

BP Amoco is busy figuring out the cheapest way to cut greenhouse-gas emissions

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As many U.S. companies fight global efforts to cut greenhouse-gas emissions, a European giant is busy figuring out thecheapest way to get the job done.

BP Amoco has piloted a carbon-dioxide emission- trading system among 12 business units for the past year. The pilot has worked so well to coax managers to cut emissions by roughly 1 percent that BP Amoco will expand it to all of its 127 business units next year.

The magic of BP Amoco’s system is that it puts a price, albeit internal, on carbon-dioxide and methane emissions, considered key culprits in global warming. In BP Amoco’s first trade, the price was $17 per ton of CO2, as the Foinaven oil field in the North Sea bought 10,000 tons of “allowances.”

By pricing CO2, BP Amoco creates a financial mechanism to spark cost-effective innovation. Each unit can buy its way to meeting do-not- exceed CO2 limits assigned by headquarters each year. But if engineers can devise ways to abate CO2 cheaply, they can avoid the expense of buying allowances.

“The market mechanism will attempt to deliver the least-cost solution to CO2-emission reductions,” remarks Charles Thomas, environmental policy adviser at BP Amoco.

For example, in Alaska, engineers working for the trans-Alaska pipe-line unit installed a drag-reducing technology that lets them remove a number of pumping stations. They will reduce CO2 emissions once generated by fuel combustion by 236,000 tons per year.

BP Amoco puts teeth into CO2-reduction goals by including them on each unit leaders’ scorecard, and ties pay to meeting the goal. Also, the price of trades figures into the executive’s internal financial reporting mechanisms.

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