When BP revealed this week that bumper profits had reached an eight-year high, helped by the same soaring gas prices that have fuelled a national cost of living crisis, it had a political sweetener already prepared.
The oil firm revealed the four-fold profit increase to $12.8bn alongside a promise to spend more on low-carbon energy alternatives, and invest more than £2 for every £1 it made in Britain this decade.
Bernard Looney, BP’s chief executive, told investors that by 2025 the company plans to dedicate 40% of its spending budget to parts of the business which aid the energy transition, rising to 50% of the budget by the end of the decade.
A large proportion would be earmarked for UK projects such as giant offshore windfarms, hydrogen projects and electric vehicle charging networks. A useful counter-argument to calls for a windfall tax? Not so, Looney told the Guardian.
“BP’s historic links in the UK give us a foundation here,” Looney said. “But the real reason we will focus on the UK is the opportunity: the wind resources here are among the best in the world. The UK is also blessed with a society and an economy which wants to transition. It’s a good place to invest and it’s a place that we know.”
BP has spent about $3.2bn on clean energy since 2016, and $84bn on oil and gas exploration and development over the same period, according to equity analysts at Bernstein. But in a little over two years the company’s renewable energy development pipeline has grown from 6GW in 2019 to 24.5GW thanks in large part to an aggressive entrance into the offshore wind industry.
BP set a record bid to clinch the rights to develop two offshore windfarms off the west coast of the UK last year, and recently won the right to develop more than 5GW of offshore wind power capacity off the Scottish coast.
Still, investors and climate activists have raised concern that the plans risk falling short of expectations from both sets of perspectives.
Mark van Baal, the founder of Follow This, an activist investor, said the increased spending on low-carbon technologies “sounds promising, compared to today” – in which 88% of BP’s spending is directed towards fossil fuels – but it would still be far from enough to reduce emissions in line with the levels set out by the UN’s Intergovernmental Panel on Climate Change.
BP will nudge higher the reduction targets for the carbon emissions from the fossil fuels that it sells, or ‘scope 3 emissions’, from a modest cut of 15% by 2030 to between 15 and 20%. But this target relates to the carbon intensity of the energy it sells rather than the absolute emissions its fossil fuels create, van Baal said.
“As far as we are concerned, BP did not change its expectation that its level of total emissions will grow out to 2030,” he added. “Achieving Paris calls for a reduction of energy-related emissions of 45% according to the IPCC. They are still exacerbating the climate crisis by increasing CO2-emissions.”
The plan may also falter if BP struggles to convince investors that more low-carbon spending will lead to greater earnings for the FTSE 100 company. Its rival Shell is fighting calls from US hedge fund Third Point to break up into separate renewables and oil and gas businesses.
“BP’s been more aggressive than some of its peers when it comes to clean energy,” said Laura Hoy, an equity analyst at RBC Capital, “which could be a huge advantage if all goes to plan. However, it could also prove to be somewhat of a money pit if BP doesn’t get it right.”
In return for spending half of its annual budget on its “energy transition” businesses by the end of the decade BP expects to generate earnings of $9bn to $10bn a year by 2030, driven by five areas: bioenergy, convenience, electric vehicle charging, renewable energy and hydrogen.
But there is no guarantee that BP will be able to wring enough profit from its new ventures to meet its targets. Biraj Borkhataria, an analyst at RBC Capital, noted that BP’s earnings from renewables fell from $1.6bn to $1bn between 2016 and 2021, “falling far short” of the $2.1bn target initially set out for 2021.
“BP’s wading into uncharted waters,” Hoy added. “The profitability of these new businesses is unknown and there’s a chance they won’t make up for lost oil and gas cashflow given up in the transition.”
Charlie Kronick, an analyst at Greenpeace UK, said although there is “no doubt that BP now has the most ambitious plans of any of the oil giants to pivot away from climate-wrecking fossil fuels as their core business” the company was “the best of a bad bunch”.
“It should be clear by now that we can’t wait to solve this problem one oil company at a time,” he said. Instead, it should be up to governments “to step in to end the growth in fossil fuels and to massively raise ambition to reduce emissions”.