BP 2006 Annual Report Download - page 46

In July 2003, final agreement was reached on a European Directive
establishing a scheme for GHG emission allowance trading within the EU
and, in January 2005, the scheme came into force, capping the CO
2
emissions of major industrial emitters. BP was well prepared for the EU
ETS, building on experiences from our own internal emissions trading
system (operated between 1999 and 2001) and participation in the UK’s
own pilot ETS. The EU ETS launched in 2005 covers all BP installations
with combustion facilities greater than 20MW thermal input. The first
phase of EU ETS will come to completion at the end of 2007, with EU
ETS phase II running from 2008 to 2012. By 31 December 2006, member
states should have submitted their final national allocation plan (NAP)
versions. These are in the process of receiving final approval from the
Commission. In 2006, our 18 EU ETS participating installations submitted
their verified 2005 CO
2
emission reports, balanced their EU ETS
allowance positions using BP’s trading resources in London and
surrendered the required number of allowances, equal to their 2005
verified annual emissions.
In September 2006, California governor Arnold Schwarzenegger signed
the California Global Warming Solutions Act of 2006 (AB 32) into law.
AB 32 requires the California Air Resources Board (CARB) to develop
regulations that will ultimately reduce California’s GHG emissions to 1990
levels by 2020 (an approximately 25% reduction from current levels).
Mandatory caps will begin in 2012 for significant sources and will ratchet
down over time to meet the 2020 goals. The law specifically targets
‘sources or categories that contribute the most to statewide emissions’
for action. The California Climate Action Team, which the law designates
to co-ordinate overall climate policy, has identified transportation as the
largest GHG-emitting sector in California, and electricity generation and
the oil and gas industry are the two largest GHG-emitting industrial
sectors in the state.
The US congressional mid-term elections in November 2006 resulted in a
change in control of the US Congress that may increase the prospects for
more aggressive federal regulation of GHG emissions. Such future regulation
could include stricter Corporate Average Fuel Emissions for automobiles sold
in the US, changes in fuel specifications, the promotion of alternative fuels,
stricter emissions limits on large GHG sources and/or the introduction of a
cap and trade programme on CO
2
or other GHG emissions.
Since 1997, BP has been actively involved in policy debate. We also
ran a global programme that reduced our operational GHG emissions by
10% between 1998 and 2001. We continue to look at two principal kinds
of emissions: operational emissions, which are generated from our
operations such as refineries, chemicals plants and production facilities,
and product emissions, generated by our customers when they use the
fuels and products that we sell. Since 2001, we have been aiming to
offset, through energy efficiency projects, half the underlying operational
GHG emission increases that result from our growing business. After five
years, we estimate that emissions growth of some 12 million tonnes has
been offset by around 6 million tonnes of sustainable reductions. With
regard to our products, our commitment to low-carbon businesses
increased in 2006 with the internal establishment of a separate biofuels
business and the announcement to establish a dedicated biosciences
energy research facility attached to a major academic centre and invest
$500 million over the next 10 years. Our low-carbon power business, BP
Alternative Energy, continued to expand its activities with the purchase of
US wind developers Orion Energy, LLC, and Greenlight Energy Inc. and
the formation of a strategic alliance with Clipper Windpower, to develop
jointly more than 2 gigawatts of wind projects in the US.
Maritime oil spill regulations
Within the US, the Oil Pollution Act of 1990 (OPA 90) imposes oil spill
prevention requirements, spill response planning obligations and spill
liability for tankers and barges transporting oil and for offshore facilities
such as platforms and onshore terminals. To ensure adequate funding
for response to oil spills and compensation for damages, when not fully
covered by a responsible party, OPA 90 created a $1-billion fund that is
financed by a tax on imported and domestic oil. This has recently been
amended by the Coast Guard and Marine Transportation Act 2006 to
increase the size of the fund from $1 billion to $2.7 billion, through the
previously mentioned tax, together with an increase in the liability of
double-hulled tankers from $1,200 per gross ton to $1,900 per gross ton.
In addition to federal law (OPA 90), which imposes liability for oil spills
on the owners and operators of the carrying vessel, some states
implemented statutes also imposing liability on the shippers or owners of
oil spilled from such vessels. Alaska, Washington, Oregon and California
are among these states. The exposure of BP to such liability is mitigated
by the vessels’ marine liability insurance, which has a maximum limit of
$1 billion for each accident or occurrence. OPA 90 also provides that all
new tank vessels operating in US waters must have double hulls and
existing tank vessels without double hulls must be phased out by 2015.
BP contracted with National Steel and Ship Building Company (NASSCO)
for the construction of four double-hulled tankers in San Diego, California.
The first of these new vessels began service in 2004, demise chartered
to and operated by Alaska Tanker Company (ATC), which transports BP
Alaskan crude oil from Valdez. NASSCO delivered two more in 2005
and the fourth was delivered in 2006. At the end of 2006, the ATC fleet
consisted of six tankers, all double-hulled.
Outside the US, the BP-operated fleet of tankers is subject to
international spill response and preparedness regulations that are typically
promulgated through the International Maritime Organization (IMO) and
implemented by the relevant flag state authorities. The International
Convention for the Prevention of Pollution from Ships (Marpol 73/78)
requires vessels to have detailed ship-board emergency and spill
prevention plans. The International Convention on Oil Pollution,
Preparedness, Response and Co-operation requires vessels to have
adequate spill response plans and resources for response anywhere the
vessel travels. These conventions and separate Marine Environmental
Protection Circulars also stipulate the relevant state authorities around
the globe that require engagement in the event of a spill. All these
requirements together are addressed by the vessel owners in Shipboard
Oil Pollution Emergency Plans. BP Shipping’s liabilities for oil pollution
damage under the OPA 90 and outside the US under the 1969/1992
International Convention on Civil Liability for Oil Pollution Damage are
covered by marine liability insurance, having a maximum limit of $1 billion
for each accident or occurrence. This insurance cover is provided by three
mutual insurance associations (P&I Clubs): The United Kingdom Steam
Ship Assurance Association (Bermuda) Limited, The Britannia Steam Ship
Insurance Association Limited and The Standard Steamship Owners’
Protection and Indemnity Association (Bermuda) Limited. With effect
from 20 February 2006, two new complementary voluntary oil pollution
compensation schemes were introduced by tanker owners, supported by
their P&I Clubs, with the agreement of the International Oil Pollution
Compensation Fund at the IMO. Pursuant to both these schemes, tanker
owners will voluntarily assume a greater liability for oil pollution
compensation in the event of a spill of persistent oil than is provided for in
CLC. The first scheme, The Small Tanker Owners’ Pollution
Indemnification Agreement (STOPIA), provides for a minimum liability of
20 million Special Drawing Rights (around $29 million) for a ship at or
below 29,548 gross tons, while the second scheme, The Tanker Owners’
Pollution Indemnification Agreement (TOPIA), provides for the tanker
owner to take a 50% stake in the 2003 Supplementary Fund, i.e. an
additional liability of up to 273.5 million Special Drawing Rights (around
$406 million). Both STOPIA and TOPIA will only apply to tankers whose
owners are party to these agreements and who have entered their ships
with P&I Clubs in the International Group of P&I Clubs, so benefiting
from those Clubs’ pooling and reinsurance arrangements. All BP
Shipping’s managed and time-chartered vessels will participate in
STOPIA and TOPIA.
At the end of 2006, the international fleet we managed numbered 47
oil and product carriers, all double-hulled with an average age of less than
three years, seven LNG ships with an average age of nine years and three
LPG ships, which are all less than one year old. The international fleet
renewal programme will continue and is expected to see one more LPG
ship being delivered in mid-2007 and four new LNG ships being delivered
between mid-2007 and the end of 2008. In addition to its own fleet, BP
will continue to charter quality ships; currently these vessels include both
single- and double-hulled designs, but BP Shipping is accelerating the
phase-in of only double-hulled vessels by 2008; all vessels will continue
to be vetted prior to each use in accordance with the BP group ship
vetting policy.
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