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February 28, 2008

BP Fuzzy On Future Alternative Energy Plans

In his first strategy presentation as BP’s CEO, Tony Hayward said the company has received little, if any, uplift from its investments in wind and solar power and fuels made from crops, Reuters reports.

Hayward believes BP’s alternative energy investments are worth up to $7 billion. Realizing that value for shareholders could involve selling stakes, joint ventures and partnerships, The Financial Times reports. Other pubs, like Reuters, say selling its whole alternative energy arm isn’t beyond the realm of possibility.

BP invested $1.5bn in alternative energy over the three years 2005-07, and expects to invest a further $1.5bn this year: about 7 per cent of its total capital spending across the group.

Hayward’s predecessor, John Browne, saw renewable energy as core to BP’s operations and image. To that end, the company spent tens of millions of dollars on its “Beyond Petroleum” campaign. Browne took a veiled dig at the company recently when he said some energy groups were in denial about reducing their carbon output, Environmental Graffiti reported last week.

Hayward wants BP’s alternative energy investments to be more than a publicity exercise, according to FT. To that end, BP will now look at its alternative energy unit as a portfolio of investments which will face deadlines for delivering profits.

What’s a bit confusing about all this is that the “Beyond Petroleum” campaign was a success. Sales from 2004 to 2005 rose from $192 billion to $240 billion then to $266 billion in 2006. Moreover, a Landor Associates survey of consumers found that 21 percent of them thought BP was the greenest of oil companies. BP said that from 2000-2007, its brand awareness went from four percent to 67 percent.

Last November, a PFC Energy study claimed that in the area of climate change and reducing its greenhouse gases, “BP has indeed been more proactive than [competitors].” And BP was last year’s most accountable company according to Accountability Rating. To understand what kind of offsetting factor BP’s highly visible alternative energy campaign has in mitigating other areas of BP’s business, it’s important to note that that award was given after BP had had a controversial showdown with officials in Chicago over the dumping of toxic waste and was fined heavily for environmental regulation violations.

James Marriot, of the activist group Platform, recently said that BP’s new stand “might help the share price in the short term but longer term Hayward is exposing the company to the dangers of a rising carbon price [for CO2 emissions permits] and falling oil price,” according to Environmental Graffiti.

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