Getting Ready For ETS

1
Getting Ready For ETS

• April 2008

2
Agenda

• BP Globally
• BP in New Zealand
• Risks
• Understanding the NZ ETS
• Implications of the NZ ETS
• Internal changes/education
• Lessons learned

3
BPs global position

• First oil major to acknowledge climate change
  issue
• Support well constructed Emissions Trading
  Schemes
• Facilities involved in EU Trading

4
Risks (Climate Change)
Financial
Market
Legal
Regulatory
Commercial
Tax
Physical
Climate Change will be woven into every aspect of
our business
5
New Zealand emissions profile (tiny and difficult)
0.3
77.05 MILLION TONNES CO2 e
4,984 MILLION TONNES CO2 e
6
Devolving obligation
2008-12
Credit for 1t CO2 Eq
7
BP New Zealand position

• Support well structured Emissions Trading Schemes
• Obligated party Liquid Fossil Fuels
• Material market player
• One of first major buyers under NZ ETS

8
Understanding the NZ ETS

• Many differing opinions
• Emissions in hands of many
• Hybrid approach to hybrid emissions profile
• Developed vs developing
• Will need external purchases to meet Kyoto
  commitment
• Confusion surrounding NZ ETS objective

9
Implications of NZ ETS

• Need for clarity
• Uncertainty
• Pace
• First priority risk mitigation
• Lack of market development
• High price
• Currency of concern

10
Understanding markets
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How do we purchase?

• Local vs international
• Forestry
• Negotiation
• Experience
• Timing

12
BP global trading experience
Excess Emissions
P R O J E C T S
Baseline
ERs created by project
With Project emissions
Plant 1
Plant 2
A L L O W A N C E S
Excess Allowances (available to trade)
Excess Emissions
Cap

• Net position of all facilities is traded
• NZ purchase materially larger than EU

Cap
2012
2012
2008
2008
Country 2
Country 1
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Timing/availability

• Delay in arrival of forestry credits
• Position on AAUs
• Supply of credits
• Time required to purchase a material number of
  credits
• Insufficient time and clarity prior to start will
  be a major hurdle

NZ -US Oil - Risk? NZ - Credits - Risk?
1 Jan 2009
Dec 2009
Mar 2010
Price NZ
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Timing/availability
CDM Availability by 2012
NZ Liquid Fossil Fuel requirements by 2012
2.6 of projects deliver 55 of credits

• Top 10 projects HFC and N2O
• NZ32 carbon price
• 2.6 billion cost to industry
• Due to credit profile significant period of
  time required for purchasing

Source IGES CDM Availability Database
15
Projected emission reduction
Source The Framework for a New Zealand Emissions
Trading Scheme NZ Government
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Internal changes/education

• Education
• Leadership induction
• Overseas BP experts
• Sales teams
• Wider organisation conference
• Changes
• Accounting
• Tax
• Legal
• Resource
• Communications (including customer)

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Earths orbit
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Kyoto
KYOTO CLUB
REDUCE GHG
IMPROVE ENERGY EFFICIENCY
RETAIN GROW SINKS

REDUCE GHG

COMMERCIAL REALITY AND POLITICS MAKE GLOBAL
AGREMENT DIFFICULT
If after undertaking the above you end up with
greater or lesser emissions than your allocation
then trade the difference, or save for a rainy
day!
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Cap and Trade a simple example

• Government sets a mandatory CO2 cap per household
  reducing by 10 per year

Potential to Relocate
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Lessons learned so far

• Market liquidity (immature and loose) versus
  Order Book
• NZ market is unbalanced
• Credibility of forest as a mechanism is a concern
• Transitional arrangements are the biggest issue
• Undertaking a small basic trade to test the
  system is a good idea
• A journey of price discovery various mechanisms
  and prices in market
• Emissions profile will be used as a barrier to
  market entry
• Do your research
• Unlikely to see material reduction in NZ
  emissions
• Beware of Sharks (they trade on the in balance of
  awareness)

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Choose quality advisors
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Summary

• BP supports well constructed ETS
• Climate change needs to be addressed
• NZ ETS is unique
• Pace and content creates concerns
• Significant implications if risks not managed
  properly
• Ground work required within organisation
• Do your research and choose quality advisors
• Questions?