BP s perspective on EU ETS

1. BP�s perspective on EU ETS Tom Thomas, Director, Climate Change, Refining and Marketing Sunbury, March 2005 Title slide Keep the title brief and to one line? The second line (in smaller type style) is for the date of the presentation � depending on your presentation, you may also need to include Location and/or Presenter�s name/s and Job title if needed � as a such a second line may be used for these purposes. Do not include unnecessary information in your presentation title � starting off with clear and simple messages will set the style and focus the audience for what is to follow. Title slide Keep the title brief and to one line? The second line (in smaller type style) is for the date of the presentation � depending on your presentation, you may also need to include Location and/or Presenter�s name/s and Job title if needed � as a such a second line may be used for these purposes. Do not include unnecessary information in your presentation title � starting off with clear and simple messages will set the style and focus the audience for what is to follow.

2. Agenda Overview Timetable BP�s position Preparing for EU ETS Data collection and validation GHG Measurement Uncertainty Non Compliance Future Developments

3. World GHG trading markets

4. EC Emissions Trading Scheme  Directive Timetable Pre operation By 30 September 2003 Commission to issue monitoring and reporting guidelines By 31 December 2003 Commission guidance on National Allocation Plan (NAP) By 31 March 2004: Member State NAPs to Commission (LATE) By 30 June 2004: Commission completes review of NAP (LATE) By 1 October 2004 Member State define allocation to installations EU ETS in operation 1 January 2005: EU ETS starts By 28 February: Issue of allocation to operators By 31 March following year Member State decision: Operators with unsatisfactory verification reports suspended from transferring allowance By 30 April following year: Each installation operator surrenders allowances equal to previous year�s verified emissions

5. Trading Principles BP supports flexible mechanisms ETS are seen as a major element in a portfolio of options There will be ( and indeed are !) start up difficulties The ETS allows flexibility but creates a stimulus to develop lower carbon options

6. Key Principles It must clear and transparent In time there will be more aggressive targets Phase 1 of EU ETS has had a tight timetable � but clear lessons to be learnt for phase 2 BP support the creation of EU ETS, and acknowledges the compliance costs � there is positive value to be gained from emission reducing actions Where alternatives exist (e.g. UK ETS) our preference is for assets to be part of EU ETS Caveat � all other considerations being equal

7. Global position The EU ETS has a great opportunity to influence the development of other regional or international market mechanisms�and to act as the first step to a global trading market It must be designed to reach beyond the boundaries of Europe It should encourage the development of actions to reduce GHG emissions via a credit based approach�it is also a first step to encouraging sustainable investment in the developing world (via the CDM project-based approach)

8. Market development policy In general, cap and trade systems are a more effective engagement tool than taxes or regulation (for stationary applications) mandatory caps create effective carbon property rights, as do well defined reduction projects� and create a needed, level playing field need for a carbon price that is global in reach, but probably not a single global system EU ETS has the potential to become a strong global carbon currency cap and trade systems are ONE policy tool, they engage and facilitate trade and investment

9. Example: Preparing for the EU ETSMaking the Linkages Work

11. Baseline Verification Only Germany and UK mandated KPMG or DNV were auditors for both countries All sites required to undergo Completion by end August 2004 Verified against industry best practice

12. Classification of Audit Findings

13. EU ETS Data reporting flow chart

14. Data Verification Emission monitoring guidelines adopted 29th Jan 2004 Installations have to agree monitoring plan with competent authority Guidelines specify metering accuracies that may not be possible Emissions then verified against plan Competent authority to ensure plan satisfies guidelines We advocate that that the guidelines should take into account cost effectiveness of measures

15. GHG Measurement Uncertainty EU Monitoring Guidelines propose measurement uncertainty of +/-1.5% Refining industry in Europe have concerns Concawe report (joint industry panel) produced Typical European refinery measurement uncertainty quantified to be +/-3.2% EUMG seen as unrealistic Financial investment to comply seen as high for limited return

16. Example of Refinery C02 sources

17. Summary: Consequences of EU ETS non-compliance Reputational consequences For non compliance, publication of names required Fine for registry non-compliance �40 per tonne first period + allowance delivery �100 per tonne second period + allowance delivery Fine and/or Prison for breaches of national law Some EU-25 have incorporated EU ETS permitting into existing installation environmental law code Operators and or companies can be indicted

18. Germany:Administrative offences Administrative Offences under Section 19 of GHG Emissions Trading Act Operation without correct permit Non notification of changes to installation or operator Non cooperation with competent authority inspectors Penalty: fines up to �50 000 per offence Administrative Offences under Section 21 of Allocation Act Non or incomplete submission of annual emissions data, installation closure details or non cooperation with inspectorate Penalty: up to �50 000

19. Germany:Penal code offences & penalties Operation of an installation without a GHG permit is an administrative offence If a fraudulent application was made e.g. for extra GHG allowances, this could be considered under Section 263 of the Federal Penal Code Penalty: prison sentence of up to 5 years.

20. Observations on the transport sector