Axe fossil-fuel handouts, says Browne

By Fiona Harvey, Environment Correspondent
Published: November 2 2008 23:36

Subsidies to fossil-fuel companies must be “dismantled”, says the former chief of BP, who has given warning of a “shake-out” among green energy companies that are struggling to survive.
Globally, about $200bn (£124bn) a year is spent on subsidies to the fossil-fuel energy industry – for example in the form of tax breaks on development. But only about $33bn is spent on subsidies to renewable and nuclear energy, says Lord Browne.

To move to a low-carbon economy requires a “level playing field” among energy companies, which would require the “dismantling” of subsidies to fossil fuels and a transfer to renewables and emerging technologies such as carbon capture and storage.
In his first face-to-face interview since leaving BP last year, Lord Browne said investment in the booming market for renewable energy had produced “a great bubbling” of new developments. But there would be a shake-out.
It was “inevitable that as the finance markets are closed, the debt markets are closed, that will fall off”, he said. “There has been a tremendous amount of activity. There might have been too much . . . It’s producing a lot of casualties. Maybe some of the more unlikely-to-succeed things will just be shut down as a result of tougher times.”
Lord Browne said fossil-fuel companies were facing upheaval as the energy mix was changing for the first time in three decades.
This would result in more demand for renewables and other low-carbon forms of energy, while greater energy efficiency spelt decline in some traditionally strong oil markets. US gasoline demand may already be in long-term decline, he said, because the car fleet was becoming more efficient.
Oil companies risked being caught out – like some telecommunications companies when first confronted by mobile technology.
“When mobile phones came in, I don’t think it was the fixed-line operators who were fastest and first to move to mobiles,” he said.
Lord Browne was speaking to the Financial Times ahead of a meeting of European energy experts in London on Monday at the Royal Academy of Engineering, of which he is president. At the gathering, he will call for world leaders urgently to pursue a global deal on climate change despite the economic downturn.
Since leaving BP, Lord Browne has taken on the chairmanship of the Accenture Global Energy Board and is managing director at the private equity firm Riverstone. He rejected the idea – put forward by a small group of UK companies last week – that the world’s oil supply would soon start to diminish.
“There’s plenty of oil, but it’s getting tougher to deliver and develop,” he said. Despite the recent fall in the oil price, the difficulty of exploiting new sources would have the effect of keeping prices high relative to past norms.
He called for the European Union’s emissions trading scheme (ETS) to be strengthened and dismissed claims that it was raising prices. The energy price rise resulting from it had been “infinitesimal”, compared with other factors.
“Moving these things around hardly changes the pool price of electricity – the cost of energy has gone up as it has become more expensive to make,” he said. “It does not make much difference in what we actually pay. Reductions in the base oil and gas [price] overwhelm anything that is happening in the [renewable subsidy] and ETS space.”
Consumers of energy should also face tougher regulation, he said. He pointed to “building codes, [the phasing out of incandescent] lightbulbs, offices in how long they should keep their lights on. And continuous regulation of [emissions from] cars should be tightened up.”
Copyright The Financial Times Limited 2008