A recent report from the United Nations found many of the world's ecosystems in decline and said that global warming will only worsen existing problems. Can businesses help turn the tide and find solutions where policymakers have failed? Steve Percy, former chief executive officer of BP America, explains the influential U.N. study, and also discusses whether U.S. companies are near consensus on a future climate change policy. Plus, Percy weighs in on global energy markets, deepwater oil drilling and whether Congress or the White House should prevent CNOOC Ltd. from its bid to purchase Unocal.
Brian Stempeck: Hello and welcome to OnPoint, I'm Brian Stempeck. Joining me right now is Steve Percy, the former CEO of BP America. Mr. Percy, thanks a lot for being here.
Steve Percy: My pleasure Brian.
Brian Stempeck: You're in town this week basically to talk about the Millennium Ecosystem Assessment. It's a report from the United Nations, major four year, $20 million report. And you basically headed up the business session of it. Tell you us the message that you were bringing to members of Congress as you came to Washington this week.
Steve Percy: Well, the main business message is "the bottom line" we call it is three things. Because of the trends identified in this assessment business costs are going to go up, our pressures from various constituencies like customers, governments, investors, insurance companies are going to grow. So that's kind of the threat side of the messages, but on the other hand we have a kind of hopeful message for business that there's a lot of opportunity to make money helping to solve some of these problems so threats on one hand, opportunity on the other.
Brian Stempeck: Now, this is a major report, covers so many areas, it looked all the world's ecosystems, had 1,400 scientists involved. How do you bring this message to CEOs, to members of the Congress and kind of break in terms they can understand because it is a broad report from so many scientists? Can you kind of give us a real life example of what the business is being impacted right now by some of these degraded ecosystems?
Steve Percy: Well, first of all it was a very difficult task, and in order to do it we had not only some of the scientists who were involved but we also had some business practitioners join the team to go through all this material. We called it "mining the material" to pull out the key messages, trends, drivers of change for the business community. So we had to delve into this vast amount of information to pull out these kinds of things. And to get from that very large amount of specific things into something like a 30-page report or less, something that would be easily digested by a CEO of a company knowing we can't be all things to all people was a very difficult thing. So what we've tried to do is identify these kind of key trends for business that we think are the most important things like water scarcity. I mean that's an obvious thing for business. Businesses are huge users of water, so are there customer, climate change, not surprising is a huge driver of change. Many businesses are associated with that particular issue. Habitat loss, which may affect people who are developing properties, biodiversity loss, that may affect drug companies who are looking for genetic resources, invasive species, which are probably affecting companies more because of the impact they're having on the environment transporting these species around. So those are some of the key issues which we've pulled out, and I think of greatest importance to business. Then we also we tried to kind of defer from that in the scenarios work of the Millennium Ecosystem.
Brian Stempeck: Right.
Steve Percy: A series of new policy frameworks that businesses may find themselves in going forward as much in the developing world as the developed world. So we have list of those kinds of things.
Brian Stempeck: I want to follow up on climate change.
Steve Percy: Yeah.
Brian Stempeck: Of course that's one of the big issues on Capitol Hill right now is how Congress is going toreact in climate change. You were the co-chair of Climate Change Task Force back under President Clinton. How have you seen businesses evolve in their approach to dealing with climate change? Your own company, former employer, BP puts some major actions on climate change. How would you characterize the past few years of some major companies and how they're reacting in global warming?
Steve Percy: Yeah. But first of all I want to clarify. I was a co-chair of a task force inside the President's Counsel for Sustainable Development and that task force was climate change. And I think you see the full spectrum. You see the companies who are leaders even five and six years ago like BP who saw the need for prudent steps to anticipate the potential for this to happen and to smooth the transition to a more benign environment. You've seen companies at the spectrum, small companies, who really don't have the resource to get engaged in these issues and will just kind of follow. But I think more and more the large global players have come onboard, understand the issue, are affected because they're operations are in places covered by Kyoto Protocol, would love to see a level playing field. And as they approach their business, they're starting to set standards for the companies that supply them, and because of that these ideas are starting to trickle down to ever smaller companies. And so I think we're seeing a growing realization on the part of the industry as this is something that they're going to have to deal with and many of them are going to want to play because there's going to be some opportunity for new technology that they can supply.
Brian Stempeck: Do you think there's been a critical mass reached yet? You have like for example GE came out recently and they had their new Ecomagination Campaign, companies like that. Some of the major utilities are saying that they think it's in the best interest of the U.S. to have some kind of climate policy. Has the critical mass from industry built to the point yet where Congress, do you think, is going to act or the White House might kind of reverse it's stance and come out with any mandatory action?
Steve Percy: I think we're getting close. I don't think we're there yet in my own opinion, but I think we're getting very close. I think the political world is starting to see that the large industrial players in the United States who because they are global I think feel kind of not whole in this whole equation of one half their company has to deal one way and another the other way. And I think they'd like to see a much more kind of unified approach to this particular issue, and I think their voices are starting to register. And that's one aspect. Another aspect of course is that this grass roots effort on the part of the states which are already moving on a number of fronts, and we're going to get to the point where we have a hodge-podge just like we maybe have in gasoline. A hodge-podge of approaches to this problem and at that point it needs to become a federal issue.
Brian Stempeck: Kind of having different regulations in each state?
Steve Percy: Yeah. Yeah. That's exactly right. And I think if you want to have a good say at the carbon trading market it's got to be comprehensive and not kind of one that's developed here, developed slightly simply or differently someplace else.
Brian Stempeck: Now, opponents of climate control always raise the idea of job losses come with this, economic damage, putting companies out of business. I mean right now in Europe they have a carbon trading system and it's going for about $30.00 per ton. Aren't these things going to be huge costs in the U.S. economy if something like this were to go into effect? I mean this clearly is displayed with companies who want to see these regulations and those who don't, but how you counter to the companies that don't want to see regulations that this isn't going to cost them an extremely large amount of money?
Steve Percy: Well, as in any kind of change like this there's going to be some winners and losers, and we have to figure our how we kind of keep the losers somewhat whole in this whole process. But in terms of the overall U.S. Economy I really think we've been missing a trick because even though U.S. companies can develop new technologies to apply Europe and there's a business opportunity there our market is so great and if our market was participating in this there would be much more force driving the intermediate and smaller companies to get in on the game and develop energy saving technologies, renewable technologies and all the bits and pieces that need to be developed to make those things work.
Brian Stempeck: What are some of the steps that companies can take right now to try to reduce emissions? BP has taken action on renewable energy, on carbon capture and storage from coal plants and kind pf storing it underground. What other actions do you see as perhaps cost effective ways for companies to get involved even without a federal climate scheme?
Steve Percy: Well, I think you've nailed it right on the head there, if you will, is the idea that waste of any kind is a cost. And I think if companies look more deeply at some of the costs that are associated with carbon production, energy use, that kind of a thing, on their face they may be just close to break even steps to take, but if you think about long term and the potential that eventually we're going to come into some kind of framework, steps now to reduce those inefficiencies in terms of using energy we'll have some payout. And I go back to just reduce waste as much as possible and that not only helps the carbon thing that also helps this thing we've been working on, this Millennium Ecosystem Assessment too because waste of all kinds have damaging effects in the environment.
Brian Stempeck: As we're looking at a lot of companies taking more action in climate change kind of placed into the broader idea of companies improving their environmental image in the minds of shareholders and minds of consumers. BP when it changed its name from British Petroleum to Beyond Petroleum took a lot of fire from environments groups and other people this just seems like a greenwashing effort, kind of a PR spend to make the company look greener. I mean you have a green logo. How to react to something like that and how do you differentiate between concrete action on environmental issues and just a very expensive PR campaign?
Steve Percy: Well, I think BP, which I'm no longer associated with, but I think they can certainly hold their head high on that one because action came before the name change. Action when Lord Browne made the announcement that BP was going togo in a different course, tacked on this thing. We had announced about five very concrete things including setting targets on emissions reductions, studying the problem, doing partnerships with environmental defense to help us setup an internal carbon-trading program. A number of very concrete things, and I think there was the belief that you got to walk and not just talk. But if you just walk and don't talk then you're cheating your shareholders out of all efforts that are going into it. So you're really need to have a balanced approach. You've got tell your important constituencies like your investors what you're doing and craft a whole strategy around it. So I think they've got a good balance between real action but making sure that they get credit for it.
Brian Stempeck: But at the same time, and I know you're no longer with the company, but still critics of BP's plan have said that BP was spending about $200 million on renewable energy which is about the same amount of money that they were spending on the advertising campaign. Isn't that problematic that the amount of money you're using to promote this is the same amount of money you're actually doing something with?
Steve Percy: Yeah. I can't really relate to the figures. I mean the 200 was it you said?
Brian Stempeck: $200 million.
Steve Percy: $200 million was effective renewal type things.
Brian Stempeck: Right.
Steve Percy: I think one of the issues there is the ability of science and technology to absorb much more of that, more money than that. It was very difficult and do you have the necessary engineers? You can't force money down that pipe until. So the pipe's going to grow over time to take more of that resource, but when you start down this path there's only some much that can be efficiently spent. So I think that a $200 million investment in that are was a pretty huge investment especially because their main focus was solar, and you just can only throw so many dollars at that before they start to become wasted dollars.
Brian Stempeck: OK. I want to switch gears for a little bit. Another topic right now that's really high in the minds of a lot of people on Capitol Hill is oil prices. We've seen them around $50 to $60 a barrel for quite some time now. A lot of executives say they don't see these prices going down any time soon the notice of peak oil is being raised. How do you see -- as you're looking out at the next year, where do you see oil and gas prices going?
Steve Percy: Well, everyone would like to have that answer. I guess let's say not a year, but let's look out a ways. We are very tight on supply and demand right now. We have very high demand coming from developing countries like China which have at the margin stretched the system. However, I'm a firm believer that these higher oil prices are going to induce new supplies whether they be new conventional supplies, investment in new technology to develop oil, even some substitutes for oil like gas to liquids and those kinds of things. And so I think you across the intermediate term you're going to get that pressure response and you're also -- it's amazing people are starting to factor these prices with gasoline into their decisions about automobiles.
Brian Stempeck: Sure.
Steve Percy: Turning that stock over takes a long time, but at the margin some of that demand increase is going to moderate because of that. So I think when you couple those two thing together you have to say over the intermediate term that you expect to see feeling some catastrophe, some pressure on prices come down.
Brian Stempeck: Now, BP has a lot of reserves in the deep-water areas in the Gulf of Mexico as do a lot of other companies. Do you see that as the next kind of logical step as we're moving towards going to the oil sands or going to the alternative forms of oil, getting them from tougher sources? Is deep-water drilling kind of the next step than more offshore drilling on the coast?
Steve Percy: Well, that's certainly the hot area right now. It's not just the Gulf of Mexico. It's also Western Africa. Lots of deep-water exploration going on there and that's very similar kinds of geology as it is in the Gulf of Mexico. So I think deep-water is obviously one of the places we've got to go to find additional supplies just like the former Soviet Union is another place too. So there's a few areas which we're going to have to kind of prominence and that kind of exploration and production is still by far the more economic way to produce oil than to start to go to some --
Brian Stempeck: Right.
Steve Percy: -- of these other very energy intense forms of liquids, but eventually they're going to come into play. And they are like the tar sands in Canada.
Brian Stempeck: Now, one last question I want to ask you about before we wrap up here. Big issue still going on right now is a Chinese oil company wants to buy Unocal. It's an American-owned oil company. What are you feelings in this deal? A lot of people on Capitol Hill say this is a national security risk. They don't want to go through the Congress and maybe the Treasury Department. They're going to try to block this deal. What would you say if you saw that C-note, the Chinese company, was trying to buy BP? What would your feeling on that be?
Steve Percy: Not BP. [Laughter]
Brian Stempeck: Sure.
Steve Percy: Well --
Brian Stempeck: Different scenario.
Steve Percy: Well, I'm a shareholder in BP so I mean I would obviously take a lot of interest in it. This is obviously a personal view, but I believe that one that isn't really so much of a national security issue. The oil is where the oil is going to be. And what happens within the United States, and we think that we're running short, and it becomes a security issue then we deal with it in a different kind of way. If it's oil outside the United States, it's being traded in the international markets the Chinese are going to sell those into international markets just like Unocal does. And the supply of oil won't be affected by that. In fact what you want to do you want to see someone who's going to invest in that company, grow it so the whole world has more hydrocarbons to grow its economies with.
Brian Stempeck: So do you think it would be out of line for Congress and the Treasury Department to block this deal given that what you're saying that the Chinese will probably just sell this oil back to the world market?
Steve Percy: Yeah. And my own personal view is yeah that would be a mistake and not the right thing to do.
Brian Stempeck: All right. Steve Percy, thanks a lot for coming on the show.
Steve Percy: OK.
Brian Stempeck: I'd like to thank our guest today. That was Steve Percy, former CEO of BP American. I'm Brian Stempeck. This is OnPoint. Thanks for watching.
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