BP

I was recently asked by the LSE Student Newspaper, the Beaver, to write an article defending BP from its critics (a critical piece was written for the same issue). As the editor didn't know the precise line of attack from the critical piece I responded to a couple of the most common critiques of BP. As the Beaver does not have an online edition here is the article:

Carnegie’s charitable endeavours have left libraries and cultural centres of various kinds all over America. However, his greatest contribution to the welfare of the rest of the United States and the world probably came not from this act of kindness but from while he was building his own wealth through industry. Innovation in the production of inexpensive steel to form the tracks for the railways played its part in making America a cohesive nation, created huge savings for passengers and, through savings in freight costs, savings in the costs of all manner of products for consumers. His work helped make the skyscrapers which crown New York. Similarly, those looking at the profitable corporation that is BP right now should be aware that its corporate activities have positive impacts which, while less obvious than handouts from governments or charity, are, nevertheless, massively important.

When listening to Gordon Brown’s complaints about how oil prices are hurting the UK economy it is important to remember that we have only just become net importers of oil and our net imports are negligible. The only way that high oil prices can cause trouble for the British economy is if they crash other economies, like the US, which are genuinely dependent upon imports of oil. As the US economy is still importing Britain’s economic sluggishness cannot be blamed on the oil price. This means that the effects, in the UK, of a high oil price are to shift income from motorists to the shareholders of oil firms like BP. Concerns about whether it can be fair for BP to be making so much profit, $22.3 billion last year while British motorists are facing stiff rises in the cost of petrol don’t stand up to scrutiny. BP dividends make up around 17% of the entire income of UK pension funds. When the introduction of means testing and tax raids on pension funds have led to a reduced incentive to save and a fiscal crisis looms on the horizon thanks to too many pensioners relying on tax income to provide for them in their, increasingly, old age increasing the income of pension funds has to be a good thing. A shift in income from motorists to pensioners cannot be seen as an injustice. Oil profits, which some commentators seem to view as money lost to the ether, actually help us get away with policy mistakes that discourage proper provision for old age.

BP’s environmental record is a bad one if compared with the environmentalist idyll of people giving up on foreign holidays and driving to work. However, if the reality that the world currently runs on oil is accepted as beyond BP control their record starts to look very good. Their investment of $8 billion over 10 years in alternative energy is a vast amount of money. It is also money being spent by a company interested in making alternative energy a practical and economical proposition rather than on basic research with only the vaguest of expectations that it will result in workable solutions. If hydrogen cars and solar power become a reality it will, most likely, be a result of investments by energy companies like BP, along with other big investors in alternative energy like Toyota. Equally, BP’s work on reducing emissions has been hugely successful, meeting its target of a 10% reduction eight years ahead of schedule, and has also been hugely beneficial to the company. BP has saved $600 million through the efficiency gains that have created this fall in emissions. Achieving significant cuts through emissions through this sort of efficiency provides a practical way forward, with current technology, in efforts to combat climate change.

The environmentalist movement can be its own worst enemy. Condemning BP is to attack on of the best hopes for improvement in the way we treat our environment. Equally, the Chancellor can be the worst enemy of the British economy. By putting in place windfall taxes on oil profits from the North Sea he hurts investment there and hastens the day when Britain’s economy can genuinely be wrecked by increases in the oil price. Taxing the profits which provide the incomes of pension funds further undermines any effort to overcome the economic challenge of our ageing population. British Petroleum is a company to be proud of.