By Don Wallette, President Russia and Caspian, ConocoPhillips
At The 10th ANNUAL GENERAL MEETING Of The
EUROPEAN BUSINESS CONGRESS e.V.

Berlin, Germany, 14-15 June, 2007, the Ritz-Carlton Hotel

It is now 15 years since the 1992 Earth Summit of Rio de Janeiro, at which international support for voluntary reduction of greenhouse gas emissions was first agreed.

3 years later when progress was reviewed it was found that instead of emissions decreasing, they were increasing. That recognition led to a call for firmer, mandatory action which resulted in the 1997 Kyoto Protocol although it was a further 8 years before the protocol was triggered into effect. It is worth noting that by that time Europe had already moved forward in addressing its own commitment and that the European Green House GasTrading system was already in effect.

I need hardly remind you, that Kyoto is still not fully inclusive, with neither of the two countries with the highest share of global GHG emissions, the US and China, subject to Kyoto reduction targets.

In the last three weeks we’ve seen clear signals from the G8 that they are more willing to address that gap and seek the involvement of the developing countries, than has previously been the case. It is still not entirely clear exactly what the G8 commitment means in terms of process, timing or implementation detail. While, on the one hand, that leads to continued uncertainty for those of us in the energy sector as we plan future investments on the other, those of us in the business community should not miss this opportunity to step forward with pragmatic suggestions and engage with policy makers in helping to design a workable and effective framework.

ConocoPhillips has recently clearly signaled our willingness to do precisely that by becoming the first US- based IOC to call on the US government to institute mandatory measures for addressing greenhouse gas emissions…. and adding our voice to the US Climate Action Partnership - a coalition of 27 organizations, mostly large US companies but also including 5 or 6 non-government organizations from the Environmental sector.

ConocoPhillips joined US-CAP because we share that coalition’s view that mandatory national regulatory frameworks which link to international ones are most likely to achieve meaningful global greenhouse gas reductions. And we think that such frameworks should meet the following common sense principles:


· Slow, stop and ultimately reverse the rate of growth of emissions

· Operate through market forces to set a value for carbon emissions

· Provide long-term certainty for investment decisions

· Encourage the development and deployment of innovative technology to help avoid or mitigate green house gas emissions

· Realistically match the pace and stringency of policy to the rate at which new technology or infrastructure changes can be developed and deployed

· Encourage energy efficiency at all stages of the product life-cycle

· Inform and influence consumer preference toward less greenhouse gas intensive consumption

· Encourage the deployment of carbon capture and storage as a practical near term solution

· Avoid placing a disproportionate burden on any one business sector or consumer segment

· Support equitable international competition

· Ensure that early actions are not disadvantaged


In marrying a sustainable energy portfolio with climate concern, the details of implementation matter just as much as the high level principles and we must stay engaged with law makers and regulators to provide pragmatic input that can help shape policy that is both environmentally and cost effective.

There are many different policy measures which could work in the future, for example: cap and trade, tax, fuel standards, building efficiency standards, vehicle standards, incentives to develop and deploy new technology and consumer education and incentives. In practice, we will most likely need a combination of all of these. Each has its benefits and drawbacks and we need to thoroughly understand the details of implementation to design the most effective programs with the least unintended impacts on growth, jobs and competitiveness.


And there are already examples of some of these measures in practice from which we can learn. Today, we are in Berlin, capital of the country with the largest position in the European Greenhouse Gas Trading System, which has been in operation since January 2005. Europe has led the world in implementing mandatory measures with its “cap and trade” scheme. After two full years of operation, now approaching the end of Phase 1, it can already teach valuable lessons; both about what works, and also about what could be improved, not only for the European scheme but for any others that either join in or follow its example.


The market was conceived and created in record time achieving what is likely the quickest ever pan-European legislative timetable for an issue of this dimension, and last year the European allowance-traded market was worth some $24.4 billion. For comparison purposes that is about 2-1/2 times the value the US wheat market. The speed of implementation is noteworthy not least because it contrasts to the 13 years it took to move from the Rio Treaty to the Kyoto Protocol. This ability to move faster nationally or regionally makes it likely that, in the near to mid-term, we will continue to see a patchwork of frameworks rather than one overarching global one.


Another positive for the European market is that a credible system of administration and verification has been established with no significant legal challenges.

There is no doubt that the market has had an impact on commercial transactions. The value of carbon has been directly translated into the spark spread, and if you want to trade effectively in the gas, power or coal markets in Europe, or optimize the production of a power plant, you need to understand the inter-relationship between fuel prices, power prices and the price of carbon. Indeed, a whole new trading vocabulary around the “dark spread” and the “clean spread” has arisen, which refers to the spark spread, with or without the price of carbon taken into account.


I’d like to shift for a moment from policy instruments and turn to the practical steps in engineering, and technology terms that can be taken to reduce emissions.

You may be familiar with Sokolow’s wedges or the “stabilization” wedges as they have sometimes been referred to. Professor Sokolow at Princeton did some very instructive work, which was first published around 2004. His work identified means by which the business-as-usual projected growth in greenhouse gas emissions could be brought back down to the then prevailing level. He estimated that around 7 gigatonnes of carbon emissions would need to be avoided by 2050 and went on to show at what scale each one of a number of technologies, known to us today, would have to be deployed, in order to avoid a gigatonne of carbon. The sum of the wedges adding up to the 7 gigatonne total. No single technology is a silver bullet, all are required to meet the target.

The list included approaches such as coal power with associated carbon capture, or carbon capture of other industrial CO2 for storage or enhanced oil recovery, substituting nuclear or wind power for coal power, doubling the mile efficiency of automobiles, or introducing biofuels to supplement hydrocarbons.


- Implementation of any one of those technologies at the scale required will involve huge investment and could require forcing a premature turnover in the asset base. For example, power stations have a 40 year life and cost billions of dollars to build.

- For business to be willing to make that scale of investment there must be a predictable economic return. To the extent that does not exist today, it can be encouraged by long term targets, a transparent, predictable and relatively stable value for avoiding carbon emissions, and possibly measures such as accelerated depreciation to encourage faster deployment.

ConocoPhillips has a proprietary technology which we call E-gas, based on gasification of coal or petroleum coke which produces a syngas from which the CO2 can be separated while the remaining gases are used for power generation or petrochemical feedstock. So this is very much the kind of investment decision we are familiar with, and we understand the practical steps that can enable these kinds of developments.

Carbon capture and storage will be a key strategy in sustaining the use of hydrocarbons, which, despite forecast growth in renewables, will continue to be required to meet growing energy demand. It seems everyone recognizes this reality and yet today, nowhere in the world is there an existing protocol that legitimizes carbon capture and storage as an accepted way of generating credits or offsets against emissions. In both Europe and the US, government and business have begun to work together to scope test projects, but there is still considerable ground to cover in resolving issues around measurement, monitoring, verification and long term liability. These will need to be an even higher priority than they are now if we are to meet the goals implied by Sokolow’s work..

Carbon Capture and Storage is another area pertinent to ConocoPhillips competencies. At our Immingham refinery in the UK we recently brought onstream Europe’s largest Combined Heat and Power (CHP) plant at 740MW and we are currently expanding the capacity to some 1200MW. And in doing, so we are actively developing plans to gasify coal/petroleum coke. This will make syngas and hydrogen which will be used to fuel the CHP and support local refinery hydrogen needs, while CO2, which is given as a pure side stream from the process, could be captured and stored in depleting gas fields, which we operate in the Southern North Sea. We are currently evaluating this option and identifying whether it might be included as one of the UK governments proposed test sites. So again, we have practical knowledge to bring to the table and a practical need for regulation which supports implementation by providing a value for CO2 emissions reduction.


ConocoPhillips has already made it clear we are willing to take action now, and we look forward to working with all parties interested in finding pragmatic and sustainable solutions with us.