Common Tragedies

Thoughts on Environmental Economics

BP buries its head in the tar sands

Posted by Evan Herrnstadt on December 18, 2007

An article in the Independent discusses two important trends in a global economy simultaneously adjusting to increasing marginality of oil stocks and demand for green products: tar sand extraction and corporate greenwashing. At the nexus of these lovely issues is British Beyond Petroleum. After a lengthy campaign to recast itself at the forefront of clean energy technology, BP is finally plunging its head into the Canadian tar sands. Apparently BP has gone Beyond Petroleum, and they didn’t like what they saw.

The economics behind the move are simple:

The company had shied away from involvement oil sands, until recently regarded as economically unviable and environmentally unpleasant. Lord Browne of Madingley, who was BP’s chief executive until May, sold its remaining Canadian tar sands interests in 1999 and declared as recently as 2004 that there were “tons of opportunities” beyond the sector. But as oil prices hover around the $100-per-barrel mark, Lord Browne’s successor, Tony Hayward, announced that BP has entered a joint venture with Husky Energy, owned by the Hong Kong based billionaire Li Ka-Shing, to develop a tar sands facility which will be capable of producing 200,000 barrels of crude a day by 2020. Mr Hayward made it clear that BP considered its investment was the start of a long-term presence in Alberta. He said: “BP’s move into oil sands is an opportunity to build a strategic, material position and the huge potential of Sunrise is the ideal entry point for BP into Canadian oil sands.”

Perhaps it’s wrong to cast BP as the bad guy in this situation. Moving from a green advertising campaign to investment in extremely dirty, marginal petro production might seem counterintuitive or even disingenuous and evil, but clearly BP thinks that the move is worth it. Few consumers will (a) know about the tar sand development, (b) know how damaging it is or, (c) care. Thus, BP can continue its green lovefest while engaging in one of the dirtier extraction activities around. If I’ve learned anything from studying economics, it’s that one can get angry about “bad” business practices that reflect self-interest, or one can figure out policies to harness that self-interest in pursuit of more desirable goals. With a few exceptions, a firm’s advertising and image are geared toward maximizing profits, not making Greenpeace’s Christmas card list.

In the article, Greenpeace’s quotes are imbued with the sorrow of a disillusioned child. It’s probably just a ploy to spread indignation to a broader group, but anyone out there who actually feels betrayed by BP is a fool. Did people really buy into the whole “Beyond Petroleum” thing? Honestly — Petroleum is half of the company’s name.

Still, this kind of attitude is just great:

A spokesman for BP added: “These are resources that would have been developed anyway.”

You know, if it’s inevitable, then I guess we’re lucky that such an environmentally-conscious company is in charge of the process.

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