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The Observer: Revealed: the real cost of BP profits

On Treasury model calculations, oil giant's £11bn bonanza becomes an £18bn loss when damage to environment is counted
Nick Mathiason
Sunday February 12, 2006
The multi-billion-pound profits made by major oil companies would be wiped out and turned into deep losses if the environmental damage they caused were factored into their accounts, according to figures based on Treasury calculations.
BP's record-breaking £11bn profit, announced last week, would be instantly transformed into a near £18bn loss once the greenhouse gas emissions from its operations, and from use of its products, are taken into account.
BP is responsible for 1.376 million tonnes of greenhouse gas emissions, 6 per cent of the world total output, and these emissions, when costed out using a Treasury model outlined in the working paper 'Estimating the Social Cost of Carbon Emissions', would devastate BP's profits. The company would end up facing a huge £29bn in environmental charges.
BP has spent millions of pounds on a multimedia advertising campaign extolling its green credentials in a bid to ward off a windfall tax on its profits. But figures calculated by the New Economics Foundation, the influential think-tank, appear to put its 'progressive positioning' in a new light. The calculations would have the same catastrophic effect on the Royal Dutch Shell profits announced earlier this month, the biggest in British corporate history.
NEF policy director Andrew Simms said: 'The way we view economic success in the UK has become a fossil- fuelled fantasy. No accounting system with a hint of common sense would view profiting from the liquidation of a never-to-be-repeated natural asset as a good thing – even less so when it leads to climate chaos.
'The record profits of the oil companies can only possibly be justified if they are used appropriately. To begin with, there should be a substantial windfall tax clearly earmarked to roll out renewable energy technologies and redesign the UK's hopelessly inefficient energy system in favour of a more efficient, decentralised system. Then the UK should pay our shamefully overdue contributions to the special global fund set up to help poor countries adapt to climate change.'
A BP spokesman countered that the group's investments in renewable energy and cleaner fossil fuels proved it was playing a positive environmental role.
BP's environmental record is coming under fresh focus from green campaigners, who have just published a fact-finding report after a visit to Georgia and Turkey, where BP is building a pipeline to take oil out of Baku in Azerbaijan.
Representatives from several non-governmental organisations reported serious concerns over alleged expropriation of land, lack of environmental measures, failure to pay compensation for loss of land and loss of farm income.
A coalition of campaign groups has also written to the chairmen of a host of international banks, including the Royal Bank of Scotland, that lent money to BP on the £1.8bn Baku-Tbilisi-Ceyhan (BTC) oil project.
The letter warns banks that they could face litigation over possible environmental damage caused by an anti-corrosion coating on its pipeline. Last year a scientific report suggested that the pipeline would corrode and was therefore uninsurable, and that Lord Browne, BP's chairman, was aware of the problem at an early stage.
Mika Minio-Paluello of green campaign group Platform said: 'Despite BP's assurances, BTC has become a social and environmental nightmare, and banks must also accept responsibility as financiers, enforce standards and stop funding oil and gas ecological timebombs.'
BP's spokesman said the court action proved that the processes the company had put in place to resolve disputes were working. He added that issues about the coating of the pipeline were no longer relevant, as they had been dealt with last year.

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