What BP’s soaring profits tell us about our dependence on oil

So much for those ‘stranded assets’ which former Bank of England governor Mark Carney and many others tried to warn us about. It wasn’t long ago that climate activists were urging the world to dump shares in oil companies, not just because we should want to punish them for climate change but because, they said, oil companies’ fortunes were on a downward trajectory as the world turned green. ‘The exposure of UK investors, including insurance companies, to these shifts is potentially huge,’ Carney said in 2015. ‘Once climate change becomes a defining issue for financial stability, it may already be too late.’

But that’s not how it looked in BP’s boardroom this morning as it announced profits of £7.1 billion ($8.2 billion) in the third quarter. Many of those who warned of ‘stranded assets’ are now bleating that BP and others are profiteering at the expense of the public. Joe Biden, no less, has accused oil companies of ‘war profiteering’. There have been renewed calls for more aggressive windfall taxes – on top of the one imposed by the government earlier this year. BP said it is on course to pay nearly £700 million in windfall taxes as a result of its latest figures. Just three years ago, a third of MPs demanded that their pension fund divested from oil because they saw it as too risky; now, many of those same MPs are looking to oil profits to bail out the public finances.

If the government does ratchet up its windfall tax, BP chief executive Bernard Looney has himself to blame. It was he who described the company earlier this year as a ‘cash machine’. A wiser remark would have been to say that BP was benefitting from exceptional conditions in world energy markets while reminding the world that in 2020, it made a $22 billion loss. That is the reality of life as an oil company: your fortunes will rise or crash along with oil prices – a volatile measure of success.

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Dump oil shares if you want, but don’t pretend that the world will quickly lose its dependence on it

BP and other oil companies are neither cash machines nor failing empires of doomed assets. They are somewhere in between. But those, like Carney, who saw a grim future for oil were swung by their Panglossian belief in a green future, failing to see the bigger picture. One day, BP’s remaining assets may well become stranded. But any reasoned analysis would conclude that the world will use oil and gas for decades to come – and there will be plenty of profits to collect on those assets in the meantime. Even in Britain, carpeted as it is by wind and solar farms, the proportion of total energy provided by renewables is little more than 4 per cent. (Many people, including former prime minister Boris Johnson, tend to confuse electricity generation with total energy use. While renewables and fossil fuels now generate roughly equal amounts of power, only a sixth of energy consumed in Britain is in the form of electricity.)

Dump oil shares if you want, but don’t pretend that the world will quickly lose its dependence on it. This year has shown the foolishness of believing that. And, for the benefit of climate activists who live under the delusion that anyone who fails to share their belief must be in the pay of big oil, I am not part of the bonanza – I have avoided investing directly in fossil fuel companies for several years specifically so that no one can level that claim at me.

Ross Clark’s Not Zero: How an Irrational Target Will Impoverish You, Help China (and Won’t Even Save the Planet) will be published by Forum in February