John Browne on the Future of Energy

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I believe it is now virtually certain that carbon will become a mainstream economic cost for business in the coming years and, increasingly, a basis on which management performance—across all sectors—will be judged.

In my view, businesses need to start planning for carbon now—just as any sensible business factors assumptions about future exchange rates into their plans.

The reason for my confidence is the global momentum building behind carbon pricing policies. Such policies already exist in Europe and in key U.S. states. And carbon legislation is likely to be enacted soon in Australia, New Zealand and at the federal level in the United States.

There is now the prospect of a global agreement to succeed the Kyoto Treaty, with strengthened carbon measures likely to take centre stage.

Of course, the journey will not be linear. Both the timings and the means by which carbon pricing develops will remain highly uncertain, leading to business risks that must be managed.

The critical path—and the source of greatest uncertainty—will be political. That's because, without compensatory measures, the costs of pricing carbon will hit some groups disproportionately, such as poorer people or energy-intensive sectors of the economy.

While other groups—such as investors in low-carbon technologies—will benefit. This leads to the thorny political-economic question of "Who pays?"

The current energy bill debate in the United States provides a good analogy. A stalemate appears to have set in as various interest groups fight over how the burden of providing a public good—in this case, reducing dependence on fossil fuels—should be shared between them.

Putting in place the kind of aggressive carbon legislation that is needed will require acts of real political leadership: putting society as a whole above sectional politics. Of course, this is especially difficult in strongly representative democracies, where institutions are deliberately designed to create checks and balances. It will be even more difficult in the international arena—where the same political dynamics are likely occur, but between countries—because the international system is even more fragmented and anarchic.

To conclude, we are living through a period of energy dislocation.

The challenge is that there are so many different ways to look at what is happening. And each analytical framework seems to urge a different course of action. I believe the answer is not to fixate on the causes and character of today's energy maelstrom. Nor is it to try to pick winners. I believe the best approach is to look to principles—beacons that will help business to navigate.

I'd like to finish with one of my favourite quotations. Speaking at the end of 1862, Abraham Lincoln said the following: "The dogmas of the quiet past are inadequate to the stormy present. We must think anew and act anew. We must dis-enthral ourselves."

Thank you very much.