BPʹs emissions trading system

Between 1998 and 2001, BP reduced its emissions of greenhouse gases by more than 10%. BPʹs success in cutting emissions is often equated with its use of an apparently market-based emissions trading program. However no independent study has ever examined the rules and operation of BPʹs system and the incentives acting on managers to reduce emissions. We use interviews with key managers and with traders in several critical business units to explore the bound of BPʹs success with emissions trading. No money actually changed hands when permits were traded, and the main effect of the program was to create awareness of money-saving emission controls rather than strong price incentives. We show that the trading system did not operate like a “textbook” cap and trade scheme. Rather, the BP system operated much like a “safety valve” trading system, where managers let the market function until the cost of doing so surpassed what the company was willing to tolerate.