South-Western College Publishing - Economics  
We'll keep producing the carbon; We'll just bury it when we're done
Subject BP will reduce airborne carbon emissions by burying it
Topic Economics and the Environment, Production and costs
Key Words

carbon emissions, BP, Kyoto Protocol, natural gas, carbon dioxide, cost

News Story

British Petroleum (BP) PLC has come up with a plan to help reduce costs associated with global emissions compliance--don't reduce the carbon; just bury it.

The Kyoto Protocol went into force on 16 February, 2005, and firms are trying to find ways to comply with national emissions targets without significantly reducing profits. However, according to some firms--including BP--it's not feasible to find alternative energy means just yet. It's more cost effective at this point to find ways to reduce the damage of the carbon produced when fossil fuels are burned.

In the Algerian Sahara Desert where BP has a natural gas pumping station, the firm actually plans to pump a million tons of carbon dioxide annually back into the ground over the two decades during which it anticipates extracting natural gas here. This amount of carbon dioxide is the equivalent of emissions from 100,000 sport utility vehicles. While this is just a fraction of annual global carbon emissions (about 24 billion tons of carbon dioxide), other firms and nations are watching the potential of this new process with interest.

There's a problem with the process, though. It's not clear how long the carbon dioxide will remain underground, or whether it will seep up through the ground. In 1986, carbon dioxide and other naturally existing gases suddenly rose through the air in Cameroon and asphyxiated 1,700 people nearby. While the nearest Algerian town to the BP plant is 300 miles away from the BP pumping stations, concern about people's safety still arises. BP is continually testing the soil above the injection site for carbon content. Any increase in soil carbons would indicate a leak.

Even though the burial process is cheaper than finding alternative fuels, it is still expensive, raising the cost of the Algerian natural gas pumping process by $100 million to $1 billion over the 20-year cycle of the project. As a result, not all of the carbon dioxide created is re-injected into the ground; about 30% of the carbon dioxide produced would be allowed to simply escape into the air around the site. The natural gas reservoir sits about a mile underground, and as the wells bring up the natural gas from porous holes in underground rock, other pumps will put the waste carbon dioxide back where the natural gas previously resided.

Questions
1.

Will BP be able to indefinitely continue this process, or will it eventually have to find alternative fuels with less carbon dioxide emissions? Why?

2. Based on this summary, would you argue that this emissions process is a long-run cost, or a short-run cost? Why?
3. The Kyoto Protocol is designed to limit the carbon emissions of countries, and therefore of firms, to below pre-1990 levels. It is signed by over 100 nations, with the one notable exception being the United States. What is it about carbon dioxide emissions that requires an international body to regulate firms' behavior?
Source Jeffrey Ball. "Deep in the Sahara, BP Tries to put Dent in Global Warming." The Wall Street Journal, 4 February 2005. A1+.

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