The stellar performance of BP's emission control program has led many observers, inside and outside BP, to ascribe success to the firm's emissions trading system. As countries and other firms have considered the adoption of trading systems they often point to BP's pioneering experience as a guiding star. Yet no study has ever explained the operation and impact of BP's trading system. Which factors truly drove the leaders of BP's business units to cut emissions? What lessons should be learned from BP's experience to guide other trading systems? We focus on these questions, drawing heavily on interviews with key corporate policymakers at BP as well as managers in key business units (BUs) that were actually involved in trading.

This working paper first develops a Reference Case that allows required rates of return on investments in energy infrastructure to vary geographically. Those rates of return reflect an assessment of the risks associated with energy business investments in various countries. By comparison, the Base Case, which was presented in the working paper, The Baker Institute World Gas Trade Model, assumes the required rates of return on investments match those sought on similar projects in the United States. The working paper then contrasts selected scenarios with the Reference Case. The selected scenarios are meant to reflect a range of political actions and economic outcomes that could affect the world market for natural gas. The political scenarios selected for study were suggested by the kinds of events discussed in the historical case studies.