BHP Billiton’s short-lived climate cuddle

The climate-friendly bonhomie of BHP Billiton’s Chairman, Jac Nasser, didn’t last long into question time at the company’s annual general meeting in Adelaide late last week.

Ahead of the AGM BHP had gone to great lengths to buff its climate policy credentials. In his opening speech Nasser even addressed climate change before discussing the state of the global economy.

However, when asked whether the company would continue to invest in thermal coal assets Nasser testily declared that there is no “realistic alternative” to the ongoing use of coal in power stations.

Aviva Imhof, representing her father and a number of other shareholders, had initially congratulated the board on their recent in acknowledging the seriousness of climate change and the implications of it for the company. [Disclosure: Ms Imhof is a work colleague]

“Will BHP Billiton rule out new investments in thermal coal? Do you believe that your existing investments in thermal coal risk becoming stranded assets due to the need to limit global warming to below 2 degrees Celsius?,” she asked Nasser.

“It’s ‘no’ and ‘no’,” Nasser said. “Do you have any other questions?,” he bluntly asked.

She did. “So, given that the IPCC and the global consensus is that up to 80% of fossil fuels need to remain in the ground if we are to limit global warming to below 2 degrees Celsius, how could you justify additional investments in thermal coal?,” she asked.

Nasser reiterated that the company accepts the IPCC’s assessment of climate science. He argued that the company believed in the need to pursue a twin objectives of limiting climate change and track and providing for growing energy needs for development.

“You have to be realistic. The realistic side of this is that there are no real alternatives for the growing demand of energy over the next decade,” he said.

Imhof was stunned: “I’m really surprised to hear you say that Mr Chairman, given the absolutely astronomic decline in the price of solar and wind and other renewables. Solar is reaching grid parity in at least 16 markets around …”.

Nasser tersely interjected. “Ms Imhof, it’s not us, it’s the IPCC.”

“Yes and the IPCC say there has to be no investments in high-carbon infrastructure after 2017 if we are going to keep within two degrees of global warming. So it seems to me that if you say you are not going to rule out further investments in thermal coal you are not taking your commitment to climate change seriously,” she responded.

While Nasser was asserting there was no alternative to thermal coal last Thursday, an investor presentation briefing released on Monday morning indicated that the company is acutely aware of the declining financial performance of thermal coal and its vulnerability to energy competition.

In one slide (page 31) BHP Billiton states that energy growth will continue but concedes that “the shape of future energy demand mix is difficult to predict.” While the BHP Billiton code is cautious, the implication is clear: that at least in part, the growth of renewables and efficiency are posing a threat to thermal coal.

This is as good as confirmed when in another slide (page 33) the company refers to ‘energy coal’ as being “contestable.”

Another slide (page 48) charts the contribution of the company’s coal division to earnings before interest and tax (EBIT) plummeting from approximately 14 per cent in 2010 to approximately two percent in the space of five years.

In an accompanying note, BHP Billiton laments that the thermal coal market “remains well supplied” which is “prolonging the weaker pricing environment.” While demand it says “remains steady”, it soberly notes that prices will languish longer until further mines close.

As for the coal industry’s long touted silver bullet of Carbon Capture and Storage, in his speech Nasser would only go so far as to state that it is “exploring opportunities” to invest in the technology.

Bob Burton is a Contributing Editor of CoalSwarm and a Director of the Sunrise Project, a non-profit group promoting a shift away from fossil fuels. With Guy Pearse and David McKnight he co-authored Big Coal: Australia’s Dirtiest Habit. His Twitter feed is here.