How hot is too hot for BHP Billiton?

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There is a simple question that BHP-Billiton doesn’t address in their voluminous reports to shareholders: how hot is too hot in a warming world?

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bhpWhen BHP Billiton’s Chairman Jac Nasser steps up to address shareholders at the company’s annual general meeting in Adelaide on Thursday, it is a fair bet that he’ll be keen to emphasise the company’s recent earnest declarations that it is taking climate change very, very, seriously.

But there is a simple question that BHP-Billiton doesn’t address in any of their voluminous reports to shareholders: how hot is too hot in a warming world?

Last year, BHP Billiton was caught flat-footed by the bid of Ian Dunlop, a former Chairman of the Australian Coal Association, to win a seat as a director on the board. Dunlop’s campaign platform was audacious and simple: BHP Billiton’s needs a director on the board who takes very seriously the risk that runaway climate change poses to both the company and the broader community.

BHP Billiton weren’t having a bar of it. BHP Billiton disparaged Dunlop’s bid and, while they prevailed in having only board-sanctioned directors win seats, the coal mining behemoth emerged with its environmental credentials diminished.

This year, with Dunlop running again, BHP Billiton has devoted significant PR effort to preparing its defences.

Where climate change has previously been relegated to the back blocks of the company’s annual report – the first significant mention of climate in its 2013 annual report was on page 19 – this year readers are barely past the contents page of the 2014 annual report before the climate policy barrage begins.

There’s the best part of a third of a page 5 in the “strategic context” section discussing climate change, another substantial chunk in Nasser’s one-page Chairman’s letter to shareholders, another paragraph in Andrew Mackenzie’s  one-page CEO letter and then significant slabs elsewhere. (In the 2013 annual report the word “climate” wasn’t mentioned by either Nasser or Mackenzie in their letters to shareholders).

The subtext is clear: we are taking climate change so seriously there is absolutely no need to vote for Ian Dunlop.

But are they?

Talking the talk

In a prominent box on page 14 BHP Billiton boldly sets out “our position on climate change.”

It begins promisingly enough, stating that:

“We accept the Intergovernmental Panel on Climate Change’s (IPCC’s) assessment of climate change science which has found that warming of the climate is unequivocal, the human influence is clear and physical impacts are unavoidable.”

It then goes on to state that the company believes that the world “must pursue” the objectives of “limiting climate change to the lower end of the IPCC emission scenarios” while “providing access to the affordable energy” to the world’s population “and alleviating poverty.”

Having framed its position as seeking to find a trade-off between two desirable goals, the policy then slides into the usual stew of coded pro-coal clichés.

BHP Billiton’s policy invokes the spectre of coal being “a significant part of the energy mix for decades”, tosses in a hat-tip to energy efficiency, adds an up-beat endorsement of the need to “develop and deploy low-emissions technology” and rounds it all off with an endorsement of a carbon price.

While the policy is enticingly packaged for climate-concerned investors and citizens, the company’s senior management have built in ample wiggle room.

The ‘we’re here for decades’ line aims to simultaneously induce a sense of fatalism amongst policy makers and sell the notion that coal power plants are so superior on cost they are going to keep on being built for a long time to come. BHP Billiton wants public debate about coal shifted away from discussion of stranded assets, carbon bubbles and divestment to how best to mitigate pollution from new coal plants.

At face value lauding energy efficiency seems reassuring but in Big Coal’s lexicon what they really mean is that they want to promote energy efficiency on the generation side of the equation rather than at the point of use.

As Carbon Capture and Storage has become ever more implausible as a viable option to mitigate carbon dioxide pollution, the coal industry has shifted tack to wanting to corral debate about coal power stations to the option of building higher efficiency plants rather than the dirtier sub-critical plants.

When BHP Billiton refers to the need to “develop and deploy low-emissions technology” they primarily mean government funding for Carbon Capture and Storage demonstration plants not accelerating the deployment of wind and solar.  BHP Billiton support for a carbon price comes with the major caveat of ensuring it addresses “competitiveness concerns.” Having spent millions defeating Australia’s carbon price which was set at $23 per tonne but with lots of exemptions, BHP Billiton’s support for a carbon price is rather token.  A carbon price which BHP Billiton would support would clearly be one set at a fraction of the external  costs coal imposes and with loopholes big enough to drive a fleet of coal haul trucks through.

Of all of the elements of BHP Billiton’s climate policy there is just one phrase that all of their political advocacy should be judged against and that is “limiting climate change to the lower end of the IPCC emission scenarios.”

It is deliberately ambiguous phrasing, but most reasonable observers would take it to imply the oft-stated IPCC goal of limiting warming to a 2°C increase but probably not the 1.5°C target that Pacific Islands and other countries insist it essential for their survival.

Getting down and dirty

Last week the International Energy Agency released their latest World Energy Outlook which provides a long range sketch of where current energy trends could take us.

While the IEA provided its best guess estimates for 2040, energy modelling in a fast changing technological, political and economic landscape is a fraught business. Well-researched projections produced one year can be proved horribly wrong the next.

An estimate of demand for any commodity 25 years out has to be taken with a handful of salt but even more so when it comes to coal. Coal is a product which is politically besieged and being swept away by new and less polluting technologies in the power generation market which accounts for over 85 per cent of its end use. Compounding the uncertainty of estimating coal demand for power generation in 2040 is the IEA’s history of massively underestimating the astonishing growth of wind and solar capacity.

The IEA’sWorld Energy Outlook is based on three possible scenarios: the Current Policies Scenarios – essentially business as usual; the New Policies Scenario – where governments adopt some new policies to cut greenhouse gas emissions; and the 450 Scenario in which governments adopt policies designed to limit greenhouse gas concentrations to 450 parts per million. The 450 Scenario is designed to give the world a coin-toss chance of meeting the internationally agreed goal of limiting climate change to a 2°C temperature increase.

Of the three, the IEA adopts the New Policies Scenario as its central scenario.  While it estimates that growth in coal demand in this scenario will slow dramatically to just a half a per cent a year to 2040 – a fifth of the average growth of the last three decades – the real world volumes this equates to is staggering.

In the New Policies Scenario, annual coal demand would increase by 800 million tonnes of coal equivalent by 2040. In the Current Policies Scenario another 2 billion tonnes are year are added on top of that. (If the Current Policies Scenario came to pass this would require approximately 90 new mines in the world equivalent to Australia’s current largest mine, AGL’s 30 million tonnes a year Loy Yang mine in Victoria.)

In other words, on current policies coal demand could increase by almost as much as the whole world consumed in 1990, the year the IPCC First Assessment Report and the World Climate Conference which ultimately led to the United Nations Framework Convention on Climate Change.

For the climate, either of these scenarios would be devastating.  The IEA itself makes clear that these are scenarios to be avoided if the climate is to be taken seriously. The IEA states:

“A critical ‘sign of stress’ is the failure to transform the energy system quickly enough to stem the rise in energy-related CO2 emissions (which grow by one-fifth to 2040) and put the world on a path consistent with a long-term global temperature increase of 2°C. In the central scenario, the entire carbon budget allowed under a 2°C climate trajectory is consumed by 2040, highlighting the need for a comprehensive and ambitious agreement at the COP21 meeting in Paris in 2015.”

The IEA also made clear in the World Energy Outlook that the New Policies Scenario puts the world on track for a climate 3.6°C hotter climate than the pre-industrial era.

In its 450 Scenario the IEA estimates that global coal demand falls by one-third with demand peaking this decade and then falling rapidly.

What does BHP Billiton want: sell coal or protect the climate?

So which of these three scenarios is closest to BHP-Billiton’s ideal world? Does it go for selling more coal or protecting the climate?

BHP Billiton have made no direct public comment on the IEA’s report but their proxy lobby groups – the World Coal Association, the Minerals Council of Australia and the Queensland Resources Council – have had plenty to say.

The World Coal Association – the global coal lobby group which has BHP Billiton as one of its members – has Tweeted various messages such as “global coal trade grows by 40% by 2040” – all based on figures from the New Policies Scenario.

The Minerals Council of Australia (MCA) – the peak coal industry lobby group which includes the President of BHP Billiton’s Coal division Dean Dalla Vale on its Board of Directors – has also been voluble. In a media release on the IEA’s report, the MCA proclaimed that “the story for Australian coal is unambiguously positive” and echoed the line that “the global coal trade will grow by 40 per cent by 2040.”

The Queensland Resources Council – which has a BHP Billiton executive on its board of directors – also approvingly cited coal growth trends predicated on the New Policies Scenario becoming reality.

Notably, none of the BHP Billiton-supported coal lobby groups have made any mention of the IEA’s pointed note that the New Policies Scenario would put the world on track for a 3.6°C hotter climate, or worse.

The question remains for BHP Billiton: how hot is too hot to be consistent with the company’s climate policy let alone a safe climate for the rest of us?

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.

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9 Comments
  1. michael 4 years ago

    how much of this won’t go in? (from today’s AFR and sourced from BREE). As it relates to 5 year forecast, doesn’t suffer from the “25 years can’t be forecast” problem cited (accurately) about 2040 predictions

    “Coal-fired generation is a major component of India’s plans for new electricity
    generating capacity being developed under the 12th five-year plan (2012-17),” it
    reported.

    “India has more than 130 gigawatts of new coal-fired capacity
    under construction or approved. There are a further 25GW of nuclear and 23GW of
    hydro under development Accordingly, the majority of India’s increased
    electricity consumption is likely to be met using coal.”

    • Giles 4 years ago

      Not sure BREE keep up to date. Nor the AFR. That five year plan was from previous govt. coal portion has no chance of being met because they can’t even deliver enough coal to make existing plants run at more than 50% capacity. Nuclear slowed down since India suggested last year that they would not accept construction risk, and the makers of those plants such as GE said bugger that, they’d be out of there if they had to accept the risk of their own equipment. And the new government has made clear it wants 100GW of solar and 100GW of wind within 5 years.

      • michael 4 years ago

        hmmm, fairenough, I guess if you can’t trust the last 5 year plan which we are still in the middle of, it’s hard to draw concrete conclusions about statements relating to ‘new’ targets.

        If i can’t take AFR articles as being reasonable accurate, which papers would be considered acceptable for a source of information? BREE don’t keep up to date and the other day someone thought CSIRO were in the pocket of FF… conspiracies left, right and centre!

        Direct quote two days ago from Modi;
        ““Queensland can be an important partner in India’s development — in energy, mineral resources, agriculture and food security, education and advanced technology in some areas,’’ he said.“Coal is already a major item of exports to India; but, I see vast ­potential in resources in general, as Indian industrial sector gathers momentum and grows. “You can make India a manufacturing hub, for India, for exports and for import back into Australia.””

        not really talking down coal on face value. It’s always down to a matter of opinion looking forward, so no right or wrong. just interesting to see how comments get spun.

        I’m still staggered that commitments by china, which would be laughed at if ‘matched’ by other nations, are applauded as somehow being groundbreaking and leading the way for the world. I’m guessing just because it’s better than their former position. It’s as if china can do no wrong in the eyes of certain commentariat. Would have been hilarious for other leaders to come out in support of the Chinese commitments by matching them! Then the comments would come that they have a ‘right’ to emit as we have already been doing it for so long… but are the supporters of that position saying that carbon emissions are required for lifting up of quality of life? or do they push the line that renewables are the cheaper option right now? if so, should china be able to stop opening coal power stations within say 2-4 years?

        • Giles 4 years ago

          As a former business editor and deputy editor of the AFR, i can thoroughly recommend …… RenewEconomy! Seriously though, I (and others) have been staggered by the ideological positioning of the paper. Sure, have a political opinion, but not to the extent of ignoring basic economic and market reality, which is what they doing.

          • michael 4 years ago

            haha, good reply. Most, if not all, publications end up with a slight bent at best and overt ideology at worst. I’ve found AFR to be ok on that front, maybe that’s due to inherent bias. Similarly, I was finding that the articles on here are getting more politicised, but can fully understand trying to corner a market segment to drive eyeballs on pages and clicks.

            For instance, was there a reason the Bishop meeting with China on that ministerial dialogue on climate change thing less than a week ago didn’t get a mention? (if it did get an article and I missed it, apologies) Surely that’s a positive news story that could have been presented.

          • Michel Syna Rahme 4 years ago

            “not really talking down coal on face value. It’s always down to a matter of opinion looking forward, so no right or wrong”…

            Actually, science is not an opinion, it’s peer reviewed, verifiable, evidence! The evidence demands that Coal has no future!

            It would be an opinion if I stated, what I believe, that by 2040 coal demand will be substantially lower than the already highly conservative projections – taking into consideration many factors, such as the passing of all those now aged around 60 years of age, technological progressions, third world citizens becoming more educated and more affected by environmental degradation and health concerns, the rise of new generations into power, to name just a few.

            What is also not an opinion, is that RenewEconomy is a proven trusted source of information, which is why, I assume, you are here!

          • michael 4 years ago

            Wrong by a long way. Science says we probably have to limit co2 in the atmosphere or else temps are going to rise, it doesn’t differentiate between sources of that co2..

            If CCS was advanced quickly then coal wouldn’t be negative from a scientific viewpoint, it’s economics that hold back CCS.

          • Michel Syna Rahme 4 years ago

            Are you sure that’s not what the science is saying?

            CCS? Solution? Risks? Carbon cycle? Economically viable? Conventional CCS = Fallacy = the end of coal growth? You answer your own question on CCS it seems, what happens as conventional renewable energy technology costs continue to decrease and fossil fuel subsidies euthanised?

  2. Michel Syna Rahme 4 years ago

    That’s one good article!

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