BHP Billiton’s mission to save the coal industry
BHP Billiton – the world’s largest mining company – sees itself as being on a James Bond-style mission to snatch the future of the coal industry from the jaws of defeat at the UN’s Paris climate change conference in December.
In BHP Billiton’s view – as outlined in a speech last Friday by Mike Henry, BHP Billiton’s President of Coal – the cast includes “ideological” anti-coal activists, foot-dragging governments, a public that believes renewables will make coal obsolete within a decade or two and a poor, misunderstood coal industry which thinks it has science on its side. In BHP Billiton’s view, it is a gripping tale of a life-and-death struggle between goodies and baddies in which the company is the reluctant but reasonable hero.
Henry also flagged his concern about the current ineffectiveness of the coal lobby, its hope of marginalising anti-coal activism and how BHP Billiton wants to sell the story that a growing coal industry is perfectly compatible with climate protection.
Firstly it is important to understand BHP Billiton’s motivation: this year the company plans on producing 80 million tonnes of coal, with an even split between power station coal and metallurgical coal, which is mainly used in steel mills. BHP Billiton’s major coal interests are thermal coal projects including New Mexico Coal in the US, a one-third stake in the Cerrejon coal project in Colombia and the Mt Arthur mine in NSW. It also has metallurgical coal projects in Queensland, and the IndoMet Coal project in Indonesia.
All up BHP Billiton’s projects have coal reserves amounting to over 16 billion tonnes. If burnt, they would produce about 44 billion tonnes of carbon dioxide. In other words, BHP Billiton has some of the world’s biggest ‘carbon bombs’ and, despite the risk to the climate, they are determined to detonate them.
While Henry did not mention that over 40 per cent of the world’s energy-derived greenhouse gas emissions originate from coal he acknowledged that in the run-up to the Paris negotiations “the focus is on our industry.”
Henry, who has spent a big chunk of his professional career working in the coal industry around the world, has a blunt diagnosis of the coal industry: it is currently a financial dud that is losing political support at a rapid rate outside mining towns. Henry concedes that thermal coal demand is being eroded by popular and ever cheaper renewables while a recovery in the prospects for metallurgical coal hinges on the development path and timing of demand in India and China.
Henry also replayed the standard coal industry’s shop-worn claim that coal power’s “outright cost competitiveness” will result in thermal coal being needed “for decades to come.”
It is also notable that Henry’s speech includes plaintive pleas to other coal companies to be “more unified”, take a “more active part of the climate change solution” and “adopt a more unified, balanced and credible view” of climate change. He also bemoaned that there is now “a widespread public view that coal use will be phased out over the next 10 to 20 years in favour of renewables.” This, he complained, was “in part because of ineffective engagement by many participants in the broader fossil fuel energy value chain.” They are comments which are guaranteed to generate further behind-the-scenes friction within the coal industry and its associated lobby groups.
There is also plenty that Henry didn’t mention. There wasn’t a single mention in his speech that coal-fuelled air pollution is a big global killer, that deep open cut mines means the end of farming, that mines lower the water table and pollute waterways. Nor is there any acknowledgement that in many countries all too often coal mines and power projects are based on corrupt deals, human rights abuses and the dispossession of people from their land and livelihoods.
What should a coal company do?
Make no mistake, when it comes to climate policy, BHP Billiton is in panic mode.
The broad outline of BHP Billiton’s master plan for saving the coal industry is obvious: undermine anti-coal activism and marginalise what remains, rebuild and expand the industry’s lobbying efforts, hype the potential of Carbon Capture and Storage (CCS) or higher-efficiency coal power stations, undermine or delay the growth of renewables as much as possible and claim – for the benefit of worried investors and nervous politicians – that all of this is aligned with good science and the company’s climate policy.
Two weeks ago BHP Biliton signed an MOU with SaskPower to fund efforts to promote the Boundary Dam Carbon Capture and Storage plant in Canada as an effective climate solution. Then early last week the company signed on to a letter by a coalition of major companies in which it stated, for the first time ever, that it supported the target of limiting climate change to a two-degree increase. A few days later Henry delivered his speech to the American Chamber of Commerce.
The company’s 2007 climate change policy is vague and contains big loopholes. Perhaps more importantly the company compiles several detailed climate scenarios in its business planning decision-making. The two scenarios the company considers “most likely” based on currently emerging policies would, according to Henry, result in thermal coal either “slightly” growing or declining.
However, the International Energy Agency’s (IEA) 450 Scenario – which nominally translates to the world having a fifty per cent chance of limiting the temperature increase to the 2 degrees limit BHP Billiton has said it agrees with – estimates that coal consumption would be required to fall by one-third by 2040.
If BHP Billiton is serious about the two-degrees target, it should be arguing for a dramatic reduction in coal use.
Instead, the company is arguing for technologies which would expand coal mining and emissions.
When CCS fell out of favour with power utilities primarily because of the hideously high costs, the World Coal Association (WCA) and companies such as Peabody Energy took to promoting higher-efficiency coal plants as their preferred response to climate change. (BHP Billiton is a member of the WCA.)
However, since the IEA has signalled that higher efficiency coal plants won’t enable the two-degree target to be achieved, BHP Billiton has taken to hyping the benefits of SaskPower’s Boundary Dam CCS project in Canada. The Boundary Dam project is hideously expensive, driving power prices higher for consumers. The project has an emissions profile far higher than renewables and – because the carbon dioxide is used in an Enhanced Oil Recovery Project – make little if any emissions reduction compared to a normal coal plant. (See ‘BHP Billiton’s Boundary Dam carbon fudge’.)
Rebuilding the effectiveness of the coal industry’s lobbying efforts is going to be a tough sell against an increasing public awareness that coal is dirty, dangerous and damaging. For smaller companies crippled by low coal prices and big debts there is likely to be little enthusiasm for increasing spending even more on lobbying.
Nobbling renewables and those pesky NGOs
For thermal coal producers, the rise and rise of renewables threatens to undermine not only future demand but also existing coal-fired generators. Given popular support for renewables and the widespread view that a coal phase-out is imminent if not already underway, the coal lobby has sought sanctuary in technical arguments.
In a March 2014 speech BHP Billiton CEO Andrew Mackenzie claimed that while renewables were likely to grow rapidly “we will only be able to rely on them when large-scale and cost-effective energy storage becomes available.”
The “large-scale” qualifier is a good indicator as to how out of touch BHP Billiton’s energy worldview is in an energy landscape comprised of largely small-scale loads. A little over a year later Tesla launched its Powerwall and public debate over the potential of battery technology and distributed generation has ramped up a few more notches. Energy regulators and utilities around the world are openly discussing the rise of distributed generation, deployment of battery technology and renewables. In contrast Mackenzie’s dissing of renewable energy seemed as backward-looking as Tony Abbott’s infamous “coal is good for humanity” comment, which incidentally was made at the opening of BHP Billiton-Mitsubishi Alliance’s new Caval Ridge coal mine in Queensland.
The Minerals Council of Australia – a A$16.9 million a year lobbyshop of which BHP Billiton is a member and Henry a director – has a cruder approach to crushing the growth of renewables: it has lobbied for the abolition of the mandatory Renewable Energy Target and solar feed-in tariffs, argued for public funding for CCS projects, and support for new coal plants internationally in the guise of “energy security” for “regional nations.”
But the biggest risk to the coal industry comes from the profound shift in public thinking about the impacts of thermal coal and the attractiveness of alternatives to its continued use. (Metallurgical coal is a slightly more complex issue, but that’s a topic for another day.)
In his presentation Henry complained that mining industry “research also tells us that the industry suffers from declining perceptions in the broader community, particularly outside its direct areas of operation. This is primarily about coal’s role in greenhouse gas emissions and perceptions about its general environmental and social impacts.” He also conceded that “in the court of public opinion, the ‘no coal’ camp has been more effective” than its bigger-budget industry counterparts.
A company confronted with sustained public opposition to its product and its way of doing business can react in one of two ways: look to the big picture, concede the point and adapt, or opt for an authoritarian response with a dash of divide-and-conquer.
BHP Billiton is in the latter camp. The MCA – without a hint of public dissent from BHP Billiton – has argued for a crackdown on non-profit environmental groups, including limits on how much groups which are eligible for tax-deductibility can spend on advocacy. It argues this position safe in the knowledge that companies such as BHP Billiton can spend whatever they like on public advocacy and claim it as a business deduction against tax.
The A$8.2 million a year coal industry lobbying group, the New South Wales Minerals Council – of which BHP Billiton is a member – recently complained that the community-based group, Lock the Gate, should be stripped of tax-deductibility because it urged supporters to write letters to members of parliament . That a lobby group (which can’t vote) – representing a company (which can’t vote either), which is mostly owned by overseas shareholders (who can’t vote either) – should argue that groups representing voters be punished for suggesting supporters contact legislators is an indication of the distorted view coal lobby groups have of what a healthy democracy looks like.
After wielding their stick via proxies, BHP Billiton has the use of a few carrots in mind too. Henry suggested the company should “be more active and effective in building common ground with elements of civil society … who are open to exploring the possibility that it can be produced and used sustainably.” One can only assume that BHP Billiton is hoping there are enough people and groups willing to volunteer for something like a Coal Stewardship Council.
Ultimately, Henry’s speech reflects the panic engulfing the coal industry. Long used to coal not being mentioned at all in climate negotiations, the coal industry now find itself centre stage – and they don’t like it one little bit.
Coal companies dusting off mouldy old plans for CCS for someone else to pay for will get them only so far. Pitching higher-efficiency coal plants as a way of getting mostly poorer coal-importing countries addicted to importing coal from already rich companies and countries such as Australia and the US really doesn’t get them much further. But they have little else to play with.
Just as asbestos companies could never quite acknowledge that safer alternatives existed to their toxic product until public opinion forced them to, BHP Billiton’s thermal coal divestment day may be far closer than the company is willing to consider.