BHP carbon accounting good for executive bonuses, not for climate

by | Jun 1, 2021 | Energy & Environment

BHP counts all the carbon emissions from projects it operates but ignores the climate impact of its investments in projects managed by other companies. This is not a credible approach to climate change, writes Peter Milne, from independent energy and climate news site Boiling Cold, as all owners have a say on the big decisions that affect emissions. Ignoring emissions is also great for executive bonuses.

Later this year BHP will be deciding whether the US$11.4 billion Scarborough LNG project goes ahead. BHP has a 26.5 per cent stake in Woodside’s project and its support is vital for the project. However, because of the way it counts climate emissions, BHP will not be including in its climate targets its share of the 3.7 million tonnes of greenhouse gases that the Scarborough project will emit each year.

This is fortunate for CEO Mike Henry, petroleum president Geraldine Slattery and the rest of the BHP board because their bonuses are tied to BHP cutting its operational emissions 30 per cent by 2030.

BHP counts all the carbon emissions from projects it operates but ignores the climate impact of its investments in projects managed by other companies.

So BHP counts the 2.5 million tonnes a year of emissions from iron ore mining in WA, despite other companies owning about 14 per cent of the operation.

Conversely, emissions from the giant North West Shelf LNG project, in which BHP has a one-sixth stake will not affect BHP’s climate metrics because Woodside operates that project.

BHP’s target to cut its measured emissions by 30 per cent this decade on the road to net-zero emissions by 2050 needs a reduction of 4.8 million tonnes in annual emissions.

This colossal challenge would be incredibly more difficult if BHP added the extra one million tonnes a year of carbon emitted from its share of LNG from Scarborough that it will sell to the world.

Climate accounting

To measure their climate impact, companies can either tally the projects they operate, as BHP has done for many years, or total the equity share of all projects in which they have a stake.

BHP reports its emissions according to The Greenhouse Gas Protocol, which allows both approaches. Neither are perfect when applied to the shared responsibilities in the joint ventures that dominate oil and gas production.

In a joint venture, one participant is appointed operator and is paid to manage the asset on behalf of the other companies, which give up any involvement in day-to-day activities. However, all the companies still exert significant control because they must approve the annual work program and budget and any significant investments.

For BHP’s Australian petroleum assets, the operational control approach results in only the relatively small emissions from the Pyrenees and Macedon projects off WA affecting its climate targets. Meanwhile, the huge Bass Strait and North West Shelf projects that BHP has been involved for decades do not appear on BHP’s climate books.

A BHP spokesperson said reporting emissions and setting reduction targets only for the assets it operates was a common practice across the industry that ensures emissions are not double-counted.

In reality, the operational control approach is not close to being an industry standard, and the problem is not excessive counting but the inadequate allocation of responsibility.

Decisions without consequences

BHP has ceded all climate responsibility for the North West Shelf to operator Woodside. However, unlike BHP, Woodside bases its targets on its equity share, which is only one-sixth of the project.

Companies work to their own climate targets, not those of their partners.

For example, Woodside committed to offset its share of CO2 in reservoirs vented to the atmosphere from the North West Shelf project. But what about the other emissions from the other five-sixths of the project? No action. Lost in the confusion of carbon accounting.

Other companies that measure emissions by equity interest, like Woodside, are Chevron and Shell.

So much for an industry standard.

Similarly, in the Bass Strait, BHP’s view of the world is that it does not have to worry about emissions because operator ExxonMobil will. Unfortunately, ExxonMobil has no targets to reduce its total emissions, only its emission per unit of production.

In 2020 BHP received $US2.2 billion in revenue from the North West Shelf and Bass Strait but passed responsibility for the project’s climate impacts on to operators with quite different climate objectives.

Woodside publicly and clearly only targets its own emissions, while ExxonMobil has climate targets that fall far short of BHP’s.

Focusing on the company that operates an asset does not reflect who really makes the big decisions that determine emissions and whether to cut them.

The operator can alter how the plant is run to perhaps change emissions by a few per cent.

However, decisions with a significant impact on climate – whether a project goes ahead, is expanded or abandoned, or whether significant amount of money would be spent to reduce emissions – are made by all the joint venture participants.

Corporate metrics exist to encourage management to make the right decisions. But under BHP’s climate targets, the board and management have no incentive to consider climate impact when the company has to decide whether the $US11.4 billion Scarborough project goes ahead or not.

Conservation Council director Piers Verstegen said the community and shareholders expected greater transparency.

“BHP has escaped public attention on these issues to date because they have been able to conveniently hide the full extent of pollution from their fossil fuel investments,” Verstegen said.

“That is not likely to be a successful strategy for BHP into the future.

“Committing to cut carbon pollution from one part of your business while allowing it to increase rapidly in another area is simply not a credible approach to climate change.”

Australasian Centre for Corporate Responsibility climate director Dan Gocher said BHP cannot continue to sanction projects where it doesn’t have operational control, like Scarborough, and think its shareholders will continue to ignore the emissions from those projects.

“BHP’s climate commitments are already well behind those of its peers, including Fortescue and Glencore, yet it plans to sanction multiple new oil and gas projects,” Gocher said.

“The new IEA Net Zero report confirms that these projects are simply not consistent with a safe climate.”

This is an edited version of an article first published in Boiling Cold.  

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ABOUT THE AUTHOR

Peter Milne

Peter Milne

Peter Milne covers energy, industry and climate in WA at Boiling Cold with a focus on the energy transition and benefits to the community, not companies. He previously covered energy for The West Australian and has written for The Saturday Paper. Prior to journalism he worked in oil and gas for 25 years in engineering, economic analysis and commercial negotiation roles.

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