The one big takeaway from BHP’s analysis of Climate Change is that the big miner believes climate change is real and that action will be taken. In fact, the introduction calls for an agreement to restrict global warming to 2 degrees warmer than pre-industrial levels.
BHP Billiton accepts the 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.
With that in mind, BHP has developed numerous models evaluating the impact of climate action on its business. All of the models include a price on carbon, which BHP has been factoring in since 2006; but the 2030 price per tonne ranges from $US 24 for the central case, through $US 50 in the case of a “global accord”, and up to $US 80 should the world have to react to an “extreme event”.
The scenarios also include numerous other “technical, economic, political and governance” factors that could take place alongside a carbon price.
While BHP forecast that the share of renewables will increase by 25%, or nuclear power by 50%, depending on different scenarios, it expects demand for many of its commodities to continue apace. The underlying rationale is the continued need for cheap energy for much of the world, and the transition to different energy mixes and consumables as some regions grow richer.
As economies grow and people become wealthier, a consumer economy emerges and steel intensity slows while demand increases for materials that are used in consumer goods, such as copper. Increased income leads to a demand for agricultural commodities, including potash. The products in our portfolio are the raw materials that fuel change and support an improvement in living standards for people in many parts of the world.
The different scenarios, reflected in regulations, consumer preferences, energy mixes and therefore commodity demand will all have different impacts on earnings. But despite all of this uncertainty, BHP is confident that the future is positive, citing high current margins and the ability to switch strategy as the circumstances warrant.
However, there are some detractors. Shortly after the report’s release, Oxfam responded, applauding BHP for sending a strong message, but challenging the assumption that fossil fuels will continue to be a major source of energy.
“BHP Billiton’s disclosure should send an emphatic signal to governments as they work to finalise a new global climate agreement,” says Kelly Dent, Oxfam Australia’s climate change policy advisor.
“It is renewable energy, not coal, that is working for communities around the world – from solar energy in the Pacific to new ways of powering Africa, China and India.
“As well as failing to improve energy access for the world’s poorest people, burning coal contributes to hundreds of thousands of premature deaths each year due to air pollution and is the single biggest contributor to climate change, pushing people around the world deeper into poverty.”
Disclaimer: The author and his family own shares in BHP Billiton
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