Glencore is reducing coal investment capital in Australia with the aim of halving its total carbon emissions (including Scope 3) by 2035, but questions remain over the transparency of the target.
This follows Glencore’s plan to develop Wandoan as a coal-to-blue hydrogen project instead of a “traditional” coal mine and relying on unproven CCS technology to reduce emissions, its acquisition of the Cerrejón coal mine in Columbia and revelations of beneficial carbon accounting, and its latest bid for Canada’s Teck Resources and proposal to spin off the combined coal businesses to a separate entity, all of which create more ambiguity around its emissions reduction ambitions.
A recent shareholder resolution by a group of major Glencore investors asking how the company’s capital expenditure is aligned with the Paris Agreement and net zero emissions targets shows that investors will likely increase demands for full transparency on its decarbonisation plans ahead of its annual general meeting.
As Glencore comes under more pressure on its coal mining carbon emissions in the run up to its May AGM, the company has disclosed that it won’t develop the Wandoan project as a “traditional” coal mine.
In its recently released 2022 Climate Report, Glencore stated: “We do not plan to develop the Wandoan coal resource as a traditional coal mine for the purpose of servicing traditional coal markets.”
Instead, it’s planning to use some Wandoan coal to make blue hydrogen and ammonia, relying on unproven carbon capture technology to reduce emissions.
Carbon emissions questions
A group of major Glencore investors, which together represent US$2.2 trillion of assets under management, have co-filed a shareholder resolution asking the company for details on how its coal mining operations and capital expenditure is aligned with the Paris Agreement and the International Energy Agency’s (IEA) Net Zero Emissions scenario.
The investors include Legal and General Asset Management, Vision Super and HSBC Asset Management.
Glencore is planning to manage down its coal mining operations with the intention to close “at least 12 coal mines” by 2035.
Glencore is planning to manage down its coal mining operations with the intention to close “at least 12 coal mines” by 2035. It is targeting a 50% reduction in total carbon emissions (including Scope 3 emissions) by that date.
Scope 3 emissions – which occur when Glencore’s customers burn its thermal coal in power stations – make up 90% of the company’s total carbon output.
However, there are concerns over the transparency of Glencore’s target. Research by the Australasian Centre for Corporate Responsibility shows that a restated 2019 emissions baseline has made the 50% by 2035 target look more impressive than it is.
Glencore has adjusted its 2019 baseline to include 100% of the emissions from the Cerrejón coal mine in Columbia even though it only owned 33% of the mine at the time. It didn’t take full ownership of Cerrejón until 2022. Because the mine is due to finish operations in 2033, Glencore can achieve a more impressive-looking 2035 emissions reduction from a higher 2019 baseline simply via carbon accounting.
Questions as to whether Glencore is on track for net zero emissions remain. The Climate Action 100+ group of investors found that Glencore’s medium- and long-term emissions reduction targets are not aligned with the goal of limiting warming to 1.5°C in its October 2022 net zero company benchmarking.
Glencore’s latest annual reporting highlights why investors have concerns over its emissions pathway.
Glencore’s latest annual reporting highlights why investors have concerns over its emissions pathway. The new 2022 Climate Report states that when it comes to emissions reductions, “we have not committed to doing so in line with a particular scenario or pathway, due to the uncertainty inherent in global efforts to progress toward the energy transition”.
And the new 2022 Annual Report states, “we are developing our own approach to abatement beyond 2040, which may include using offsets, as well as CCS. We acknowledge that this does not directly align with the IEA Net Zero 2040 phase-out of unabated thermal coal for electricity generation.”
Meanwhile, Glencore continues to state that a balance needs to be struck between emissions reduction and development in emerging nations. The new Annual Report maintains, “the global response to climate change should pursue twin objectives: limiting temperatures in line with the goals of the Paris Agreement, and supporting the United Nations Sustainable Development Goals, including sustained, inclusive and sustainable economic growth, and universal access to clean, affordable energy.”
Aside from clearly not being “clean”, investors should increasingly question how the production and export of coal is “sustainable” or “affordable”. The record 2022 coal prices that allowed Glencore to record huge profits and rake in large sums of cash were an economic disaster for developing nations.
Seaborne thermal coal became unaffordable for Pakistan in 2022, which stopped running coal power units that run on imported coal. As a result, power generation based on imported coal dropped to a five-year low and households were hit with power cuts.
The story was similar in Bangladesh where the Rampal coal power plant had to be temporarily shut down due to the unaffordable cost of coal imports. With consumer power prices in both Bangladesh and Pakistan on the rise, investors may well ask whether thermal coal exports are helping or hindering development in such countries.
Thermal coal represented more than 30% of mining revenue in 2022
Glencore CEO Gary Nagle is unapologetic about the company’s coal profits. Earnings before interest, tax, depreciation and amortisation (EBITDA) reached a record US$34 billion in 2022 with more than half of that coming from coal mining thanks to elevated prices.
Thermal coal made up 32% of all mining revenue in 2022. Banks and investors increasingly have restrictions on lending and investing in companies with a high share of thermal coal revenue. Deutsche Bank recently tightened its coal financing policy and will no longer take as clients companies that generate more than 30% of revenue from coal and that do not have a credible plan to diversify away from coal.
Glencore won’t be immediately impacted by such policies given the increase in coal’s share of revenue was boosted by abnormally high coal prices. Furthermore, the 32% doesn’t include Glencore’s huge trading business – the company doesn’t separately disclose the amount of trading revenue coming from thermal coal.
However, a key point exemplified by Deutsche’s new coal policy is that such restrictions are constantly tightening. The bank’s previous restriction on coal revenue was looser at 50%. Banks’ current coal financing policies are not the last they will ever announce, merely the latest iteration. Eventually, banks will stop financing companies that produce any thermal coal at all.
Blue hydrogen shift won’t sway investors concerned about coal emissions
Back at Wandoan, many Glencore investors will be concerned about the proposed coal-to-blue hydrogen project.
Aside from key questions over the future uses and cost of shipping hydrogen, there should be serious doubts over the effectiveness of the carbon capture technology being proposed.
Glencore’s intention at Wandoan “is to capture around 90% of emissions from this process and permanently store them deep underground”. However, a September 2022 IEEFA report on the performance of carbon capture projects globally highlighted a long history of failure and underperformance.
In addition, there are plenty of warnings already about the risk of blue hydrogen projects becoming ‘white elephants’ as the cost of green hydrogen made via renewable energy declines. Bloomberg New Energy Finance sees green hydrogen outcompeting blue hydrogen all over the world by 2030. Australia’s Clean Energy Finance Corporation has reached the same conclusion.
For coal-to-blue hydrogen projects like Glencore’s and the Hydrogen Energy Supply Chain (HESC) project in Victoria, the clock is ticking.
Glencore’s commitment to manage down its coal operations is preferable to the alternative taken by Canadian miner Teck to spin off its coal business, which has left its investors with a lot of carbon emissions questions.
However, Glencore’s investors will only increase demands for full transparency on its decarbonisation plans, without unwelcome distractions like tricky carbon accounting and going-nowhere coal-to-hydrogen proposals.