BHP, the world’s largest mining company, has gone all in on one side. Since then, they have dumped their once-ambitious renewable energy plans, which would have decarbonized their iron ore mines in Western Australia’s Pilbara region. The company’s original plan was to invest $US2 billion. This investment would allow them to build over 500 megawatts of large-scale wind, solar and battery storage projects. This major development stands to deepen doubts about BHP’s stated devotion to its climate strategy announced earlier this year.
The other big change the company is undertaking. Now BHP is cutting the overall spending on operational decarbonisation, slashing it down from $US4 billion to just $US500 million by the end of this decade. This reversal in investment spells a stark reversal from the trajectory towards the medium-term goal. Currently, the aim is to reduce greenhouse gas emissions by at least 30% by 2030, compared to 2020 levels.
BHP has bounced back from those challenges and produced exceptional outcomes! They’ve reduced emissions from electricity consumption by 80% since 2020, with over 70% of their electricity currently supplied by renewables. The dumping of these projects has incensed many players — from environmental activists to local government leaders.
Project Cancellation Details
As a result, BHP has cancelled its plans for a 50-megawatt solar farm at the Jimblebar mine and a 40-megawatt-hour battery project in the town of Newman. The company used “capital constraints” to justify cancelling these projects, worth an estimated $300 million. These projects are now included as part of Rio Tinto’s broader renewable energy program as part of their WA Iron Ore (WAIO) autonomous operations. This new program is designed to provide clean solutions by making deep, strategic commercial partnerships.
In a call with investors, Mike Henry, CEO of BHP, declared that the company’s climate commitments were completely unchanged. He reiterated that they will meet their target of operational decarbonisation by FY2030. Because of the recent spate of cancellations, many stakeholders are understandably sceptical about this claim.
The cancellation of these projects marks an outsize turn for BHP considering the company’s recent pivot towards renewable energy investment. Tim Buckley, director of Climate Energy Finance, decried this decision as a lost opportunity. He contended that it goes against BHP’s own pledge to investors as articulated in international climate agreements. He emphasized that the board’s recent decision to walk away from these plans represents a brazen disregard for climate science. It shows their unwillingness to lead and be held accountable for addressing environmental issues.
“It is a choice by the board and the management to ignore the climate science and leave the problem to everyone else.” – Tim Buckley
Industry Reactions and Implications
The statement was met with equally swift, scathing condemnation from some industry pundits and local government leaders. Roger Cook, Western Australia’s newly elected Premier, stated that he was saddened by BHP’s decision to pull out of renewable energy projects. He believes that both BHP and competitors like Rio Tinto have a moral and commercial obligation to actively contribute to the decarbonisation of their operations and the economy as a whole.
“Rio Tinto as well, and BHP both need to understand that they have an obligation, a moral and commercial obligation, to lean into the decarbonisation of our economy and particularly their businesses.” – Roger Cook
According to market analysts, this decision is a harbinger of much bigger things to come in the mining industry. Businesses are taxed more than ever as they try to lead the way to cleaner, renewable energy. Sam Berridge, a funds manager specialising in resources at Perennial, noted that operational costs for running mines on renewable energy begin to rise drastically when compensating for the intermittent nature of wind and solar energy.
“The miners will take whatever the least cost option is available to them out of that sort of spectrum.” – Sam Berridge
BHP’s transition strategy shows that even as it recommits to lower emissions, it plans to drag out timelines for some projects. The firm understood that with the unforeseen lag in creating diesel displacement alternatives for material conveyance, a new spending focus had emerged. Consequently, the bulk of these related costs will instead take place during the 2030s.
Future Outlook and Strategic Adjustments
Looking to the future, BHP is keen to stress that the past few monthsʼ difficulties have not deterred them from their goal of an operational decarbonisation by 2030. The company invested as much as $10 billion on capital projects domestically over the last year. Of this total, $2.6 billion was exclusively targeted to its iron ore business.
Yet in the absence of credible action to reduce emissions within BHP’s portfolio, experts argue that with BHP’s current trajectory emissions could even rise post-2025. This possible increase arises from a decrease in global investments in electrification and decarbonisation technologies. As Tim Buckley noted here, this would be a dangerous precedent, particularly given the transformational pace of battery technologies being developed right now beyond Australia.
“From 2025, BHP’s emissions actually go back up because they’re no longer investing in electrification and decarbonisation.” – Tim Buckley
BHP’s momentous decision underscores what’s at stake when finding the right balance between economic viability and environmental duty. Yet the industry is coming under increasing scrutiny from a range of stakeholders and regulators. That doesn’t mean the company doesn’t have a lot of hurdles in front of them. To remain the world’s top example of environmentally responsible mining, it needs to revisit its approach.
