London Calling - February 21 2003

London Calling! February 21 2003

Pass the crisps! Major report on global warming gives brownie points to miners which they don’t deserve

It was meant to be a major “disclosure” on a matter of global import. Innovest, a New York specialist in environmental analysis, backed by investors who between them control more than US$4,500 trillion in assets, last year sent out a questionnaire to the Financial Times’ global 500 companies.

Innovest and the investors (which include Credit Suisse, Merrill Lynch, Prudential Insurance and UBS) wanted to know what steps the world’s most influential corporate enterprises were taking to reduce their contributions to greenhouse gas (GHG) emissions.

Alas, the Carbon Disclosure Project (CDP; whose report “Carbon Finance and the Global Equity Markets” was released last week in London) got something of a slap in the face. Only half the companies even bothered to respond and, of these, less than 40 said they were taking remedial action.

Those who refused to reply included Goldman Sachs and ABN Amro, two of the world’s biggest investment banks. Among the “decliners” were JP Morgan Chase, Morgan Stanley Dean Witter, the Bank of Montreal, the Bank of New York, the Toronto Dominion Bank, Sumitomo-Mitsui Banking and the huge Mexican cement producer, Cemex.

And just what action did the respondents plan to take? Many were contemplating adopting the highly controversial (some would say fraudulent) tactic of carbon emissions trading, to equip themselves with better-looking figures, while not materially reducing the amount of GHG’s spewed around the planet.

This is an alarmist report but a totally conventional one, punching firmly at - rather than below - the money-belt. For example, it warns the banking sector that it could see plunges of up to 29% in share prices if it doesn’t take the issues seriously.

Indeed, “…in June 2002, shares of Xstrata, BHP Billiton and Rio Tinto three of the world’s largest coal companies - dropped 6% on average upon news of the likelihood of a Japanese carbon tax.”

To meet Kyoto-equivalent targets in the U.S., the CDP estimates that coal consumption in the electric utility sector would have to drop an average of just over 33 million tons. “[F]or rail companies, this constitutes approximately 4.4% of total yearly shipments (equivalent to roughly $340 million)”.

Miners’ responses

But the report mightily fudges, too. It claims that “In the metals and mining sector, Rio Tinto, Alcan and BHP Billiton have dedicated significant senior management resources coordinating a climate change response. Targets for GHG emissions are in place.”

However Rio Tinto - though answering the project’s questionnaire - refused permission for its comments to be published. SO how can the rest of us judge the “significance” of its management changes?

(We’ve bitter experience of this company claiming a sea-change, when it’s merely shifting the deckchairs on the Titanic.)

Barrick , BHP Billiton, CVRD and Norsk Hydro also answered the questionnaire but haven’t yet given permission for their replies to be made public.

Alcoa, Alcan and Anglo American’s responses are taken at face value: “[They] should benefit from vehicle fuel efficiency incentives in California and Western Europe that favor the inclusion of higher proportions of aluminium in lightweight transportation applications (one tonne of aluminium used in autos saves 20 tonnes of GHG over the life of the vehicle).

“Likewise, Anglo American’s platinum division is pursuing opportunities in the use of platinum in catalysts and fuel cells, via its recent downstream integration with U.K. catalyst developer Johnson Matthey. High-performance steel is also competing on the basis of efficiency
and emissions improvements in the auto sector.

"POSCO sold 202,00 tons of high-tensile steel plates for automobiles in 2001 and estimates if consumers use such automobiles over a ten-year period, 19,820 Tera Joules of energy and 1.369 million tons CO2 emissions would be saved.

“Nippon Steel expects huge reductions in CO2 emissions through diffusion of high function steel in autos, trains, ships, boilers and buildings."

Okay, we can give a small pat on the back for the three Top A’s (Anglo American, Alcoa and Alcan). But their strategies don’t reduce direct contributions to GHG. Especially if it means more vehicles get put on our global roads, with a correspondingly increased consumption of metals and aggregates for supportig infrastructure.

Fumbling in the smog

And what to make of this? - Here’s part of Alcan’s submmission to the CDP:

“Potential impacts of actual changes in the climate on Alcan’s business have not been quantified. However, Alcan has been in business for over 75 years, operates in 38 countries, and has adapted repeatedly to major extremes of nature in the past which has helped better prepare the corporation to deal with any such conditions in the future”

What baloney!

Or take the following comment from Anglo American:

“A significant reduction of around 10% or more within such a short time period [five years] could only be achieved by changing the “shape” of our business through the disposal or closure of our most energy intensive business units. However, such drastic action is not being contemplated. We are endeavouring to achieve emissions reductions via greater efficiency in our use of energy and the implementation of improved process technologies. While we have not yet set specific emission reduction targets we are optimistic that reductions in the order of 5% may be achievable when measured against our “business as usual” projections”.

“Business as usual”? They said it!

A Concrete response

Among the few submissions from mining companies, which we’re actually permitted to read, only Lafarge - the world’s biggest cement producer - provides anything like straight answers to straight questions.

“[The] cement industry has one of the highest emissions of CO² per euro of turnover”, it agrees, estimating its own annual GHG emissions (2001 figure) at 75 million tonnes of CO²

Lafarge has also quantified greenhouse gas contributions from a house built with its products: “…around 10% of emissions…come from construction, 90% [when] in use. Active heating and air conditioning systems with other energy efficiency measures can reduce bills up to 75%”

Does the company have “emission reduction programmes and targets in place?”. Lafarge says it’s set on an (apparently) impressive “20% reduction world-wide [from 1990 to 2010] per tonne of cement”.

Ah, yes! But this is only “assuming waste fuels are climate neutral”. Which sounds (almost literally) like rubbish, considering the degree to which the industry is increasingly reliant on filthy incineration.

Finally the report notes that,“[d]epending on the scale of opportunities for efficiency-driven emissions reductions, firms in the [mining] sector will be largely dependent on the use of offsets to achieve compliance. Anglo American (via its “Carbon Trading Working Group”), CVRD (forest CO2 sequestration), Alcoa (internal emissions trading), Nippon Steel (JI projects) and Rio Tinto (emissions trading) are all placing emphasis on the use of the GHG markets to meet their targets”

That seems to be the size of it. It may not exactly be “smoke and mirrors”. But the mining sector’s strategies threaten just as much real smoke in future as they have done in the past.

[Sources: Carbon Finance and the Global Equities Markets, Innovest and Carbon Disclosure Project, February 2003; Financial Times, 17/2/2003; See also: "Pollution for Sale: Emissions Trading and Joint Implementation", Edward Elgar Publishing Ltd, Abingdon, Oxon, 1999].

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