Why ‘sustainability spin’ won’t keep the lights on
Governments and corporates continue to sprinkle green fairy dust over their pet products and projects, but the legal definition of greenwashing sets a high bar.
Former BP Australasia regional president Greg Bourne has a short and unambiguous assessment of the proposed $600m Kurri Kurri gas peaking plant project, which Energy Minister Angus Taylor has lauded for its capacity to “create jobs, keep energy prices low, keep the lights on and help to reduce emissions”.
“Politics with a capital ‘P’,” the Climate Council member says, in reference to the Coalition’s push for votes in the region.
There’s also the “sustainability” spin in Taylor’s announcement – that the plant will be hydrogen-ready when it joins the grid in the summer of 2023 and contribute to Australia’s sizeable emissions reduction challenge.
Bourne strongly denies this.
“When (the coal-fired Liddell Power Station) is switched off, there are two choices – gas, in which case emissions go up again, or renewables and batteries, which have no emissions.” Greenwashing is a term often used, but the bar is high for a legal breach based on misleading and deceptive conduct.
In the context of climate change, a company could invite scrutiny from ASIC for misleading disclosure if it understates the risks or overstates the robustness of its response.
Yet the environmental spin accompanying some recent announcements has truly been Olympic-standard.
They’ve been widely seen as greenwashing and deserving of medals, but they’re likely to have fallen short of the strict legal definition.
For its release on the gas plant, the Morrison government gets a gold medal, but shares the podium with National Australia Bank for last month’s Port of Newcastle refinancing deal, which was performance-enhanced by an intersection with multiple layers of government.
The bronze medal goes to junior oil and gas explorer Cooper Energy for describing itself as the nation’s first carbon-neutral gas producer.
Legally defined greenwashing is coming under intense scrutiny, as regulators and investors demand detailed and transparent plans to achieve net zero emissions by 2050.
Global capital is also voting with its feet – money is pouring into ESG funds which invest according to environmental, social and governance principles.
Such is the level of scrutiny that it’s hard to imagine a repetition of peak green scandals like Volkswagen in 2015, when the carmaker admitted fitting a defeat device to ensure lower emissions were recorded under testing.
Tim Buckley, a former head of equities research at Citigroup, argues the point of no return from serious global action to achieve carbon neutrality was reached only six months ago.
“Financial markets tend to wait for a tipping point and now we’ve reached it,” says Buckley, who is director of energy finance Australia and South Asia at the Institute for Energy Economics and Financial Analysis.
“Greenwash was rampant two to three years ago but it’s so much easier to call it out now because of the improved transparency and companies actually taking measures that align with the climate pledges they’ve made.
“The dilemma for boards is that the implications of the pledges are now sinking in, and it’s accelerating the speed of the required transition.”
This was highlighted last month when the International Energy Agency, which has long been aligned with the fossil fuel industry, released a flagship report called “Net zero by 2050: a road map for the global energy sector”.
In the world’s first comprehensive study of how to transition to a net zero energy system, the report said the pathway was narrow but required an unprecedented transformation in how energy was produced, transported and used globally.
Critically, there would be no new investment in oil or gas, while solar and wind projects would have to increase fourfold.
The IEA also warned that climate pledges by governments so far, even if fully implemented, would fall “well short” of requirements to slash energy-related emissions to net zero, giving the world an even chance of limiting the global temperature rise to 1.5 degrees.
Joint gold medallist
Morrison government,
$600m Hunter Valley gas plant
The Kurri Kurri gas plant in the Hunter Valley will deliver most of the Morrison government’s target of 1000MW in replacement power to avoid “unacceptable” price increases from the 2023 closure of the Liddell, according to Taylor.
Planning documents, however, say the project will only operate at an average capacity factor of about 2 per cent.
In addition, and despite claims by Taylor that the hydrogen-ready plant will help reduce emissions, the two gas turbines will only be able to run initially on up to 10 per cent hydrogen. With some additional “minor” investment, that will rise to 30 per cent.
Bourne says there is a real possibility that the project will never be built, and a strong likelihood – if it is built – it will end up a stranded asset.
Taxpayers will wear the construction costs, as well as the operating losses.
Joint gold medallist
NAB, for lending $515m in
“sustainability-linked loans”
to the Port of Newcastle
NAB’s crowing that it had linked a financing package for the world’s largest coal port to “long-term environmental and socially responsible outcomes” was audacious.
The micro-improvements in emissions efficiency at the port ignored the stampeding elephant in the room – 95 per cent of the facility’s exports are thermal coal, from which NAB has said it wants a complete exit by the end of the decade.
Recent studies have found that financed emissions are 700 times greater than those from operations.
NAB’s gold medal is “performance-enhanced” through the Port of Newcastle’s exposure to not just one layer of government but two.
The port earlier this year faced an existential refinancing challenge, in large part due to a once-secret 50-year restriction imposed on container traffic through Newcastle when the NSW government privatised the rival Port of Botany in 2013.
The government’s effective creation of a private monopoly meant that the $5.07bn proceeds from the deal dramatically exceeded all expectations.
Seven years later, however, the reckoning came when ANZ huddled with the Port of Newcastle over a refinancing deal, with the lender already in discussions with its top 100 carbon-emitting customers about their net-zero transition plans.
The best the Port of Newcastle could offer was a diversification strategy featuring a $2bn deepwater container port, which was dependent on a Federal Court challenge to the anti-competitive restriction imposed on its operations by the NSW government.
Like all the banks, ANZ is under intensifying pressure to decarbonise its lending portfolio.
Chief executive Shayne Elliott warned the bank’s big polluters in the second half of 2020 that they faced defunding if they failed to establish or strengthen their low-carbon transition plans.
“We’d move to exit that customer, and the reason is it’s a red flag about good, old-fashioned risk management,” Elliott said.
ANZ made the brutally pragmatic business decision to walk away from Port of Newcastle, fearing the port could become a stranded asset as the world moves away from thermal coal.
This became evident last year when the biggest buyers of Australian thermal coal – Japan, China and South Korea – committed to net-zero emissions.
The second layer of government involvement was the likelihood of the Morrison government raining hellfire and damnation on the banking sector if funding was pulled from the world’s largest coal port.
NAB helped to avoid that outcome by stepping in for ANZ, even with the court outcome still unknown.
In doing so, it greenwashed the refinancing – a suggestion CEO Ross McEwan rejects.
McEwan says NAB has banked the Port of Newcastle for a long time, and the latest deal was “sustainability-linked across a broad spectrum, including a reduction in emissions”.
“Like every other customer, we’re working with them to actually help to reduce their climate exposure, so we all play our part,” he says.
“That’s what our job should be, not abandoning customers when people put a lot of pressure on.
“Our exposure to the port hasn’t increased, but I believe we’re doing the right thing, as we will do with others by supporting them to get to a better place.”
Bronze medal
Cooper Energy, for claiming
it was carbon neutral in 2020
The junior gas explorer and producer proudly emblazoned its 2020 sustainability report with the words: “Net zero 2020 – Australia’s first carbon-neutral domestic gas producer”. Indeed it was, if you disregard the Scope 3 emissions of its customers.
Resources industry leaders BHP and Rio Tinto are now tackling emissions across their value chains; others take Cooper Energy’s approach.
“Our strategy is focused on producing natural gas for southeast Australia, in southeast Australia. This means our operations have a comparatively low level of emissions intensity which may otherwise exist with long pipeline transmission. We saw an opportunity to completely offset our emissions well ahead of 2050 and we took it,” Cooper MD David Maxwell told investors.
While there’s no declared industry position, it’s a bit rich to claim to be the nation’s first carbon-neutral gas producer when it’s offsetting 10,000 tonnes of operational emissions but disregarding 548,000 tonnes of Scope 3 emissions.