A former chief economist at mining company BHP says stronger climate policy by governments is needed to “move the needle” and incentivise tough decarbonisation decisions at major resource companies.
Internal documents, leaked to Guardian Australia and the ABC earlier this year, showed BHP had delayed vast renewables projects in the Pilbara, scrapped a project that would have delivered significant cuts to global emissions, and war-gamed options to push the electrification of its polluting diesel truck and train fleets into the next two decades.
Experts and analysts have previously said the slowdown in BHP’s decarbonisation progress put Australia’s broader climate targets at risk and exposed significant flaws in a key climate policy, the safeguard mechanism.
Former BHP chief economist Dr Huw McKay, now a visiting fellow at Australian National University’s Crawford school of public policy, told the Guardian that stronger climate policy was needed to drive urgent action.
McKay, who left the company in 2024, said he agreed with the distinguished economist and emeritus professor Ross Garnaut, that voluntary commitments from companies on decarbonisation were unstable and strong government policy was needed.
“That’s absolutely right,” he said. “The preferred policy is, of course, a carbon price that is calibrated to move the needle on hard-to-abate emissions.
“Inserting a carbon-price obligation like that into the investment process at major resources companies would lead to swifter action.”
McKay will this month speak at an ANU seminar on “Heavy industry decarbonisation: insights from the BHP leaks”. The description of the event says he will speak about how “corporate goals and targets are set, the role of broader investment and capital allocation processes, and the influence of policy, financial, and operational environments on decision-making”.
BHP has set itself a target of cutting emissions to 30% below 2020 levels by 2030, which it has already achieved using power purchasing agreements, particularly in Chile, and through the 2024 suspension of its struggling Western Australian nickel operations. But its longer-term net zero goal requires it to make significant emissions reductions from its mining operations, which can be achieved by transitioning away from its diesel fleet and transforming its inland power grid, which is currently powered by gas and diesel generation.
Bowen defends current regime
The climate change, Chris Bowen, has defended the current “safeguard mechanism”, which requires about 200 big industrial emitting sites – including several BHP facilities – to cut emissions intensity year-on-year, either onsite or by buying contentious carbon offsets.
Bowen said the safeguard mechanism did not rely on voluntary commitments. He said it mandated each large facility covered to cut emissions each year and to reach net zero by 2050.
Government data released earlier this year said total onsite emissions covered by the scheme were down 2.3% this year.
“We won’t be imposing a carbon tax,” Bowen said.
Quick Guide
What is the safeguard mechanism?
Show
Australia’s safeguard mechanism requires the country’s largest polluting industrial facilities to cut their greenhouse gas emissions intensity year on year.
It applies to about 200 facilities that each year emit more than 100,000 tonnes of carbon dioxide, or the equivalent in other greenhouse gases. These include mines, gas facilities, processing plants, smelters and manufacturers.
Facility owners can make cuts onsite or by buying carbon offsets.
The policy was introduced in 2016 by the rightwing Coalition government with a promise it would stop industrial emissions increasing. But it was not applied as promised and total pollution from the sites continued to rise.
The Albanese Labor government revamped the scheme in 2023, setting new emissions limits, known as baselines, for each facility.
Under the changes, facilities are required to reduce emissions intensity – the amount of pollution per unit of production – by up to 4.9% a year. Companies can choose whether they make direct cuts or buy carbon offsets to meet their reduction obligations.
They have access to two different types of carbon credits to offset their pollution. They can buy Australian carbon credit units, which are created through government-approved projects said to draw CO2 from the atmosphere or prevent its release.
Or they can also use “safeguard credits”, which are created when a facility emits less than its safeguard baseline. The owner gets one safeguard credit for every tonne of CO2 they are below their baseline. These within-scheme credits can be sold to other polluting facilities that emit more than their baseline and need offsets.
New polluting facilities, including gasfields and coalmines, are allowed to open and enter the scheme with baselines set at “international best practice”. For new gasfields, that means offsetting all CO2 pollution so they are net zero.
A deal between Labor and the Greens introduced an absolute “cap” so that total emissions under the scheme need to come down over time. The pace of reduction was not stipulated under the deal and is set by the climate change minister.
The leaked BHP documents revealed how the company had repeatedly balked at making major investments in decarbonisation initiatives, despite publicly describing climate change as an “existential” risk to the world and internally acknowledging that urgent emissions reductions efforts effectively underpinned its “licence to operate”.
The company’s first inland Pilbara decarbonisation project – a 50MW solar farm and 20MW battery at its Jimblebar mine – was shelved after being approved and funded by the board. Another 500MW system of solar, wind and battery was significantly delayed. The company has continued to acquire 62 polluting diesel haulage trucks, despite pledges to electrify its highly polluting fleet as early as 2027-2028.
In the weeks after the revelations, BHP engaged in a concerted public relations push to promote a trial of two battery-electric trucks in the Pilbara. An event held by the company, along with Rio Tinto and Caterpillar, was attended by the press and the Western Australian premier, Roger Cook. An invitation to journalists said that “flights and transport to site are included”, although WA government officials were not provided with transportation by BHP.
The event was held at its Jimblebar mine site. Critics say BHP was simply re-launching a previous announcement about the trial of battery-electric haul trucks.
In a statement, a BHP spokesperson said trials were needed because technology was not advanced enough to scale 240-ton battery-electric haul trucks to an operational fleet.
“To support the acceleration of this technology, BHP is partnering with equipment producers to run trials of battery-electric equipment including two 240-ton battery electric haul trucks being trialled on a BHP site in the Pilbara, and four battery-electric locomotives which we plan to commence trialling in coming months,” the spokesperson said.
“BHP continues to focus on delivering our operational emissions reduction target and long-term net zero goal, including support to accelerate and de-risk the required technology, noting that announced commitments by some companies to acquire new equipment in the future does not mean such equipment currently exists.”