World's Top Miners Risk $10 Billion of Earnings on Carbon Cost

Bloomberg’s Quicktake: Carbon Pricing
  • New report from CDP analyzes 11 of the world's biggest miners
  • Glencore a `clear laggard' on climate change metrics

The world’s biggest mining companies face a combined $10 billion risk to their earnings if carbon pricing tightens in the wake of crucial global climate talks in Paris starting next week, according to a report from U.K. non-profit organization CDP.

CDP, which says it advises institutional investors with assets of $95 trillion, ranked 11 companies on climate change-related metrics including disclosure of emission-reduction targets, conducting water stress-test studies and preparing for an expected tightening of carbon regulation to emerge from the United Nations climate summit.

The estimate of earnings at risk, representing about 15 percent of the total for the group, assumes the introduction of a carbon price of $50 a metric ton, a level already accounted for by some companies, it said.

Glencore Plc, the world’s biggest exporter of power-station coal, scored the worst among the companies that participated in the study, according to CDP, formerly known as the Carbon Disclosure Project.

A growing number of investors and regulators are studying the possibility that untapped deposits of oil, gas and coal -- valued at trillions of dollars globally and controlled by some of the biggest resource companies in the world -- may become stranded assets as governments adopt stricter climate change policies.

Mine Canary

“This research is a canary in the coal mine for investors” and shows that the biggest miners are “unprepared for the transition to a low-carbon economy,” James Magness, CDP’s head of investor research, said in a statement. “Although there are clear signs of progress by some companies in areas such as energy efficiency and water resilience, the sector as a whole needs to up its game.”

The miners assessed in CDP’s study were ranked A to E, with A being the highest and E the lowest, on metrics including energy efficiency, water resilience, coal exposure, carbon-cost exposure and carbon-regulation readiness. The scores were generated by responses received from the companies that participated in the study.

Vale SA and BHP Billiton Ltd. scored best in the study.

‘Clear Laggard’

“Glencore is the clear laggard on carbon-regulation readiness, due to its opposition to carbon pricing and dismissal of the concept of stranded assets,” CDP wrote in the statement. It scored poorly across all metrics except for water resilience, CDP said.

The International Council on Mining & Metals said in a statement before the release of the CDP study that some of its members had expressed concern over the methodology used, adding it would respond more fully when it had a copy of the report. Glencore officials weren’t immediately able to comment on the study, while a spokesman for the World Coal Association declined to comment.

“We work to mitigate and manage any physical impacts of climate change that we can affect,” Glencore wrote in its 2014 Sustainability Report published in April. “We openly and transparently disclose our carbon and energy footprints and participate in the CDP Climate Change program.”

BHP, the world’s biggest mining company, in September published its own research on the impact of climate change on its assets. It said it may lose almost 2 percent of the value of its assets by 2030 because of the spread of measures that put a price on pollution.

Carbon Price

BHP said that in the scenarios it’s studying, governments may put a price of $24 to $50 a ton on emissions of carbon dioxide within the next 15 years. It could hit $80 a ton in a shock scenario, which would result in a loss of almost 5 percent of BHP’s value, it said.

About 137 heads of government and state including U.S. President Barack Obama and China’s Xi Jinping will meet in Paris starting Nov. 30 for the UN talks. The two-week event, more than a year in the making, will draw at least 40,000 delegates including businessmen and celebrities such as actor Leonardo DiCaprio and Apple Inc. CEO Tim Cook.

Governments are adopting policies to cut carbon dioxide emissions and meet the 2 degrees Celsius (3.6 degrees Fahrenheit) target agreed in Copenhagen six years ago. The International Energy Agency estimates that based on current trends the world may warm 3.6 degrees by the end of the century.

Two-thirds of the world’s fossil-fuel reserves must remain unburnt to hold temperature increases below dangerous levels, researchers at University College London said in January. Half the world’s known gas reserves, one-third of the oil and 80 percent of the coal should remain in the ground and unused before 2050 to limit temperature increases to 2 degrees Celsius, UCL said.

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