Passing the buck – the rights and responsibilities of fossil fuel divestment

What happens when the ‘Big Australian’ sees the writing on the wall

By David Salt

Heard the news? BHP, one of our biggest miners (and biggest emitters), is going ‘green’! Indeed this big news from the company that once promoted itself as the ‘Big Australian’. It began selling off its coal assets a couple of years ago and now it it’s dumping its oil and gas assets. It looks like it’s getting out of fossil fuels (such a dirty business), focussing instead on its profitable iron ore and buying up potash mines (so you can grow healthier plants, potash being an essential potassium plant fertiliser).

With carbon emitting fossil fuels so on the nose, it’s great to see our big corporates finally pulling their weight…

…until you look at the detail and realise it’s just ‘business as usual’ – profits before people and smoke and mirrors with a little greenwashing to tick the corporate responsibility box.

Better do something

As everyone is now noting, our planet is suffering under climate change (this week it’s Louisiana’s turn) and our very future is increasingly uncertain. The science, now half a century strong, is being borne out and the underlying problem is the carbon emissions from how we do business.

Coal, being a dirty (carbon intense) source of energy, is particularly smelly. In recent years many sections of society (for example institutions in law, economics and science) have been trying hard to stop our use of coal and this has led to coal assets falling in value.

Companies everywhere are divesting themselves of fossil fuels but coal is particularly problematic, and even coal companies are now divesting from coal. Consider, for example, BHP’s Mt Arthur, in NSW’s Hunter Valley. Two years ago the mine was worth $2bn. Now it’s a $200m liability that BHP is struggling to off load!

Regarding its oil and gas assets, BHP is giving Woodside all of them in exchange for shares in Woodside meaning BHP shareholders will own 48% of Woodside. Which sounds like a sleight of hand to me in which BHP can claim it doesn’t own them because the assets are actually owned by BHP shareholders. This means, according to the Guardian, that shareholders will be able to sell their shares if they want to reduce their exposure to fossil fuel assets.

Meanwhile, Green groups are saying Woodside doesn’t have a good record on managing fossil fuel assets after it sold a floating oil rig, Northern Endeavour, for a nominal amount to a company that collapsed three years later without paying decommissioning costs estimated at between $200m and $1bn. Woodside claimed the sale was all above board.

Passing the buck

Which raises the big and complex issue of what is to become of all these ‘stranded’ fossil fuel assets. Will big companies simply off load them for whatever they can get and let some other hapless soul deal with the repercussions?

And does getting rid of these assets mean they’ll stop producing carbon emissions?

Political philosopher Jeremy Moss believes BHP (along with other companies) is banking the profits from their failing assets, while washing their hands of the responsibility to do something about their past and ongoing contribution to climate change. Instead of selling these assets, he says, companies should retire the assets and wear the costs.

In a recent Conversation editorial, Professor Moss reckons that if fossil fuel producers are truly serious about their climate responsibilities then two things need to happen: Fossil fuel producers should retire their mines or wells instead of selling them and they should pay for the cost of restoring mined land. Governments also need to step up to the plate and establish a national inventory of liabilities and an independent body to monitor safety of former mine and well sites.

Sounds reasonable and logical, just not doable. Based on past performance (eg, decades of climate denial and effective lobbying to prevent proactive climate policy), I think it’s safe to say the big fossil fuel miners think it’s cheaper to manipulate government than be true to their rhetoric on social responsibility.

Having said that, fossil fuel miners are now being hard hit by the divestment movement. Financial institutions around the world have adopted divestment policies aiming to end or reduce their involvement in the carbon economy and it does appear that new investments in oil, gas and coal are drying up. Which is likely why BHP is quarantining its fossil fuel assets in this joint venture with Woodside.

The non-fossil fuel BHP entity (which gave away its oil and gas assets) is no longer a target of the divestment movement and can once again access international capital. The exclusive fossil-fuel BHP/Woodside entity will carry on emitting because of the enormous injection of assets from BHP, possibly the only way it could develop given the divestment movement is depriving it of traditional forms of capital and insurance.

And then the music stops…

It’s a win-win for the corporates (and their shareholders), and a lose-lose for the planet (and its inhabitants).

Of course, one day the music will stop and the corporates betting their profits on stranded fossil fuel assets will find there’s no chair for them to sit on. The Bank for International Settlements has suggested that when this happens there could be a collapse in asset prices of fossil fuel industries that could lead to a wider economic collapse along the lines of the GFC.

What might a win-win look like? That’s a win for corporates and a win for society. Based on a realistic costing of the impacts of climate change in coming years* and being realistic about the tiny chance that the big corporates play fair (ie, be true to their social responsibility and not interfere with governmental policy), I think the best we could hope for might be governments stepping in and buying out the whole fossil fuel sector at some cut (heavily-discounted) rate based on their falling asset value.

Corporates will always pass the buck. But governments are elected to protect society. So why not accept the situation and get our governments to actually accept the buck on our behalf?

Haven’t we already spent trillions coping with the corona pandemic (and misbegotten adventures in Afghanistan). Why not draw down the debt a bit further and buy all the stranded fossil fuel assets? We can then restore the minesites (a few good jobs there, I reckon), repurpose the assets we’ve picked up to maximise their social utility (oil rigs make excellent platforms for hotels) and wear the cost?

Yes, I know this will have me labelled as a pixie in cloud cuckoo land (and a communist to boot) but do the maths yourselves. The cost to us of buying these stranded assets versus the cost of allowing them to continue functioning (ie, destroying the planet after taking out the economy) surely makes it a rational thing to do.

*There are many robust estimates of the cost of climate change in the coming years from many respected institutions. They are all scary and they have all been ignored by the Australian Government. Here’s one:
Lack of climate action over 50 years will cost Australian economy $3.4tn and 880,000 jobs

Banner image: Stranded assets? Maybe with a lick of paint they’d make nice floating hotels. (Image by Elise Aldram from Pixabay)

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