Use of carbon credits
We prioritise structural abatement of our operational GHG emissions to achieve our medium-term target and long-term goal and to fulfil our regulatory obligations. While we prioritise structural abatement, we acknowledge carbon credits are likely to be needed to offset hard-to-abate GHG emissions with limited or no technological solution and in a temporary capacity as abatement options are being studied, or to ensure compliance with local or regional GHG emission pricing schemes. We are committed to transparently disclosing the carbon credits we use towards meeting the targets and goals we have set, as well as our regulatory obligations.
We have five use cases where we may use or support the supply of carbon credits. This has been updated since FY2022 to provide more clarity and detail.
Sourcing of carbon credits
We actively participate in carbon markets to secure a long-term supply of high-integrity carbon credits through the following activities:
- We develop our portfolio to include a mix of voluntary and regulatory credits to reflect our expected demand for each carbon credit type (including to support our voluntary operational GHG emission reduction target and goal, and to fulfil our regulatory obligations).
- We consider a variety of sources for carbon credits, including (but not limited to) spot markets and project origination, both from within and outside of the area we steward.
- We undertake risk-based screening and/or due diligence designed to ensure that all carbon credits that BHP is associated with meet our stringent integrity standards, which align to global best practice for high-integrity carbon credits (including, but not limited to, the International Carbon Reduction and Offsetting Accreditation Code of Best Practice and the Integrity Council for the Voluntary Carbon Markets Core Carbon Principles).
In addition to the requirement to meet our integrity standards, we prefer carbon credits from projects that also generate non-carbon benefits (typically nature-based solutions), such as improved biodiversity and ecosystem service outcomes. Over time we expect removal carbon credits to become an increasing proportion of our carbon crediting portfolio, compared to avoidance carbon credits, as more sectors take action to make the transition to a low-carbon economy.
We contribute to efforts to address market barriers and issues with the supply and demand of carbon credits through:
- Project-seed investment: Seeking opportunities to invest to help increase the supply of high-integrity carbon credits and de-risk project investment, particularly for nature-based solutions and innovative technological solutions.
- Research and development: Funding research to establish new methodologies and trialing new financing mechanisms to stimulate carbon credit demand and improve capital allocation across the market.
- Market and policy advocacy: Advocating and partnering to generate action to address barriers to an effective and efficient global carbon market.
The anticipated impact of Australia’s Safeguard Mechanism
The Safeguard Mechanism levies a carbon price for large facilities (with Scope 1 emissions exceeding 100,000tCO2e) when their GHG emissions exceed an established baseline level. From FY2024, baselines will decline by 4.9 per cent per year to FY2030, with subsequent rates of decline after FY2030 to be set at five-year intervals. These reforms are an important component of the legislative framework needed for Australia to deliver its decarbonisation commitments under the Paris Agreement.
We anticipate needing to purchase eligible carbon credits to meet these baseline GHG emissions reductions as they continue to decline over time, particularly for our facilities with a significant share of hard-to-abate GHG emissions sources such as fugitive methane emissions from our coal mining operations. The Safeguard Mechanism will require entities exceeding their baseline to purchase carbon credits from eligible sources. These include Australian Carbon Credit Units which are offset certificates created from GHG emissions reduction or sequestration projects which meet legislated methods. Safeguard Mechanism Credits (certificates created from facilities within the scheme with GHG emissions below their baseline) may also be available. An overall GHG emissions cap legislated for the scheme will assist the Australian Government to meet Australia’s overarching GHG emissions reduction objectives.