BHP’s approach to carbon offsetting is to prioritise emission reduction projects at our operated assets, with investments in external carbon offset projects considered complementary to this ‘structural abatement’. We work with others to promote the development of carbon market mechanisms, particularly for natural climate solutions.
Although we prioritise our internal emission reduction projects, we acknowledge a role for high-quality offsets in a temporary or transitional capacity while abatement options are being studied, as well as for ‘hard to abate’ emissions with limited or no current technological solutions.
In FY2021, we retired 0.3 million carbon offsets in the form of verified carbon units equivalent to the net increase in our FY2021 operational GHG emissions from FY2020. The offsets were sourced from high-quality projects, such as the Cordillera Azul National Park REDD+ Project and the Kasigau Corridor REDD Project, (1) representing additional, permanent and otherwise unclaimed emission reductions from activities designed to avoid contributing to social or environmental harms. For more information, see ‘BHP’s use of carbon offsets in FY2021’ below.
(1) REDD and REDD+ are United Nations programs for reducing GHG emissions from deforestation and forest degradation.
Natural climate solutions
Investing in natural ecosystems is a cost-effective and immediately available solution to mitigate climate change that often provides sustainability co-benefits, such as biodiversity conservation, improved water quality or support for local communities. We work to support the development of market mechanisms that channel private sector finance into projects that increase carbon storage or avoid GHG emissions through conservation, restoration and improved management of terrestrial landscapes, wetlands and coastal and marine ecosystems (e.g. mangroves, tidal marshes, seagrasses and seaweed, generally referred to as ‘blue’ carbon ecosystems). We focus on project support, governance, knowledge and innovation, and market stimulation for carbon credits generated by these projects.
BHP’s use of carbon offsets in FY2021
The BHP Climate Change Report 2020 describes our carbon offset strategy, which recognises the role we expect offsets will play in meeting our emission reduction commitments. Our approach is to prioritise emission reduction projects at our operated assets, with investments in carbon offset projects considered as external emissions reductions or removals complementary to this ‘structural abatement’.
In FY2021, our operational GHG emissions (Scope 1 and 2 from our operated assets) were 16.2 MtCO2-e, compared with 15.9 MtCO2-e (1) in FY2020. As a result of actions taken in FY2020 and FY2021, particularly securing the supply of renewable energy at some operations, our forecasted operational GHG emissions are currently tracking in line with our FY2030 target (see Progress on decarbonisation).
Although we prioritise emission reduction projects, we acknowledge a role for high-quality offsets in a temporary or transitional capacity while abatement options are being studied, as well as for ‘hard to abate’ emissions with limited or no current technological solutions. In this context, we have taken the decision to retire 0.3 million high-quality carbon offsets in FY2021 equivalent to the net increase in our total Scope 1 and Scope 2 emissions from FY2020 to FY2021.
This carbon offset retirement has not been integrated into our FY2021 Scope 1 and Scope 2 emissions totals used to assess performance against our operational emissions targets, as we do not intend to establish a consistent or ongoing approach to the use of carbon offsets towards delivery of these targets.(2) Instead, we may retire offsets as a viable low-cost abatement option during some reporting periods in the short term while we pursue material decarbonisation opportunities with medium to long-term implementation timeframes. For example, FY2021 is a transitional period before the decarbonisation benefits of our renewable PPAs at Queensland Coal, Nickel West and our Chilean operations at Escondida and Spence are expected to be realised in our reported GHG emissions.
Details of the carbon offsets we have retired are presented in Table 1 below.
(1) The FY2020 Annual Report originally reported figure of 15.8 MtCO2 -e has been restated due to minor amendments as part of the annual reconciliation process for Australian regulatory reporting purposes.
(2) We have instead calculated an additional operational GHG emissions total for the FY2021 reporting year including contributions from the retirement of a quantity of carbon offsets. See ‘Operational GHG emissions and energy consumption’ in the Operational decarbonisation section.
The quality of our carbon offsets
Carbon offsets have attracted scrutiny over past decades due to varying perceptions regarding their integrity, sometimes referred to as the ‘quality’ of the carbon offset. The quality of a carbon offset has two main components: it must represent at least one metric tonne of additional, permanent, and otherwise unclaimed CO2-e emission reductions or removals and it should come from activities that do not contribute to social or environmental harms. BHP applies the following quality criteria in the purchase of voluntary carbon offsets.
GHG emissions reductions are additional if they would not have occurred in the absence of a market for carbon offset credits. If the reductions would have happened anyway, without any prospect for project proponents to sell carbon offsets credits, then they are not considered to be additional.
This means that additionality can change over time. For example, the declining cost of cleaner technologies and increasing coverage of carbon pricing makes it more likely that renewable energy projects will be pursued even if they do not generate carbon offset credits. BHP avoids investing in carbon offsets from projects where additionality has or may soon become questionable.
Environmental and social integrity
For a project to produce high-quality offset credits, it should not contribute to social or environmental harm. Our standards for voluntary carbon offset sourcing include requirements designed to prevent acquisition of offsets from projects that are or could reasonably foreseeably be associated with adverse social and environmental impacts.
Carbon offset standards and programs generally have environmental and social safeguard policies designed to reduce the risk of detrimental effects from registered projects. Credible offset programs also require local stakeholder consultations as part of the project approval process, and that grievance mechanisms are established to address complaints about projects after implementation. Some programs require projects to actively demonstrate social and environmental co-benefits (and not just to avoid harm), as well as monitor and report on these benefits. An example is the additional certification, under the Climate, Community & Biodiversity (CCB) Standards, provided for the offsets we have retired this year (Table 1). The CCB Standards identify projects that simultaneously address climate change, support local communities and smallholders, and conserve biodiversity by applying criteria intended to ensure projects:
- identify relevant stakeholders and enable their full and effective participation
- recognise and respect customary and legal rights
- obtain free, prior and informed consent
- assess and monitor direct and indirect costs, benefits and risks
- identify and maintain high conservation values
- demonstrate net positive climate, community and biodiversity benefits
GHG reductions or removals from carbon offset projects should be permanent. If a GHG reduction or removal is ‘reversed’ (i.e. GHGs are subsequently emitted so that no net reduction occurs), then it no longer serves a compensatory function. We have set minimum standards for management of risks to permanence integrated into the methodologies and verification processes of carbon offset projects in which we invest.
In many carbon offset projects, reversals are either physically impossible or extremely unlikely: for example, where ozone-depleting substances are destroyed through physical processes like high-temperature incineration or other chemical processes. With projects that store carbon in ‘leaky’ reservoirs, however, reversal can be a risk. For example, a forestry project keeps carbon in trees and soils and adds to those carbon stores over time as the forest grows. However, if a fire burns the project’s trees, some or all of the carbon may be (re)emitted.
Most carbon offset programs have established ‘buffer reserves’ to address the risk of GHG reductions being reversed, with other financial and environmental strategies emerging to help manage these risks.
We have undertaken extensive due diligence on the projects listed in Table 1 designed to ensure that the offsets generated by these projects represent at least one metric tonne of additional, permanent and otherwise unclaimed tonnes of CO2-e emission reductions, and that they are generated from activities that do not contribute to social or environmental harms. Here, ‘otherwise unclaimed’ means that only one party, namely the party that surrenders or retires the offset, can claim the reduction of CO2 emissions, and no other party, including the party that originally generates and subsequently sells the offset, can claim that reduction potentially resulting in ‘double counting’. Our due diligence includes consideration of:
- Project proponent (owner or developer) and other key partners
- Ownership structure
- Project management
- Project governance
- Project developer capacity and track record
- Project details
- Approvals held by project
- Deforestation drivers and reduction strategies (for avoided deforestation projects only)
- Role of government in the project
- Social aspects of project
- Community details
- Land tenure
- Community engagement
- Benefit sharing mechanism
- Community development
- Biodiversity and environmental aspects of project
- Key biodiversity and environmental issues and their status
- Climate adaptation / resilience aspects
- Project approach to biodiversity and environmental conservation and management
- Carbon offset standard compliance
- Policy and legal frameworks
- Project sustainability
Table 1. Carbon Offsets Retired in FY2021