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Climate change portfolio analysis and capital alignment

The world must undergo multiple transitions arising from commitments to reduce GHG emissions. These transitions are complex, multi-faceted and could manifest in unique ways across different regions.

Scenario analysis

Together, we believe these complex and multi-faceted transitions can mitigate the impacts of climate change. Global accords such as the Paris Agreement and subsequent government commitments suggest these transitions are likely to accelerate. However, signposts do not yet indicate appropriate measures are in place to drive decarbonisation at the pace or scale required for us to assess achieving the aims of the Paris Agreement as the most likely future outcome. However, as governments, institutions, companies and society increasingly focus on addressing climate change, the potential for a non-linear and/or more rapid transition and the subsequent impact on threats and opportunities increases. 

We utilise a range of scenarios, including our Paris-aligned 1.5°C scenario1, as inputs to our operational planning cases and when testing the resilience of our portfolio, forming strategy and making investment decisions. The energy and resources modelling from BHP’s 1.5°C scenario, which was conducted in 2020, remains consistent with the updated carbon budget released in the Working Group I report as the first part of the Intergovernmental Panel on Climate Change’s Sixth Assessment Report (AR6) in 2021.   

1 This scenario aligns with the aims of the Paris Agreement and requires steep global annual emissions reduction, sustained for decades, to stay within a 1.5°C carbon budget. 1.5°C is above pre-industrial levels. Refer to the BHP Climate Change Report 2020 available in the 'sustainability links and downloads’ section below for information about the assumptions, outputs and limitations of our 1.5°C Paris-aligned scenario.  

Capital alignment

During FY2022, we systematically integrated our 1.5°C Paris-aligned scenario into our strategy and capital allocation process to test the extent to which our capital allocation is aligned with a rapidly decarbonising global economy. Specifically, we apply our 1.5°C scenario to assess whether future demand for our products under that scenario supports ongoing capital investment. Our analysis and that of others, including the International Energy Agency, have shown that many of the commodities we currently produce are critical for the aims of the Paris Agreement to be met. 

The impact of our 1.5°C scenario on our portfolio value was assessed after the merger of our Petroleum business with Woodside Energy Group Limited and the sale of a number of our coal assets, and was reviewed against portfolio mix and major capital allocation decisions. Our portfolio value has increased under the 1.5°C scenario, consistent with the demand outcomes of the analysis published in the BHP Climate Change Report 20201, that indicated the world would need around twice as much steel, copper and potash, and four times as much nickel in the next 30 years as it did in the last 30. It also indicated a reduction in the future demand for oil and energy coal. 

Our focus for capital expenditure is now on commodities we assess as having a significant upside through the transition. Furthermore, the internal allocation of capital under our Capital Allocation Framework and all major investment decisions now require an assessment of investment viability under our Paris-aligned 1.5°C scenario.  

Our capital allocation process is structured to ensure capital expenditure plans are aligned with our FY2030 and 2050 operational emissions reduction target and goal. We expect to spend around US$4 billion on operational decarbonisation by FY2030, with plans reflecting an annual capital allocation of between approximately US$200 million and approximately US$600 million per year over the next five years. Going forward, as our climate response is further integrated into business-as-usual planning, our spending on climate initiatives is expected to become increasingly indistinguishable from normal business spending. 

1 There are inherent limitations with scenario analysis and it is difficult to predict which, if any, of the scenarios might eventuate. Scenarios do not constitute definitive outcomes for us. Scenario analysis relies on assumptions that may or may not be, or prove to be, correct and may or may not eventuate, and scenarios may be impacted by additional factors to the assumptions disclosed.

Green revenue

Green revenue is intended as a measure of the extent to which products and services contribute to the transition to a green economy.1 While these contributions will be measured on a range of important indicators (including water conservation, biodiversity or reforestation), much of the discussion about green revenue remains focused on the contribution to the transition to clean energy that is vital for climate change mitigation. We expect many of the resources we produce to be important for the energy transition. For example, the International Energy Agency’s ‘The Role of Critical Minerals in Clean Energy Transitions’ report2 highlights the critical role of copper and nickel, and BHP’s own 1.5°C scenario3 indicates the case for copper, nickel and potash could be more compelling as the world takes action to decarbonise. Iron ore also fares slightly better under our 1.5°C scenario versus certain other scenarios, as steel requirements of the energy transition are expected to be considerable. 

1 A green economy is defined by the UN Environment Programme ( as low-carbon, resource efficient and socially inclusive. In a green economy, growth in employment and income are driven by public and private investment into such economic activities, infrastructure and assets that allow reduced carbon emissions and pollution, enhanced energy and resource efficiency, and prevention of the loss of biodiversity and ecosystem services. 
2 The Role of Critical Minerals in Clean Energy Transitions – World Energy Outlook Special Report, May 2021. 
3 This scenario aligns with the aims of the Paris Agreement and requires steep global annual emissions reduction, sustained for decades, to stay within a 1.5°C carbon budget. 1.5°C is above pre-industrial levels. For more information about the assumptions, outputs and limitations of our 1.5°C Paris-aligned scenario refer to the BHP Climate Change Report 2020 available in the ‘sustainability links and downloads’ section below. 

How we think about and use carbon pricing

Our assets and markets are likely to continue to be subject to variations in regulation and levels of carbon pricing depending on location and industry. Similarly, the competitiveness of our products and the processes in which they are used will be impacted by the adoption of carbon legislation in customer countries. We utilise an explicit regulatory carbon price forecast for major BHP operational, competitor and customer countries. In determining our forecast, we consider factors such as a country’s current and announced climate policies and targets and societal factors such as public acceptance and demographics. We forecast the global range of regional carbon prices to reach between US$0-175/tCO2-e in FY2030, and US$10-250/tCO2-e in FY2050, and US$10-175/ tCO2-e in FY2030 and US$100-250/tCO2-e in FY2050 in BHP’s current major operational and market countries. 

We have incorporated regional carbon price assumptions in our planning, investment decisions and asset valuations for more than 10 years. They are used together with our operational planning cases based on the current economic outlook for asset planning, asset valuations and operational decision-making.  

Our carbon price forecasts are also used along with other qualitative and quantitative metrics, such as the outcomes of our Paris-aligned 1.5°C scenario analysis (refer to ‘Scenario analysis’ and ‘Capital alignment’ above), in our assessment of investments under the Capital Allocation Framework and to inform our portfolio strategy and investment decisions. 

Emissions intensity of production

As well as assessing commodities based on their end uses, it is important to consider the GHG emissions associated with the production of commodities in determining their role in the transition to a net zero economy. Given production of many commodities is expected to need to continue or even increase, it is critical that their production has the lowest possible associated GHG emissions and optimal performance under other sustainability indicators.  

Below we have disclosed the 2021 GHG operational emissions intensity estimates for BHP’s iron ore, metallurgical coal, copper and nickel operated assets compared to other mines. Due to the different structure of various mines to aid comparability and consistency with the Skarn Associates1 data for the non-BHP mines, we have included select Scope 3 emissions estimates for downstream transport and processing of the commodity, where appropriate. Given the commencement of renewable PPAs at Escondida and at Spence (which, together with Cerro Colorado, comprises Pampa Norte) during FY2022, we have also overlayed the FY2022 intensity of Escondida and Pampa Norte to reflect an indicative change in emissions intensity on the curve from these initiatives from FY2022 onwards. Based on this analysis, GHG emissions intensity of BHP’s operated assets is estimated to be either in the lowest quartile or the lowest half of the mines covered. As our decarbonisation strategy is executed, we expect the emissions intensity of our operated assets to further decline.





1 For more information refer to