In the BHP Climate Change Report 2020, we describe our latest portfolio analysis, including four scenarios: Central Energy View and Lower Carbon View which we use as inputs to our planning cases; a non-linear, higher temperature Climate Crisis scenario and a 1.5°C Paris-aligned scenario.
To stay within a carbon budget that keeps global warming to no more than 1.5°C, the 1.5°C scenario requires steep global annual emissions reductions, sustained for decades. This pathway to 2050 represents a major departure from today’s global trajectory. Rapid transitions would be needed across energy, land, industrial and agricultural systems. Such transitions would require substantial new investments in low emissions and negative emissions technologies, and energy and process efficiency. The Intergovernmental Panel on Climate Change report, Global warming of 1.5°C, finds that if the 1.5°C goal is to be met, investments in these technologies would need to increase by roughly a factor of six by 2050 compared to 2015 levels.
Our updated portfolio analysis demonstrates that our business can continue to thrive over the next 30 years, as the global community takes action to decarbonise, even under a Paris-aligned 1.5°C trajectory. As illustrated in the cumulative demand figure below, our modelling indicated that cumulative demand for copper, nickel and potash over the next 30 years in the 1.5°C scenario could not only exceed the last 30 years, but also our mid-planning case (Central Energy View). The modelling also showed strong cumulative demand for iron ore, metallurgical coal and natural gas and more modest demand for oil in the transition to a low carbon future over the next 30 years. Opportunities to invest in commodities such as potash, nickel and copper, and our rigorous approach to capital allocation, provide a strong foundation for our business as the world takes action to decarbonise, even for a 1.5°C world. In contrast, while the Climate Crisis scenario presents some initial upside, it ultimately results in a lower demand trajectory post-climate shock, as the world settles on a permanently lower GDP growth trajectory and rapidly decarbonises. Cumulatively, demand for most of our commodities is lower in this scenario.
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.
Transitioning the global economy over the next 30 years, on a trajectory consistent with the Paris Agreement goals, would limit potential global climate-related impacts, including physical climate change risks at our assets. This would also potentially generate significant value for our portfolio as shown in the rolling present value figure below. The need to adapt also grows as the global average temperature rises, suggesting that transitioning to a 1.5°C world could limit the costs associated with adaptation in many regions, compared to higher temperature trajectories.
The 1.5°C scenario is an attractive scenario for BHP, our shareholders and the global community. However, today’s signposts do not indicate that the appropriate measures are in place to drive decarbonisation at the pace nor scale required for the 1.5°C scenario. If we see the necessary changes in our signposts, we will adjust our planning cases accordingly. Given the long lead times for new investments, we will continue to stress test our decision-making with updated strategic themes and scenarios to understand emerging opportunities. We will also continue to advocate for actions in line with the Paris Agreement goals and seek partnerships to leverage our own investments in low emissions and negative emissions technologies and natural climate solutions, because we believe it is the right thing to do for our shareholders and our global community.