Ethical Hub: Position Paper - Climate change – Implications for different fuels

Biblical background

Hope in God’s Future was received by the 2009 Conference, adopted as a Statement of Conference in 2011 and is the main body of Methodist teaching and policy with respect to climate change. It outlines the theological approach taken on climate change and makes recommendations both for action by the Church and its members and also for continuing the prophetic witness of the Church on the subject.

Theological approach to climate change

Hope in God’s Future was produced by a joint working group in partnership with the United Reformed Church and the Baptist Union, and provides a theological context to the issues and challenges present in climate change and the appropriate Christian response to these challenges.

The report reviews the theological underpinnings of a Christian approach to the issue of climate change. It stresses the importance of maintaining our hope in God’s promises rather than despairing at the current situation. At the same time it recognises that our hope in God’s promises does not mean we can ignore our current environment in the knowledge that redemption will come or that we can avoid the responsibility that God’s gift of freedom has given to us in the hope that He will resolve all our problems.

The New Testament commandment to love our neighbours as ourselves is affirmed, along with the particular concern shown by Christ and His disciples for the poor and vulnerable. The report also notes:

  • the witness of the prophets against the oppression of the poor and needy;
  • the Covenant made after the flood “was with all creatures in every generation” and that as such we should not view the interests of those in future generations of being as any less important than our own;
  • God’s care is for all creation rather than just humanity; the injunction to ‘have dominion’ over all other creatures, is an injunction to be wise stewards of creation, not an indulgence to exploit the rest of creation for our own ends.

The report finally considers the implications of God’s coming judgement of those who fail to attend to the urgent needs of their neighbours.

“In encountering the biblical warnings about the consequences of failing to love and deal justly with those in need, it is hard to escape the conclusion that in continuing to emit carbon at rates that threaten our neighbours, present and future, human and other than human, we are bringing God’s judgement upon us. Even there we should not despair: that God judges rather than abandons us is a sign of God’s grace and continuing love for us.”

Methodist tradition, positions and actions

Historic Methodist Church positions

The Use of Money

The CFB has often used John Wesley’s sermon The Use of Money as a foundation stone with respect to ethical investment policy. Unsurprisingly, the sermon does not address the issue of anthropogenic climate change (let alone different sources of energy) directly, although some of the principles are relevant to these issues.

“We are… .to gain all we can, without hurting our neighbour. But this we may not, cannot do, if we love our neighbour as ourselves. We cannot, if we love every one as ourselves, hurt any one in his substance… .None can gain by swallowing up his neighbour’s substance, without gaining the damnation of hell!”

This focus on the need not to gain at the expense of our neighbours is reflected in modern church teaching on the environment and climate change, especially Hope in God’s Future.

Historical responses to contemporary events

Methodism has deep roots in the mining communities of Cornwall, County Durham, South Wales and Yorkshire. These roots are an important factor in driving the Methodist Church’s response to events such as the Miners’ Strike of 1984-5 (driven by a pit closure programme) and the further pit closure programme of the early 1990s. These responses can be considered as being sympathetic to the communities impacted by the closure of coal mines.

However, this should not be taken to mean either that the Methodist Church at the time had a ‘pro-coal’ stance, or that statements produced in that era reflect current Methodist policies towards pit closures. It is, though, important to acknowledge the historical responses of the Methodist Church when considering the implications of climate change for investments in the production and extraction of fuels, especially given the conflicts between regard for the global environment and possible local economic hardships.

The Methodist Conference has never commented on nuclear energy, though in 2002 the Cumbria District produced a Study Pack to help Methodists examine the different forms of energy from a practical and biblical perspective, which considered in detail the costs and advantages of nuclear energy.

Recommendations of Hope in God’s Future

The report acknowledges the great benefits of an industrialised economy, though also acknowledges the environmental costs of the history of industrialisation and calls on everyone to confess that we:

  • “are heirs to the riches of an industrialised economy that has been instrumental in causing the climatic change already placing our neighbours in peril;
  • are so addicted to the fruits of this economy that we find it hard even to want to live lives that do not threaten the future of life on planet earth; and
  • know much of the good we should do to live within sustainable boundaries, but struggle to summon the moral will to change.”

The report judges that repentance for complicity with the causes of climate change requires practical action at both the individual and corporate level. This will involve turning away from activities that produce unsustainable levels of carbon emissions.

The report further acknowledges that this repentance must be corporate and involve the Church at an institutional level as well as Christians at an individual level.

The report affirms the recommendation of the UK Government’s Committee on Climate Change that to avoid the worst impact of climate change:

  • global emissions should be cut to 50% of their current level by 2050;
  • that for the UK this would imply an 80% cut in the UK’s greenhouse gas emissions from 1990 levels by 2050;
  • recognises that the Church should seek to cut its own emissions;
  • recommends that the Church should continue its political engagement on the issue.

The report further notes that “Church policy in many areas, including the investment of church funds, will need to be reviewed in the light of this commitment”.

Subsequent Methodist actions relating to carbon footprint reduction

Following the Conference decision to adopt Hope in God’s Future, the Methodist Church has been making efforts to reduce its own carbon footprint and has encouraged churches, circuits and districts to become Eco-Congregations, Eco-Circuits or Eco-Districts. Specific actions include:

The report affirms the recommendation of the UK Government’s Committee on Climate Change that to avoid the worst impact of climate change:

  • changing the annual property returns from churches to provide the ability to monitor carbon footprints;
  • At least 65 individual churches (c. 1.5% of the total) have installed solar panels on their roofs;
  • guidelines to Circuits on appropriate manse provisions that advise using Energy Performance Certificates including a new stipulation that Circuits should “seek to provide manses to meet a minimum of a ‘C’ energy efficiency rating”.

Standing Orders provide neither guidance to individual Circuits or Churches regarding appropriate fuels for manse and church heating, nor guidance relating to appropriate fuels for vehicles in the sections on travel expenses.

Subsequent Methodist Church positions on climate change

Since the adoption of Hope in God’s Future the Methodist Church has prepared policy briefings and public statements on issues related to climate change that build on the theological underpinnings that Hope in God’s Future provides.

The Joint Public Issues Team has published three policy briefings i : two regarding the Energy Act, and one regarding fuel poverty. These re-iterate the Methodist Church’s support for the 80% cut in UK emission by 2050, support a target to decarbonise the electricity generation sector by 2030, and highlight the concern of the church for the poor.

There were 6 memorials addressed to the 2014 Conference regarding the issue of investing in fossil fuels. The replies from the Conference reaffirmed Hope in God’s Future and directed the Methodist Council to ensure that the Joint Advisory Committee on the Ethics of Investment undertook a review of the CFB Climate Change Policy with specific reference to the oil, gas and coal extraction sectors.

Policies of other churches

Churches take a variety of different positions regarding the ethical implications of fuel sources and their investment decisions. These vary by denomination and geography with few discernible patterns.

Methodist tradition

The Uniting Church in Australia (which incorporates the Methodist tradition) has long excluded companies based on exposure to uranium mining, with no differentiation between use in weapons and electricity generation. More recently it has introduced a fossil fuel policy, which precludes investment in companies ‘involved in’ mining or exporting thermal coal, as well as companies ‘involved in’ the extraction, refining and export of unconventional fossil fuels.

In 2014 the General Board of Pensions and Health Benefits of the United Methodist Church adopted new guidelines related to the extraction of thermal coal and its combustion for electricity. These guidelines preclude investments in companies for which the extraction of coal accounts for more than half of revenues. There is an exemption related to the extraction of coal in developing markets if the companies involved are rated in the top half of their peer group by ESG performance. The guidelines preclude investment in electric utilities where coal-fired power plants provide more than 75% of generation.

Anglican tradition

The Church of England is currently engaged in considering issues around fossil fuels, climate change and investment. In 2014 the Diocese of Southwark proposed a motion which was passed and called on the Church’s National Investing Bodies continually to ensure that their investment policies were aligned with the theological, moral and social priorities of the Church on climate change. In 2014 the Diocese of Oxford passed a motion calling for the Diocese to disinvest from coal and tar sands companies immediately and to disinvest from oil companies over the subsequent three years, and proposed a similar motion to General Synod which will be debated in 2015.

Other traditions

The Britain Yearly Meeting of the Society of Friends has exclusions relating to the extraction of fossil fuels, while the Joseph Rowntree Charitable Trust (a trust associated with the Quakers) avoids investments in companies which are materially involved in new generation nuclear power stations. Other churches with exclusion policies include the Anglican Province of Aotearoa, New Zealand and Polynesia, the Presbyterian Church of New Zealand, the Church of Sweden, the United Church of Christ (USA) and the World Council of Churches. The World Council of Churches policy relates solely to its own investments and not to those of its member churches.

No churches or church related charities have been identified as having exclusions relating to the combustion and/or use of fossil fuels.

Previous CFB precedents and policy

The CFB has long been concerned with the impact on the environment of the activities of the companies in the extractive industries in which it invests. However, historically the CFB has tended to focus on the impact on the local environments surrounding extraction sites, rather than the impact on the global environment from the use of what has been extracted.

Policy statement on climate change

The CFB policy on climate change (and associated position paper) considered the Church’s teaching and scientific evidence on climate change in greater detail than this report. However it noted many points pertinent to all companies as well as some points particularly pertinent to those involved in the extraction of fuels and the primary production of energy (e.g. solar, water and wind power generation). The policy notes that the evaluation of companies should consider the emissions of a company’s supply chain as well as emissions involved in the use of a company’s products.

Disclosure and reduction of emissions

One aspect of the policy is for the CFB to encourage all companies to disclose and reduce their emissions, and the intensity of those emissions relative to their activities. This applies to all industries, though particularly to those with a high level of carbon intensity. There is a further specific statement calling on companies operating in industries with high levels of greenhouse gas emissions (GHG) to invest to reduce those emissions. Extractive industries tend to have relatively high levels of emissions relating to their own operations.

Exclusions

The policy outlines two possible grounds on which investment in a company could be viewed as unacceptable. The first is that where a company has been found to be of serious concern, and that it is either unwilling to engage in dialogue or that dialogue proves ineffective. The second is:

“To consider avoiding whole areas of economic activity as unacceptable if it appears that involvement with such activities and profiting from them is contrary to the teaching of the Methodist Church.”

Target to reduce greenhouse gas emissions by 80% by 2050

The Methodist Conference, following the Hope in God’s Future report, affirmed the Church’s support for the goal of reducing the UK’s greenhouse gas emissions by 80% by 2050 to ensure that global warming is limited to 2℃. The Conference further instructed that the Church should look at means of reducing its own emissions by 80% by 2050. This would suggest that any actions that commit the UK to emitting large amounts of greenhouse gases in 2050 and thereby prevent the UK from meeting this goal could be considered contrary to the current stance of the Methodist Church.

Portfolios with measurably declining and relatively low carbon footprints

The policy committed the CFB to having portfolios with measurably declining and relatively low carbon footprints. This would suggest that companies that have very high emissions, especially compared to their sector, or whose products have very high emissions might not be acceptable investments.

Implications of climate change for the electricity generation industry

Special attention was given to the industrial sector that is the largest emitter in developed economies. A policy statement, Climate Change: Implications for the Electricity Generation Industry, was developed. It noted the need for companies to reduce their emissions and emissions intensity over time and that commissioning new coal-fired power plants in developed economies was unlikely to be consistent with the goal of reducing emissions by 80% in the UK and 50% globally. As a result of the policy, Drax and RWE were considered unacceptable and the investment in RWE was sold. Engagements were also conducted with Centrica, E.On and SSE.

Previous CFB decisions and JACEI advice

General

JACEI has been called upon to provide advice regarding the extractive industries, though most of this advice relates to the local environmental impact surrounding extraction sites, human rights issues relating to local communities and issues relating to corruption, rather than ethical considerations regarding the use of what has been extracted. The policy on extractive industries stated that companies must have ‘best in class’ policies and practices on these issues to be acceptable for investment. As a result all extractive companies are excluded unless a decision is taken positively to include one.

In November 2006, JACEI considered three mining companies: Anglo American, UK Coal and Xstrata. JACEI advised against investment in Xstrata as a result of the poor corporate governance of the company and that it did not fulfil the ‘best in class criterion’ set out in the policy on extractive industries detailed above. Concerns were also expressed about the very high proportion of coal mining (42%) and the resulting implications for climate change. Following improvements in Xstrata’s corporate governance and human rights and environmental records, JACEI advised that Xstrata was an acceptable investment in 2010. JACEI was unable to advise that UK Coal was an ethically acceptable investment without further work around fossil fuels and climate change. JACEI advised that Anglo American was an ethically acceptable investment.

Nuclear

In 1997, following the CFB’s investment in British Energy, the JACEI report to conference noted that:

“The CFB Investment Committee has given careful consideration to the acceptability of British Energy as a potential holding before participating in the flotation. The Advisory Committee concurred with the view of the CFB that nuclear power has certain environmental advantages, subject of course to the most stringent safety requirements. The Committee noted that the long term disposal of nuclear waste remains an issue, but felt that all forms of energy production have environmental drawbacks. It was also noted that this was the only type of electricity generation which recycles the fuel and fully costs the environmental impact of its activities. The Committee has consulted Church and Society who have included this issue in their public consultations, and it continues to keep the subject of British Energy under review.”

The 1999 JACEI report to conference noted that:

“A letter was received from the Uniting Church in Australia questioning the CFB’s holding of shares in WMC Corp in view of its involvement in uranium mining. The Committee felt that this was not a matter of particular ethical concern, noting the small size of the company’s exposure to uranium, and the fact that it was used only for peaceful purposes. The Committee disagreed with environmental groups who consider uranium to be an evil in itself.”

These positions were reaffirmed in the 2002 policy statement on mining and other extractive Industries.

All of these decisions were reported to the Conference through the relevant annual JACEI report.

Involvement with other bodies

The CFB has long recognised that its voice is much louder when used together with those of other investors. The CFB has been a signatory of the Carbon Disclosure Project (CDP) since its inception in 2003, and was closely involved in setting up the Institutional Investors Group on Climate Change (IIGCC) in 2001 and remains an active member.

‘Aiming for A’

The CFB has been a member of the ‘Aiming for A’ coalition since its inception. The coalition has engaged with the largest emitter companies listed in the UK with the aim of reducing their carbon emissions and improving their disclosure. As a result of this, the CFB has in 2015 co-filed resolutions at both BP and Royal Dutch Shell’s AGMs pressing the companies to make further efforts around reporting their resilience in a carbon constrained world.

Current issues regarding energy &fuels

The market for energy is a mix of global and local markets with some fuels being widely traded internationally and others not. The resource companies listed in the UK have the majority of their operations overseas, it is therefore impossible to consider the UK in isolation. The Fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC) estimates that c. 65% of global greenhouse gas emissions in 2010 were CO2 released by burning fossil fuels. The UK Government estimates that 85% ii of the UK’s greenhouse gas emissions arise from the production of energy from fossil fuels. It should be noted that the amount of carbon that can be burnt to keep atmospheric concentrations below 450ppm is absolute, and that further increases in population mean lower per-capita levels of acceptable emissions and greater per capita emissions reductions globally.

Given the level of fossil fuel reserves, a substantial proportion will need to remain unexploited in the coming decades to meet the target of limiting global warming to 2℃. The IPCC and the CCC specifically advise that large-scale de-carbonisation of the energy sector iii will be necessary by 2050. This would involve dramatic switches from the current sources of energy both in the UK and globally.

The BP Statistical Review of World Energy estimated the following primary energy mix globally in 2013:

Oil32.9%
Coal30.1%
Natural gas23.7%
Hydroelectricity6.7%
Nuclear4.4%
Other renewables2.2%

Until 2014 the proportion of global energy derived from oil had been falling in response to high oil prices. The proportion derived from coal had been increasing following high demand in Asia Pacific and that derived from other renewables had been increasing from a very low base following significant investment globally. The International Energy Agency estimates that despite only accounting for 30% of primary energy, coal accounts for 44% of energy related emissions. The emissions from oil (35%) are similar to its energy share. The emissions from natural gas (20%) are lower than its energy share, while those from nuclear and renewables (1% in total) are, unsurprisingly, much lower.

The primary energy mix in the UK in 2013 (reported in the Digest of UK Energy Statistics) was markedly different with a greater reliance on natural gas and a lesser reliance on coal:

Natural gas34.2%
Oil34.1%
Coal18.3%
Nuclear5.3%
Bioenergy4.1%
Renewables4.0%

Caveats

There are a few important caveats to the discussion that follows: these relate primarily to the possibility of carbon capture and storage, and to other uses available for fossil fuels.

Carbon capture and storage

Carbon capture and storage (CCS) has long been one of the main hopes of those seeking to limit and reduce carbon emissions. The first commercial-scale electricity generation plant equipped with CCS started operations in Canada in October 2014, building on technology previously used to inject CO2 into depleted oil fields to enhance recovery rates. The technology has yet to be widely deployed, and significant challenges remain for this to occur. Should the technology progress to the point where it is widely deployed, then much of the analysis regarding the emissions intensity of fuels will need to be amended, and concerns expressed regarding the high emissions intensity of coal and oil-sands will need to be re-examined. CCS technology is currently only operable on large-scale plants, such as electricity generation units, while much of the combustion of fossil fuels is widely dispersed and small-scale.

Other uses of fossil fuels

Fossil fuels are not solely used for energy. The two principal industrial uses are for metallurgical coal in the steel making process and oil and natural gas as feedstocks in the chemicals industry. There are not currently commercial-scale alternative means of replicating these processes without fossil fuels, which would suggest that the use of these should be viewed differently from the combustion of fossil fuels for energy.

Metallurgical coal has a different chemical composition from thermal coal, and tends to trade at a premium to thermal coal. As a result of this, metallurgical coal is very rarely used for other purposes, and the two types of coal can be considered as functionally different.

Implications for other industries

It is impossible to separate the production of energy from its use, especially as the vast majority of greenhouse gas emissions emanating from fossil fuels relate to their use rather than their extraction. Many industries are currently reliant on fossil fuels as an energy source (e.g. transport, cement, building products, glass and steelmaking). The need to decarbonise the energy sector has considerable implications for these industries, as they adapt to other fuel sources where currently possible and develop and utilise new fuel sources when needed. The practicability of substitution will be one of the factors which determines the order in which fossil fuel use is curtailed.

Any ethical judgment made on the extraction of fossil fuels, would need also to apply to these industries, given that it is the combustion of the fossil fuels which causes carbon emissions. The overwhelming majority of current economic activity, including economic development in developing countries, is dependent on the combustion of fossil fuels for energy.

Fuels

All fuels have advantages and disadvantages with respect to practicability, cost and to their implications for climate change and other ethical issues. This paper is focussed on the climate change implications of fuels, though when analysing companies all the ethical concerns regarding their activities will be considered. In the case of fuels, this involves the local environmental (including on water resources) and human rights impacts around the extraction of fossil fuels and renewable energy production sites, as well as additional safety and long term environmental concerns around nuclear energy.

The harnessing of energy (from whichever source) lies at the centre of the economic system and our current standard of living is dependent on it. Scenarios which involve considerable increases in the cost of energy are likely to have adverse impacts on standards of living and increases in the incidence of poverty compared with those which have lower costs of energy. This is both an issue within developed markets (e.g. fuel poverty) and for developing markets aspiring to the standards of living prevalent in developed markets.

The issues around the extraction of fossil fuels in developing countries are further complicated by the international trade in coal and oil (and to a lesser extent in natural gas). The fossil fuels extracted might provide both direct economic benefits to the country concerned as well as providing energy. However, they are mostly exported to developed markets and so it is difficult to view the extraction of fossil fuels in developing countries differently from that in developed countries.

Thermal coal

Thermal coal is principally used to generate electricity and heat. It is the most emissions intensive of the major fossil fuels. The greater carbon intensity relates to a larger proportion of carbon within the chemical composition of coal compared with other fossil fuels, with an average emissions intensity per unit of energy being 94kg CO2/GJ. This is then compounded by the lower thermal efficiency typically exhibited by coal-fired plant resulting in much higher emissions than for other fossil fuels.

Lignite has an emissions intensity which is c. 7% higher than that of other coal, and also typically has higher emissions of other pollutants associated with its use.

Oil

Oil is widely used as a transport fuel, a feedstock for the chemicals industry and a lubricant. Historically, it was used to generate electricity, though following the oil price shocks of the 1970s this no longer occurs on a large scale. There are currently few practicable alternatives for oil for some forms of transport (e.g. aviation or shipping). Oil has an emissions intensity per unit of energy of 78kg CO2/GJ.

The emissions embedded in the extraction of oil should be considered as well as just that involved in its combustion. Oil recovered from tar sands (sometimes also called oil sands) involves much greater use of energy in the extraction process than conventional oil. As a result of this the IEA estimates that it has an emissions intensity 20-25% greater than that of conventional oil.

Natural gas

Natural gas is principally used to generate electricity and heat, though is also used as a feedstock for the chemicals industry. There has been some progress towards using it as a fuel for the transport industry following the large increases in the oil price relative to the gas price, though this is of minor importance. Natural gas has an emissions intensity per unit of energy of 56g CO2/GJ.

Over recent years technological developments that have enabled the commercial extraction of shale gas (fracking) have become controversial. These concerns typically relate to the impact on the local environment and human rights concerns regarding local communities rather than to the emissions intensity of shale gas. Such concerns are a matter for the policy on extractive industries rather than for a policy on climate change. It is possible for companies engaged in the extraction of shale gas to operate in such a manner that it involves significant fugitive methane emissions, but it is not inherent in the process.

Biofuels

Biofuels encompass a wide variety of fuels. These are typically carbon-based, though they differ from fossil fuels in that the carbon is first absorbed from the current atmosphere before combustion. Some biofuels are crops specifically designed to be burnt (e.g. sugar based ethanol or willow crops) while others involve the burning of by-products (e.g. straw or wood offcuts). The term is also often used for natural gas (methane) obtained from landfill sites or the anaerobic digestion of organic waste, the burning of which dramatically reduces its global warming impact.

Biofuels typically are less energy intensive than fossil fuels, and can involve higher gross greenhouse gas emissions per unit of energy. The arguments in favour of biofuels assert that, with the carbon released having been absorbed from the atmosphere in the very recent past or in the present, the net greenhouse gas emissions from biofuels are significantly lower than those for fossil fuels. The arguments against biofuels note that the land from which biofuels are harvested would probably have been covered with vegetation and absorbed a similar amount of carbon irrespective of whether that vegetation was subsequently burnt for energy. There are further ethical concerns regarding implications for food security from large-scale biofuels production in some developing countries.

Nuclear

Nuclear has the advantage of very low carbon emissions per unit of energy, though it has some practical disadvantages. It is very difficult to vary the amount of energy produced, and it is difficult to deliver nuclear energy in forms other than electricity. Pumped storage plants are often developed alongside nuclear plants for this reason. There are also significant ethical concerns relating to issues other than climate change. The possibility of catastrophic incidents such as Chernobyl or Fukushima Daiichi and the safety management systems of nuclear power plants are a cause for concern, as are the systems in place for the processing and storage of radioactive waste.

Nuclear energy has high capital costs though relatively low ongoing running costs. During various periods it has been viewed as being either expensive or cheap compared to fossil fuels, though the projected costs of new-build nuclear plants in developed markets are towards the high end of the spectrum of energy costs.

Renewables

Renewable energy sources tend to have very low emissions per unit of energy, with the emissions being primarily those embedded in the construction process. Similar to nuclear, it is difficult to deliver renewable energy in forms other than electricity. Some sources of energy have the disadvantage of being intermittent (e.g. wind or solar) while others have levels of availability similar to other sources of energy (e.g. hydro or geothermal). The intermittency of wind and solar energy involve extra costs to the overall system through the need for back-up electricity generation plants and/or energy storage, though the direct costs of many renewable sources of energy have fallen significantly and are now comparable with other forms of energy.

There are concerns regarding the local environmental and human rights impacts for renewable sources of energy. These should be evaluated as they are for extractive industries.

CFB Position

The bases of the CFB’s position towards fuels are the Climate Change Position Paper and Policy Statement, which were themselves based on the Hope in God’s Future report. These made clear the need for companies to disclose and reduce their emissions, and also made clear the Methodist Church’s support for the UK government’s target of an 80% cut in CO2 emissions by 2050 (from 1990 levels). The Methodist Church has never taken a stance regarding any fuels as being per se more or less ethical. It is the greenhouse gas emissions inherent in the use of fuels, as well as any local environmental or human rights concerns regarding their extraction or use that determines the acceptability of a given fuel.

The CFB has long engaged with companies where there are serious concerns, but the concerns have not been considered sufficiently serious to warrant divestment. There is also a recognition that constructive engagement is much less likely if the CFB were no longer a shareholder.

Disclosure and reduction of emissions

The climate change policy makes clear the importance of disclosure of emissions as a first step towards reducing those emissions; disclosure in the extractives industry and primary energy sectors tends to be variable. The need for companies involved in emissions-intensive activities such as the extractive industries to reduce their own emissions also applies to these companies and the CFB would expect companies to reduce both their absolute emissions and the emissions intensity resulting from their own operations. In addition the CFB would expect that companies would reduce emissions arising from their supply chains and the use of their products, where possible.

Implications of the 80% target

The climate change policy makes clear the importance of reducing emissions, and the need for companies in energy-intensive industries to invest to reduce their levels of emissions. Such falls in the level of emissions intensity of the economy as a whole would imply dramatic changes in the composition of energy supply by 2050. The carbon budgets of the CCC and the analysis in AR5 would suggest that the continued combustion of fossil fuels for energy on the current scale in the years towards 2050 would not be consistent with the need for an 80% cut in the UK’s emissions and a 50% cut in global emissions.

The CCC estimate that from 1990 to 2013, the UK’s carbon emissions fell 25%, implying that emissions need to fall a further 73% to meet the 80% target by 2050. This would imply that emissions would need to fall 3.5% p.a. over the thirty seven year period. The policy recommendations of the CCC and the IPCC are in line with the need for sustained long term incremental cuts in carbon emissions rather than a dramatic cessation of emissions.

The high proportion of greenhouse gas emissions that comes from fossil fuel combustion for energy combined with the need to reduce overall emissions would suggest that over time fossil fuel use must reduce and also become less carbon intensive for the 80% target to be met. This would suggest that those fossil fuels that are most carbon intensive i.e. thermal coal and tar sands would be most likely to see their combustion for energy reduced early in scenarios consistent with the 80% target. Given the increasingly onerous nature of the target, and of the CCC’s carbon budgets, it is very likely that in the course of time, other fossil fuels will fall into the same category for many of their current uses. If emissions decreased less rapidly than envisaged at first, then this would imply that more rapid emissions targets would need to be made in later years.

Current operations of companies

The analysis of the Methodist Church’s positions and actions since the publication of Hope in God’s Future would suggest that the Methodist Church does not mandate that it avoids particular fuels in its own operations, or recommends to members that they avoid the use of particular fuels in their lives. This combined with the need gradually to reduce emissions would suggest that the focus of the analysis should be on the investment plans and future trajectory of a company’s emissions and those of its products rather than on its current operations. This does not override the need to have portfolios with relatively low and measurably declining carbon emissions.

Investment plans of companies

The need for the combustion of fossil fuels for energy to decline gradually over time would suggest that investment plans to expand the long-term production of such fuels would not be consistent with the need to reduce UK emissions by 80% by 2050 and global emissions by 50%. The CCC and the IPCC both look to gas as a less intensive form of energy to continue to be used well after the large scale use of coal or tar sands has come to an end. Companies with investment plans which have a significant proportion devoted to increasing oil sands or thermal coal production would not be behaving in a manner consistent with the need to reduce global emissions by 50% by 2050.

There are some companies in the extractive industries that are wholly dedicated to the exploration of new fossil fuel reserves or the facilitation of that exploration. Given that existing production assets gradually become exhausted, new reserves are not entirely inconsistent with the 80% target, but companies which are dedicated to the exploration of new reserves should be viewed more seriously than companies dedicated to the exploitation of existing reserves. Companies whose activities are the facilitation of exploration or extraction should not be viewed less seriously than those companies engaged in exploration and extraction.

For companies with a large exposure to the extraction of fossil fuels, a considered approach to the future of the company, as well as its investment plans, in scenarios which meet the goal of reducing global emissions by 50% would indicate that the company takes the issue seriously. Companies whose plans are predicated on a ‘business as usual’ approach could be viewed as not taking the issue seriously.

Portfolios with relatively low and measurably declining emissions

As part of the CFB policy on climate change the CFB has committed to having investment portfolios with relatively low and measurably declining carbon footprints. Given the very high greenhouse gas intensity of thermal coal and tar sands, it is unlikely that companies where a significant proportion of revenues or profits are derived from these activities would fit easily into a portfolio with a relatively low and measurably declining carbon footprint.

Lobbying actions

The main tool which is likely to result in the reduction of emissions intensity is global regulation. Industry has a significant input into government regulation and legislation and corporate lobbying to ensure continued investments that would not be compatible with the 80% target would be a significant concern. Companies lobby both directly and through industry groups and the activities of both should be considered. Any adverse lobbying actions of companies should also be evaluated.

Other factors to consider

The CFB has always considered companies based on an overall assessment of their activities. Any evaluation of companies producing fuels or primary energy should also cover the local environmental impacts, health & safety records and any human rights concerns around the company’s activities.

Summary

  • There is nothing inherently acceptable or unacceptable about any fuel or source of energy.
  • Fuels are to be analysed according to their impacts on climate change, and their compatibility with the CFB policy on climate change.
  • The need to reduce dramatically greenhouse gas emissions associated with the production of energy requires radical changes in the prevailing sources of energy. ‘Business as usual’ scenarios are not consistent with the 2℃ target.
  • It is likely that the use of greenhouse gas intensive forms of energy such as thermal coal and tar sands will be inconsistent with this policy well before other fossil fuels will be.
  • This suggests that companies, where a large proportion of their current and future investments are involved in the expansion of thermal coal or tar sands, are unlikely to be consistent with the CFB policy.
  • It also suggests that companies where a very significant proportion of revenues or profits come from thermal coal or tar sands are unlikely to be consistent with a portfolio with a relatively low and measurably declining carbon footprint.
  • Companies should be evaluated on other aspects of their operations, including their lobbying, health & safety, local environmental impacts and human rights records along with their impact on climate change.

References

  1. http://www.jointpublicissues.org.uk/resources/briefings/
  2. https://www.gov.uk/government/statistics/final-uk-emissions-estimates
  3. http://www.theccc.org.uk/publication/next-steps-on-electricity-market-reform-23-may-2013/

March 2015