Sustainability website / Environment / Climate change

Policy and approach

Policy and approach / Reporting and engagement / Performance and goals / Role of coal / Physical risks of climate change

We recognise that climate change is a reality that presents global social, economic and environmental risks and requires a global response. The future impacts of climate change, including increased regulation, higher energy costs and physical risks, represent a material risk to the successful realisation of Xstrata’s strategy and climate change has been identified as a principal risk in the Group’s risk register (see Annual Report 2007 page 24).

Our Sustainable Development Policy sets out our commitment to reduce greenhouse gas emissions produced directly from our activities and indirectly from energy usage and to work with other organisations including governments to address climate change. We believe that regulatory certainty is required to allow the business sector to contribute effectively to combating climate change and we are committed to engaging positively with government, industry, academia and other stakeholders to help develop the policies and measures required to respond to this global challenge. The Board HSEC committee, chaired by Ian Strachan, is responsible for approving and reviewing the Group’s approach to climate change as part of Xstrata’s Sustainable Development Framework. Xstrata Coal’s position paper on climate change is available from the Xstrata website.

Climate change strategy

Following a strategic review of the Group’s response to climate change and the development of carbon intensity targets for each commodity business in 2007, climate change strategies are being further refined in 2008. All commodity businesses are focusing on the following strategic priorities:

• Energy efficiency: Improving energy efficiency at the operational level to reduce the emissions of greenhouse gases associated with our extraction, smelting and refining operations
• Low carbon energy sources: seeking opportunities to switch to low carbon sources of energy for our operations, reducing our direct and indirect emissions of greenhouse gases
• Product stewardship: Identifying opportunities across the product lifecycle to reduce the carbon footprint and contribute to reduced greenhouse gas emissions by our customers
• Adapting to climate change: Examining the potential risks and challenges for our operations presented by climate change, including prolonged drought, extreme weather events, sea level rises and higher average temperatures
• Engagement: Actively participating in partnerships with government, industry participants and others on the development of legislation, voluntary codes, industry initiatives and market mechanisms that provide the necessary degree of price stability and predictability per tonne of CO₂-equivalent (CO₂-e) that will allow industry to make long-term investment decisions and transition towards lower-carbon processes.

Xstrata Coal is the world’s largest producer of export thermal coal and a significant producer of coking coal. In addition to the above, its strategy includes:

• Methane abatement: Implementing methane drainage and flaring and installing methane-fired power stations to prevent the emission of fugitive methane during coal mining
• Clean coal technology: An important element of Xstrata Coal’s strategy is its active participation and leadership in contributing to the development of ‘clean coal’ initiatives directly and through engagement with government and industry participants.

Xstrata Alloys is also conducting feasibility studies into a co-generation project, using process gases from the ferrochrome smelting process to generate energy to be sold to Eskom, South Africa’s national energy company. These off-gases are currently flared and the project offers the potential to abate approximately up to 155,000 tonnes of CO₂-e per annum. The feasibility studies are focusing on the Lydenburg and Boshoek ferrochrome smelters and Xstrata is working in partnership with Powertech, a company specialising in the supply and installation of renewable energy heat systems. This project would constitute a clean development mechanism project as defined by the EU Emissions Trading Scheme, qualifying for carbon credits, a portion of which would be used to fund sustainable development projects in South Africa. The feasibility study is expected to be submitted to the South African government and Eskom for approval during 2008.

Reporting and engagement

Policy and approach / Reporting and engagement / Performance and goals / Role of coal / Physical risks of climate change

During 2007 a comprehensive internal review was undertaken of greenhouse gas and energy source conversion factors used in Xstrata’s online Sustainability Database, externally verified by Energetics. The review identified a number of additional sources including acetylene, limestone, perfluorocarbons, hydrofluorocarbons, waste to landfill and measured emissions from process ventilation. Regional factors for countries in which Xstrata now operates following acquisitions in 2006 and 2007 were reviewed for alignment with current regional legislation and guidelines. As a result, CO₂ emissions for 2006 were restated at 17.4 million tonnes from 15.9 million tonnes previously. We expect that our reporting methods will continue to evolve to reflect the latest research into greenhouse and energy reporting, possibly resulting in further upwards restatements of prior year emissions.

Since 2006, we have participated annually in the Carbon Disclosure Project which provides a secretariat for the world's largest institutional investor collaboration on the business implications of climate change. In 2007, all Australian operations reported on their performance through the Australian Government’s Greenhouse Challenge Plus initiative. We also report on our approach and performance in climate change to the Dow Jones Sustainability Index and were named as industry leader for the 2007-08 Index.

Through Peter Coates, Xstrata Coal participated in the Australian Prime Minister’s Emissions Trading Taskforce in 2007. This taskforce recommended the implementation of a national cap and trade emissions trading scheme for Australia that would act as a precursor to a global market-based mechanism. Peter held the position of Chief Executive Xstrata Coal until 1 January 2008 and on 1 April 2008 was appointed as Chairman Xstrata Australia. In his new role, Peter continues to advise the Xstrata Group on its engagement with government, industry and non-governmental organisations.

Xstrata Coal financially supports and participates in a range of collaborative, public-private associations to research, develop and demonstrate clean coal technologies.

Performance and goals

Policy and approach / Reporting and engagement / Performance and goals / Role of coal / Physical risks of climate change

Greenhouse gas emissions

In 2007, total greenhouse gas emissions (WBCSD Greenhouse Gas Protocol scope 1 and 2) increased by 39% year-on-year to 24.1 million tonnes, primarily driven by the inclusion of data from the acquired Falconbridge operations in 2007 (excluded in 2006). On a like-for-like basis (excluding Falconbridge in both periods), emissions rose by 18% due to increased ferrochrome and coal production and the inclusion of the Tahmoor coal acquisition from November 2007, which offset lower and stable greenhouse gas emissions from the copper and zinc operations respectively.

Carbon intensity is calculated as CO₂-e tonnes per tonne of product. The Group intensity measure is developed from site and commodity business data using a bottom-up approach. Similarly, the Group intensity target is based on targets set by the commodity businesses and weighted accordingly.

Carbon intensity per tonne of product declined by 23% in 2007 compared to the previous year, due to the inclusion of a large number of operations using hydro energy from the former Falconbridge group in 2007 and higher levels of methane capture at Xstrata Coal. This more than offset increased production from the energy-intensive Xstrata Alloys ferrochrome operations.

Xstrata’s strategy is to grow its business through value-creating major and bolt-on acquisitions and through the development of our portfolio of brownfield and greenfield organic growth projects. Consequently, we expect Xstrata’s total CO₂ equivalent emissions to increase on an absolute basis, either from the inclusion of existing operations’ carbon emissions into the Xstrata Group or due to increased or additional emissions from expansions and new operations. Our target is to reduce the carbon intensity of our business by 5% over 2005 performance by 2010. Following the major and bolt-on acquisitions in 2006 and 2007 and the identification of additional sources and revised conversion factors, the Group’s carbon intensity profile has materially changed. As a result, carbon intensity targets are under review in 2008.

Direct emissions (Scope 1)

In 2007 Xstrata’s operations emitted 15 million tonnes of CO₂ equivalents directly (WBCSD Greenhouse Gas Protocol scope 1 emissions) with 42% of emissions arising from Xstrata Coal operations. Xstrata’s primary source of direct emissions is from fugitive methane released during coal mining from decayed organic matter in rock strata. Other major sources of direct emissions include reductants such as anthracite and carbon used in the ferrochrome smelting process and waste to landfill. In 2007, ferrochrome production markedly increased compared to the previous year, contributing to a 36% increase in CO₂ emissions from reductants year-on-year.

Xstrata has addressed direct emissions from fugitive methane at its coal operations by installing methane-fired power stations where possible. In 2007, methane-fired power stations mitigated the release of 677,491 CO₂-e tonnes, up from around 490,000 tonnes in 2006. Three Envirogen methane-fired power plants are in place at Xstrata Coal’s Tahmoor, Teralba and Oaky Creek operations, generating a total of 25MW annually. The capacity of the Oaky Creek power plant is being expanded in 2008 to generate 20MW per annum, increasing total power generated from methane to 31MW.

In 2007, Xstrata Coal undertook a A$15 million methane drainage scheme including a pilot drilling programme at Bulga underground mine in New South Wales. In 2008 Xstrata is committing an additional A$10 million to trial vertical wells which aim to enhance methane gas capture beyond that required for safe coal production to reduce greenhouse gas emissions further.

Indirect emissions (Scope 2)

Indirect emissions from electricity purchased from power utilities accounted for 38% of total greenhouse gas emissions. The majority of electricity purchased (61%) came from fossil fuels while 27% was from renewable energy sources, principally hydro-electric power.

Improvements in energy efficiency are given a high priority for operational management. Our initiatives in this area are outlined in the Energy section.

Scope 3 emissions

Scope 3 emissions occur as a consequence of Xstrata’s activities but from sources not owned or controlled by the company. The most significant source of scope 3 emissions is from the combustion of coal produced by the Group. In 2007, approximately 196 million tonnes of CO₂-e were associated with the combustion of our coal products, compared to 180 million tonnes in 2006. Xstrata Coal’s products are separated into coking and thermal coal, washed and unwashed and emissions are calculated using factors provided by the Australian Greenhouse Office. As conversion factors are not available for product mined in our South African operations, Australian New South Wales factors have been used.

Emissions from the transport of materials to and from our operations comprise the second largest source of scope 3 emissions. In 2008, Xstrata’s operations will put in place processes to enable us to estimate the emissions arising from the transport of our products. Emissions from the generation of purchased electricity are reported as part of our indirect (scope 2) emissions. Emissions from offsite landfill represented 85,719 tonnes of CO₂-e in 2007 compared to 104,939 CO₂-e tonnes in 2006 (2006 data excludes Falconbridge acquisition).

Role of coal

Policy and approach / Reporting and engagement / Performance and goals / Role of coal / Physical risks of climate change

We recognise that the future will be a carbon constrained world and believe emissions reductions from the use of coal as an energy source are necessary and achievable. Emissions from mining coal typically account for less than 5% of the total life-cycle emissions associated with thermal coal (see Direct Emissions). Around 95% of total emissions occur at the point of combustion in coal-fired power stations.

Coal provides a reliable, secure and relatively low-cost source of energy, particularly in developing nations where access to energy is fundamental to economic and social development. The industrialisation and urbanisation of two-thirds of the world’s population is likely to support strong demand for coal as a source of energy and we believe that coal will continue to play an important role in satisfying growing global energy demand in the short and medium term.

The International Energy Agency 2007 World Energy Outlook Report highlights the extent to which a forecast 50% increase in global energy demand to 2030 will be driven by the rapidly developing economies of China and India in particular. Coal remains the dominant fuel for power generation in these countries and additional capacity is being constructed at a rapid pace. Coal is forecast to provide approximately 30% of total energy demand in 2030, up from 25% currently. While the efficiency of coal-fired power generation in developing nations is expected to improve, reducing the quantity of coal required to generate a kilowatt hour of electricity, this is likely to improve coal’s competitive position relative to alternative energy sources and boost demand further. Coal also accounts for over 50% of US electricity generation. These demand growth projections underpin Xstrata’s strategy to continue to grow our thermal coal business.

‘Clean coal’ technology

Given the importance of coal-fired power generation in China, India and the US to global emissions, it is vital that a global solution is determined to tackle climate change that does not sacrifice social and economic development. Improvements in energy efficiency and the efficiency of coal-fired power stations offer enormous potential for short-term reductions in demand and emissions, together with the use of lower-carbon or renewable sources of energy. Longer term, ‘clean coal’ technology offers the most promising solution to the global problem of how to achieve deep cuts in carbon emissions without impacting social and economic development, particularly in the developing world. The European Union has projected that carbon capture and storage (CCS) technologies could reduce global emissions by about 14% by 2030.

‘Clean coal’ technology is a term used to refer to a range of different technologies to reduce or eliminate the carbon emissions associated with the combustion of coal. These can be broadly divided into two groups: technologies to capture the carbon dioxide created from coal combustion and/or significantly improve efficiency from the use of coal; and technologies to store post-capture carbon.

The development of ‘clean coal technology’ to reduce significantly or eliminate the carbon emissions from the combustion of coal also represents a key opportunity for Xstrata to increase coal’s share of the global energy mix, particularly in developed nations and the western world. Xstrata Coal is taking a leadership role in its support for the development and demonstration of a number of ‘clean coal’ technologies. These technologies could also be used to sequester carbon emissions from cement, chemical or steel production facilities in addition to power plants.

Oxy-firing

One of the most advanced projects supported by Xstrata is the $200 million Callide Oxyfuel demonstration project in Central Queensland, Australia. Xstrata Coal is a member of a consortium of Australian and Japanese industrial partners, power generating companies and researchers managing the project. Xstrata has invested A$1 million in the project directly and further funding is being made available from the COAL21 Fund, to which Xstrata is the major contributor (see ‘Relevant resources’).

The three-year feasibility and development phase was completed in April 2007 and construction of the demonstration plant is now under way. The 30MW power station is scheduled to start producing electricity in 2010 including the retro-fitting of a coal-fired boiler at Callide A with oxy-firing technology. Oxy-firing technology enables coal to be burned in a mixture of oxygen and recirculated flue gases to provide a highly concentrated stream of CO₂, suitable for carbon capture and storage or geosequestration. In addition to its near-term development profile and use in new coal-fired generation capacity, a major advantage of this technology is its ability to be retrofitted to existing coal-fired power stations.

Otway Basin Geosequestration Demonstration Project

Xstrata is a member of the Cooperative Research Centre for Greenhouse Gas Technologies (CO₂CRC), one of the world’s leading collaborative research organisations focused on carbon dioxide capture and geological sequestration. The CO₂CRC comprises participants from Australian and global industry, universities and other research bodies from Australia and New Zealand, and Australian Commonwealth, State and international government agencies.

The CO₂CRC Otway Basin project in south-west Victoria, Australia is one of the largest projects in the world to demonstrate geosequestration at a commercially significant scale. The project was launched in early April 2008, joining six other operational geosequestration demonstration projects globally. Approximately 100,000 tonnes of CO₂ will be injected and stored deep underground into a depleted natural gas field two kilometres below the surface, within the geological formation known as the Otway Basin. The project has been designed to demonstrate the technical and environmental safety of all types of geosequestration, including a comprehensive monitoring programme and its launch follows ten years of research and feasibility work. Proposals for several billion dollars worth of clean energy developments in Australia have been put forward based on CO₂CRC findings to date.

 

 

COAL21 Fund

Xstrata Coal has played a leading role in the Australian Coal Industry’s COAL21 initiative since its inception in 2003. The COAL21 partnership aims to realise the full potential of advanced technologies to reduce or eliminate greenhouse gas emissions associated with the use of coal for electricity generation. The programme is a collaborative partnership between Federal and State governments, the coal and electricity generation industries, the research community and the union movement.

Australia’s coal industry launched the COAL21 Fund in 2006 as a voluntary initiative to raise funds committed to the research, development and demonstration of clean coal technologies. In May 2007, the COAL21 Fund was expanded and will now invest over A$1 billion over the next ten years to the development and commercialisation of low emissions technologies, including carbon capture and storage, through a voluntary levy of 20 Australian cents per tonne of saleable coal. Xstrata is expected to be the largest contributor to the fund based on industry growth projections and will contribute over A$200 million over the next decade.

Projects supported through the COAL21 Fund to date include the Callide Oxy-fuel project and the new Stage 1 ZeroGen project in Queensland. Approval is also pending for funding of a post combustion capture project in New South Wales.

Integrated Gasification Combined Cycle (IGCC)

Xstrata has committed $25 million to the $1.5 billion FutureGen project in the US, with $1 million contributed to date. The FutureGen project has been designed to develop an integrated gasification combined cycle (IGCC) plant using highly efficient, cutting-edge technologies to generate electricity while capturing and permanently storing carbon dioxide underground. The plant has been designed to generate 275MW of power, demonstrating the combination of these technologies on a commercial scale, and would also produce hydrogen and byproducts for possible use by other industries. The plant was on schedule to commence construction in 2009 and for full-scale operations to be initiated in 2012.

In December 2007, the FutureGen Alliance announced that the plant would be sited in Mattoon, Illinois. However, in February 2008, the US Department of Energy (DOE) announced it would restructure the FutureGen project and withdraw funding to switch to a strategy to support ‘multiple clean-coal power plants with advanced CCS technology’. This disappointing news calls into question the FutureGen project and Xstrata Coal is monitoring the situation closely. It is unlikely that any alternative project funded by the DOE would be able to become operational by 2012.

Physical risks of climate change

Policy and approach / Reporting and engagement / Performance and goals / Role of coal / Physical risks of climate change

In 2007 an independent study was commissioned into the potential physical impacts of climate change on our operations. The assessment evaluated all Xstrata facilities including non-managed operations (mines, smelters, refineries), all major growth projects and associated transport networks and ports (163 elements in total).

The study aimed to respond to the following questions:

• How will climate change impact Xstrata’s existing operations and projects?
• What are the key climate change threats?
• Where are the greatest climate change impacts?
• Which climate change mitigation and adaptation options should be considered?

A comprehensive range of climate change threats was evaluated through the study, which considered the relative likelihood of these threats and the vulnerability of individual sites /transport networks to each threat type. An indicative financial consequence was assigned to each threat in business interruption terms and the impact of climate changes was predicted for 2015, 2025 and 2050.

The medium to long-term nature of the threats identified led the study to focus on 2025 as the most appropriate reference time period.

The main findings of the study were presented to Xstrata’s Executive Committee and members of senior management at the Group’s annual Strategy Session in October. The analysis estimated the net present value of the total financial impact of climate change on Xstrata operations to be around 3.5%-4% of Xstrata’s present market value, assuming no mitigating action is taken.

For Xstrata’s mines and metallurgical operations, the most significant climate change threats in 2025 related to water shortage or droughts in areas such as northern Chile and some regions of Australia and flooding in areas such as north Queensland or Andean regions at high altitude. Xstrata’s Raglan operation in the Canadian arctic was also highlighted as a high-risk operation due to its reliance on permafrost for tailings storage.

Around 70% of the risk was assessed to be borne by transport networks and ports used to deliver Xstrata’s products from our operations to market. Transport networks generally present much larger ‘targets’ for extreme weather events than individual facilities. The risk arises primarily from flooding and landslides affecting transport networks and from storm surges affecting ports.

The study made a number of recommendations which are being addressed through our strategy and business planning process. These include:

• verifying design limits for existing tailings dams and criteria for new projects to incorporate long-term risk analysis (e.g. by including expectations of a potential 100-year flood or significant increases in rainfall);
• reviewing our future water supply and strategy for existing South American operations, expansions and new projects, including considering water sharing and efficiency initiatives (see Water section);
• ensuring Raglan’ continues to pursue leading research in tailings and permafrost integration;
• including the cost of carbon as a contingency item in planning for major new projects and in due diligence for potential acquisitions;
• taking into account climate change risks when transport options are being assessed for new projects;
• reviewing insurance cover;
• reviewing the implications of climate change risks in our annual reviews of site closure plans; and
• investigating alternative transport routes from sites where rail or road networks are assessed to be most at risk in the future.

At Raglan, a multi-stakeholder Climate Change Steering Committee is in place comprising Raglan representatives, academics, engineering and scientific consultants. The committee’s objectives are to review and benchmark the sustainability of the Raglan tailings disposal methodology annually, based on available scientific and global warming research and to advise the Raglan operation on best practices in the short and long term to prepare for the impacts of climate change.