Iron billionaires are in a green energy race

WHICH of Australia’s iron ore billionaires has more money invested in advancing the energy transition?

Andrew Forrest, a green evangelist who recently warned that “it’s business which will kill your children?”

Or Gina Rinehart, a Trump-supporting culture warrior who’s characterised climate science as propaganda? Believe it or not, at this point it’s neck and neck.

After muscling her way into a takeover battle for lithium developer Liontown Resources Ltd, Rinehart’s Hancock Prospecting Pty vehicle now has well over A$1.28bil invested in energy-transition materials, including a 19.9% stake in Liontown and a royalty stream from a separate lithium project.

The power division of Forrest’s Fortescue Metals Group Ltd, which he’s promised to turn into one of the world’s biggest energy companies, had assets of US$819mil at the end of June.

A global economy switching away from fossil fuels is creating some weird alliances. Climate denialists with an eye on the next big thing can still make money from supplying raw materials for the green energy revolution.

Eco-warriors worried about their bottom lines can still find it hard to turn their dreams into reality. The only constant is that, regardless of public pronouncements, the sum of dollars being deployed to clean up our power systems keeps rising.

On most issues, the political positions adopted by the two billionaires could scarcely be more different. Forrest has embraced a slew of liberal causes, including plastic pollution, modern slavery, gender and LGBTQ+ issues, as well as the energy transition.

Rinehart has been a major funder of the Institute of Public Affairs, a think tank that campaigns against climate science, progressive education, and Australia’s recent referendum on a representative body for Indigenous people.

Counting the cost

A price on carbon at European levels would wipe out the profits of almost every major miner. Both hail from Perth, the affluent capital of the mineral-rich state of Western Australia that still occasionally has the feel of a frontier mining town.

Both have old family roots in ranching and sheep farming in the Pilbara, a region of the state’s north whose rich iron ore deposits made their fortunes as China’s steel consumption boomed.

For many years, they’ve traded places as Australia’s richest person, driven by the ups and downs of their mining empires.

How could it be that the climate denialist is now duking it out with the green evangelist in energy transition spending?

One factor is that decarbonisation is hard work. Making a tonne of steel emits about as much carbon dioxide as burning a tonne of coal.

Unless Fortescue and Hancock’s customers switch to cleaner manufacturing processes that are still at the prototype stage now, it will be hard to reduce that footprint.

Much to his credit, Forrest is using his influence as founder and de facto largest shareholder in Fortescue3 to put his money where his mouth is.

The board has approved a US$6.2bil plan to reduce operational emissions to zero, without using offsets, by 2030.

A fifth of its electricity now comes from renewable sources, and it’s building solar farms, transmission lines and zero-emissions trucks, ships and mining equipment among a host of other projects, including initiatives to clean up customers’ steel mills.

“Our decision to lead during the climate crisis reflects our commitment to our shareholders,” a spokesperson said.

Once all that money has been spent, it’s likely that the value of Forrest’s transition assets will again rise above Hancock’s – assuming Rinehart doesn’t invest similar amounts in future metals.

And yet Fortescue’s emissions as a whole have been rising and will continue doing so for another three years, by its own forecast.

Operational pollution, known as Scope 1 and Scope 2 emissions, rose by half between 2018 and 2023.

Even accounting for a greater volume of production, the measure has risen about 30% over the period, from 8.2 kgs per tonne in 2018 to 10.6 kg per tonne last year.

Helped by divestments, its global peers have done a better job.

Growing pains

Fortescue’s carbon footprint is rising even as its founder preaches net-zero. Nor does the business as a whole look ready for a world putting a price on carbon.

If you divide the big miners’ net income by the combined volume of their operational and supply chain emissions, only Anglo American Plc comes up with a figure higher than the price of carbon allowances in the European Union.

Fortescue’s profits per tonne of carbon aren’t much above the far cheaper permits in its principal market, China, where steelmakers will take the first steps toward paying for their pollution from next year.

Rinehart’s path is a simpler one. Like Forrest, she’s made efforts to electrify Hancock’s vehicle fleet – simply good business at a time when the price of diesel has been running at record levels.

In staking out a position in lithium, she’s also doing the classic miner’s job of identifying a future-facing commodity and finding the best resources – a far easier task than the wholesale reworking of a multi-billion dollar supply chain that Forrest is attempting.

Billionaires typically have one eye on their legacy, and the prize being chased by Forrest is an immense one – little less than the decarbonisation of the global materials industry.

If he succeeds, even Rinehart will end up adopting the technologies Fortescue is now pioneering.

Still, the challenges are enormous. Analyst ratings on Fortescue’s stock in recent months have been the worst in the company’s two-decade history, and six separate executives have cycled through the CEO and CFO roles at its metals cash cow since last August.

A previous commitment to dedicate 10% of net income to energy transition projects has been replaced by a policy that all capital spending will compete on equal terms – meaning green outlays might either increase, or decline.

The path ahead has rarely been less clear.

The world should be grateful that the force of Forrest’s personality is keeping those ambitions on track.

Until Fortescue’s emissions actually start falling, we’ll have to reserve judgement on whether he’ll succeed. — Bloomberg

David Fickling is a Bloomberg Opinion columnist covering energy and commodities. The views expressed here are the writer’s own.