Responding to intense pressure from investors and environmental activists, BlackRock, the world’s largest asset manager, signaled in January that it would reduce investments in coal for energy generation. Other fossil fuel investments would come under scrutiny as well.
“Climate change has become a defining factor in companies’ long-term prospects,” BlackRock CEO Larry Fink wrote in his influential letter to corporate executives. “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”
For 32 environmental organisations from 17 countries, Fink’s message was encouraging but not enough. On March 23, admittedly a time when the world’s attention is consumed by Covid-19, the coalition delivered an open letter to BlackRock. It stated that burning biomass, or wood pellets, was more polluting than burning coal. Thus, the coalition asked BlackRock to divest its 5 per cent stake in UK-based Drax, operator of the world’s largest wood-burning power plant.
“Drax is really the poster child for all that’s wrong with the wood pellet industry and the wood-based biomass energy sector,” Gary Hughes, with Biofuelwatch in California, told Mongabay. Biofuelwatch organised the coalition and BlackRock letter. “We believe if we can influence what’s happening at Drax, we can move the needle on the sector globally.”
Drax, meanwhile, maintains that biomass energy is sustainable.
“I have a very, very clear view of this,” said Drax CEO Will Gardiner in an interview with Mongabay in December. “It is absolutely better to use biomass than coal. The wood pellets we use come from forest ecosystems that are regrown.”
Gardiner added that he believes Drax’s wood pellet energy production is actually beneficial to forests. “Fundamentally, we are part of a system that is helping forests to grow and prosper,” he said. “A mature forest ends up bouncing off and doesn’t capture more carbon. A managed forest that keeps growing continues to capture more carbon.”
However, Bill Moomaw, a leading researcher on biomass energy and contributor to the UN Intergovernmental Panel on Climate Change (IPCC), refuted Gardiner’s claims.
“Mature trees do not stop absorbing carbon,” he told Mongabay in December. “It’s just the opposite. Carbon sequestration actually accelerates as a tree grows older. ‘Managed forests’ is usually code for trees farms full of longleaf pine that are cut [down] frequently and absorb a lot less carbon than mature forests.
“From an emissions standpoint, the UK would be better off burning coal and leaving those trees standing as long as possible.”
Efforts to reach BlackRock for comment were unsuccessful. Michelle Edkins, head of responsible investing for BlackRock and recipient of the open letter, has not responded to the coalition. The company has ignored previous entreaties from environmentalists to be briefed on biomass-for-energy.
Hughes said he that understands the firm, which manages $7 trillion in global assets and is Drax’s third-largest investor, is immersed in the coronavirus pandemic; the Federal Reserve has requested BlackRock’s assistance in US economic stimulus efforts. But the environmentalists agreed to send the letter now and follow up later.
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From an emissions standpoint, the UK would be better off burning coal and leaving those trees standing as long as possible.
Bill Moomaw, researcher on biomass energy and contributor to the UN Intergovernmental Panel on Climate Change (IPCC)
Forests in the crosshairs
Regardless of the timing, the coalition emphasises that much is at stake in raising awareness that burning wood pellets instead of coal is not a climate mitigation solution, as the biomass industry asserts. Instead, critics say it produces tonnes of carbon emissions while leveling old-growth and managed forests in the US Southeast and Eastern Europe needed for carbon sequestration, biodiversity protection and resiliency from increasingly intense storms and flooding.
And because biomass was designated a renewable energy source in the 1997 Kyoto Protocol on par with zero-emissions wind and solar energy, countries that burn wood pellets do not have to count the emissions. This gives an on-paper-only impression of carbon emissions reductions, thus putting a dent in the global effort to meet Paris Agreement emission-reduction goals to keep warming to 1.5 degree C this century over a 1900 baseline. Global temperatures have already risen 1 degree C over the past 120 years.
The Kyoto loophole came with the belief that as long as a new tree was planted for each tree harvested, the emissions from burning wood pellets would be neutralised. A decades worth of research has shown that carbon neutrality, even if enough trees are replanted, takes 50 to 100 years.
Meanwhile, the United Nations warns that aggressive decarbonisation globally must take place within 10 years to slow the accelerating rate of global warming and the havoc it’s causing through rising sea levels, drought, wild fires, ocean acidification and mass migration.
Although converting coal-fired power plants to wood pellets is growing across the European Union, Japan and South Korea, Drax stands out. According to Biofuelwatch, Drax burned more than 7 million tonnes of pellets in 2018, which required the harvesting of more than 16 million tonnes of wood.
While Drax reports that biomass produces 5 per cent of UK’s energy supply, environmental groups such as Biofuelwatch estimate Drax’s biomass energy production as high as 10 percent. Either way, the UK is not required to report any of those emissions, thus skewing the accuracy of carbon accounting at the time when climate scientists stress that carbon emissions need to decrease dramatically to slow the rate of global warming, and not just on paper.
Martin Luiga with Estonian Forest Aid is a signee of the letter to BlackRock. He told Mongabay that biodiversity-rich, old-growth Estonian forests are being clear cut for wood pellets bound for the EU and UK.
“More than half of the wood that is being harvested in Estonia is being used for biomass,” Luiga said. “Yearly, we are losing about 50,000 hectares (123,500 acres, or five times the size of Manhattan). The logging intensity of our forests is currently 2 per cent per year, which is twice the logging intensity of Brazilian rain forests.”
BlackRock challenges
According to financial services firm Morningstar, BlackRock increased its investments in co-called ESG funds (environment, social, governance) to $17.6 billion in 2019, up from $2.8 billion in 2015. That amount is dwarfed by the $87 billion BlackRock retained in 2019 in investments related to fossil fuels. And it’s not alone: Vanguard has about $161 billion in fossil-fuel investments; State Street US has $38 billion.
BlackRock’s Fink noted in January that along with moving away from coal investments, the firm would step up efforts to create sustainability investment portfolios while launching new investments that screen out fossil fuel companies.
Market analysts say further BackRock fossil fuel-divestment actions could be complicated by investments largely held in large, bundled index funds. To surgically remove individual oil or gas companies from an established index would be difficult at best, analysts say.
Rita Frost, campaign coordinator for North Carolina-based Dogwood Alliance, a forest protection group, says the coalition effort is timely just the same and climate action cannot be ignored even under the specter of Covid-19.
“After the pandemic is over, there is not going to be a return to normal; there can’t be,” Frost told Mongabay. “This applies to BlackRock and other major investors. Going back to business as usual is not an option. We cannot ignore the role that forests play in climate mitigation. We need our forests to grow older, longer, bigger to hold more carbon. We can’t just keep clear cutting them for paper, pulp and biomass.”
This story was published with permission from Mongabay.com.
