Multibillion dollar federal diesel rebate a perverse disincentive for Whitehaven to reduce emissions
A new report released today by CarbonBridge and Climate Energy Finance highlights that Whitehaven Coal's growth trajectory is structurally misaligned with Australia's climate legislation and emissions targets, exposing Whitehaven, its shareholders and the community to mounting climate, regulatory and financial risks.
Having put only limited material mitigation plans in place, the report finds Whitehaven faces growing exposure under the federal government's Safeguard Mechanism, especially in regard to its fugitive methane emissions exposure. The Safeguard Mechanism is designed to drive down industrial emissions from the nation's highest-polluting facilities, with Whitehaven's cumulative liabilities estimated to be up to A$221 million by 2030, largely attributable to fugitive methane emissions at its Narrabri mine in NSW and growing diesel consumption. This potential liability is expected to increase to 2035, following a review and extension of the Safeguard Mechanism next year.
These mounting liabilities are driven by Whitehaven Coal's rapid expansion, which has made it one of Australia's fastest-growing coal producers. Whitehaven lifted coal production by 60% in just two years after acquiring the Daunia and Blackwater open cut mines in QLD, reversing a multi-year decline.
With further expansions planned at Blackwater and Winchester South in QLD, and Vickery and Narrabri in NSW, the company could add tens of millions of tonnes of new coal output through the late 2020s, with some projects extending beyond 2050.
Diesel consumption has also surged following the acquisition of the QLD open-cut operations and is now one of the largest sources of Whitehaven's Scope 1 emissions. The planned expansions are expected to push diesel use higher, particularly absent large-scale electrification of heavy mining vehicles.
The report recommends Whitehaven reconsider its current project expansion plans, and urgently re-evaluate its existing emissions mitigation approaches and investments, to avoid compounding liability risks over the medium term.
This includes prioritising methane mitigation at Narribri and across the QLD operations; bringing forward electrification of haulage and mobile equipment before 2030 to displace high-emissions diesel use; expanding onsite solar generation and battery storage across its portfolio; and limiting the extent and duration of any expansion of Blackwater. The report also highlights that the broader climate risk of Whitehaven's operations far exceeds regulatory penalties. Using the NSW Treasury shadow carbon price, the report finds that the social cost of Whitehaven's Scope 1 emissions to 2030 could reach A$4.7 billion in today's dollars, excluding the global Scope 3 emissions from burning its coal. CEF and Carbon Bridge also estimate that the benefits of the existing diesel Fuel Tax Credit Scheme (FTCS) may in fact outweigh the company's Safeguard obligations, creating a perverse disincentive for Whitehaven to mitigate its largest source of Scope 1 emissions. Whitehaven is a major beneficiary of the FTCS. Our analysis estimates that it could receive over $1.1 billion in fossil fuel subsidies through this scheme between FY25-30.
CEF and Carbon Bridge therefore call on the federal government to cap the diesel Fuel Tax Credit Scheme at $50m per company per year and convert it into a Transition Tax Incentive. FTCS recipients should be required to invest any rebate above the $50m cap in decarbonisation and electrification of mining operations, or forgo this amount.
Report author Chris Wright of Carbon Bridge said:
"Whitehaven is one of the country's fastest growing coal miners and a significant contributor to royalties in both NSW and QLD. However, as regulators look to ensure that Australia's resource sector positively contributes to meeting emission reduction goals for 2030 and 2035, the company may face significant regulatory costs, and Safeguard liabilities.
These liabilities will be contingent on future production and price variables, but should provide a robust basis for significantly expanding onsite greenhouse gas mitigation across Whitehaven's portfolio, and highlight the medium term risk reduction opportunities of early, onsite ambition."
Report co-author Matt Pollard, net zero transformation analyst at Climate Energy Finance, said:
"Whitehaven's corporate model and long-term growth strategy is increasingly at odds with Australia's emissions reductions objectives and legislated climate targets, as well as the long-term decarbonisation transformations of Australia's largest fossil fuel export markets.
The global energy transformation, led by China's world leading deployment and manufacture of ultra low-cost clean energy technologies, has fundamentally shifted the value proposition for legacy fossil fuel producers. Across Whitehaven's portfolio, unit costs have risen 88% from FY21 to FY25, with both thermal coal and metallurgical coal prices trading at similar levels now as they were in FY21. From their highs in 2022, metallurgical coal prices have fallen 65%, whilst thermal coal prices have plummeted 75%, reverting back to their longer-term means.
As this report demonstrates, the Safeguard Mechanism has shifted climate-related transition risks from a peripheral consideration to a core determinant of asset viability, capital allocation, and regulatory exposure. With tightening market dynamics, Safeguard liabilities will have a significant impact on Whitehaven, and must be an impetus to reevaluate emissions management and mitigation investments by its shareholders."
