How coal baron Daniel Křetínský’s EPH holding managed to masks greater than half of its carbon emissions

Within the introduction to one of many few interviews that Daniel Křetínský, the second richest particular person within the Czech Republic, gave to the Czech media this summer season, Forbes journal requested the rhetorical query: “Who’s the one that is being portrayed in some media as a coal baron and one of many greatest air polluters, though it’s not true?” The quick reply might be that Daniel Křetínský is a coal baron and one of many world’s greatest polluters, though he tries to faux it is not true. However how is it that Křetínský and his firm, Energetický a průmyslový holding (EPH), handle to maintain up the looks?

The corporate’s rigorously cultivated picture is linked to the carbon accounting it makes use of to current itself to the general public. EPH claims to be a “chief in European decarbonisation”. However in keeping with the information we have now compiled, even a conservative view of its emissions locations it among the many three dirtiest firms within the European Union. And there are not any related details to assist the declare of being a “European decarbonisation chief”.

The truth is, EPH studies lower than half of its emissions in its carbon accounting, even after we use a conservative methodology. Furthermore, our evaluation exhibits that the facility crops in EPH’s portfolio are decarbonising extra slowly than the remainder of the EU energy sector.

EPH is one in all Europe’s three high polluters

After all, it will be significant for firms to transparently report correct details about their carbon footprint for numerous causes. It’s important as a result of it impacts an organization’s public picture. It impacts its public picture, which might additionally entice or deter traders.

Investor attractiveness is, in any case, one of many fundamental explanation why firms preserve local weather accounts. On the idea of local weather accounting, they usually fee an environmental, social and governance (ESG) score. This determines the extent to which an organization is uncovered to the chance that, for instance, local weather change or the decarbonisation of the economic system might jeopardise its monetary efficiency.

Nonetheless, it’s not solely the non-public sector that’s making selections primarily based on local weather accounting; governments and public establishments are additionally more and more taking it under consideration. The European Central Financial institution, for instance, introduced final yr that it could regularly decarbonise its company bond portfolio, though it will definitely backtracked from its unique plans this yr.

However allocating accountability for greenhouse fuel emissions within the vitality sector is just not straightforward. Other than the query of whether or not emissions must be attributed to the mining firm, the gasoline transporter, the facility plant proprietor, the buyer or the entire financial system, there’s additionally the query of the best way to divide accountability among the many numerous shareholders of energy crops. Or, for instance, between those that personal the facility stations and people who function them.

There are a number of methods of allocating accountability for emissions. For now, will probably be enough to say that standard carbon accounting approaches allocate emissions both by possession or by who controls the corporate.

But it surely may also be helpful to take a look at, for instance, the entire emissions from all of the actions during which the corporate is concerned, as we could also be curious about details that standard carbon accounting strategies don’t take note of. Every of those strategies has its execs and cons, which we’ll come again to.

The underside line is that each one of them place EPH among the many high three CO2 emitters within the European Union – together with Germany’s RWE and Poland’s PGE. The precise rating throughout the high three could range relying on the strategy used.

An evaluation of knowledge from the EU Emissions Buying and selling Scheme (EU ETS) exhibits that EPH, along with German listed RWE and Polish semi-public PGE, is accountable for 1 / 4 of emissions from the vitality sector in the whole European Union. Right here we solely attribute emissions in keeping with possession, which is probably the most beneficial possibility for the three largest polluters. EPH alone is accountable for about 6% of the entire emissions of the European vitality sector, once more utilizing a beneficial method.

Because the chart exhibits, the large three’s important share is because of the truth that every of them owns a disproportionate variety of the dirtiest crops. Eight of the ten dirtiest energy stations within the European Union are owned by these firms. All eight burn lignite.

EPH co-owns three of the ten dirtiest crops. And a fourth is shut behind in eleventh place. These are the German lignite energy crops of the Lausitz-based LEAG group, which EPH owns along with the Czech funding group PPF. Collectively, these crops emitted nearly 56 megatonnes of CO2 final yr, or 7.6% of the emissions of the whole vitality sector within the European Union.

Why a lot? On the one hand, they’re actually large crops, so logically they produce extra emissions. However they’re additionally very inefficient. Lusatian energy crops emit about 4 instances as many grams of greenhouse gases per kilowatt-hour of vitality as the typical European energy plant.

The emission depth of the Lusatian energy crops can be about twice as excessive because the sources disclosed by EPH in its sustainability report. They’re so soiled that their carbon depth even exceeds the higher restrict for coal within the modelling tables of the Intergovernmental Panel on Local weather Change (IPCC).

EPH studies lower than half of its emissions

And the Lusatian energy crops merely don’t seem within the complete listing of EPH’s emissions offered within the report. The corporate discloses 23 megatonnes of greenhouse fuel emissions. Nonetheless, our evaluation exhibits that even a conservative method would attribute round 47 megatonnes of greenhouse gases to the corporate in 2022. To place it bluntly, EPH declares lower than half of its emissions.

The Greenhouse Fuel Protocol normal, some of the broadly used carbon accounting methodologies for firms, affords two primary methods to account for emissions. An organization can account for emissions primarily based on its possession stake, or primarily based on whether or not it workouts monetary or operational management over the asset.

The primary method is pretty simple, however EPH has not chosen it. Beneath the second method, the corporate information all emissions from the operations it controls in its carbon accounts. In doing so, it should additionally assess the instances the place it workouts management collectively with different entities.

If the calculation relies on monetary management and is collectively exercised by companion firms, they need to add the emissions for these belongings in keeping with their respective shares. Nonetheless, EPH has not chosen this technique both. It calculates its emissions utilizing the operational management technique, which can contain contractual preparations between the enterprise companions.

LEAG’s extremely polluting Lusatian energy crops are one such three way partnership. EPH states in its 2022 Sustainability Report that it workouts joint management over the corporate, i.e. it doesn’t make selections alone, however along with one other shareholder.

Due to this fact, if it selected the monetary management technique, it must report its share of emissions. Nonetheless, EPH states that it studies its knowledge in keeping with the operational management technique, i.e. primarily based on whether or not it may well make selections on the corporate’s operations.

For instance, EPH counts negligible emissions from the Czech cogeneration plant Plzeňská teplárenská, the place it has administration management, though it owns barely 1 / 4 of the entire. Alternatively, EPH doesn’t embrace in its complete emissions the Greenho

For instance, EPH counts negligible emissions from the Czech cogeneration plant Plzeňská teplárenská, of which it has administration management, though it owns barely 1 / 4 of the entire. Alternatively, EPH doesn’t embrace in its complete emissions the greenhouse gases emitted by LEAG, Slovenské elektrárne and the Italian gas-fired energy plant Scandale, over which it claims to have neither monetary nor operational management.

The person firms due to this fact preserve their carbon accounts separate. They report their very own emissions, however EPH itself doesn’t account for them in any respect. That is clearly a deliberate observe.

EPH appears to concentrate on this. Though the 2021 report doesn’t embrace the emissions of the Lusatian energy crops within the complete, we will at the least nonetheless discover them within the appendix “Primary LEAG figures” (on web page 315). Within the newest report, nevertheless, even this reference has been dropped.

“It actually places the corporate in a greater mild,” feedback Lia Wagner, an analyst at Urgewald, a German organisation that specialises in researching fossil gasoline firms after which offering knowledge on them to monetary establishments. The trouble to distance itself from LEAG is confirmed by the truth that, since this summer season, EPH not even lists LEAG as one of many firms in its portfolio on its web site.

The ensuing image of EPH’s emissions is due to this fact the results of the selection of carbon accounting technique. The operational technique used assigns accountability for emissions to the choice maker within the “medium time period”. Nonetheless, that is extraordinarily deceptive, significantly within the case of the Lausitz energy crops, the place the long-term horizon is essential from a local weather perspective.

LEAG and MIBRAG, which is wholly owned by EPH, are the one vitality producers in Germany planning to function lignite-fired energy crops past 2030. “LEAG and the nearly emission-free Slovenské elektrarne should not included in EPH’s sustainability report as a result of that is according to worldwide methodology,” EPH spokesman Daniel Častvaj confirmed when requested by Deník Referendum why EPH doesn’t declare the substantial quantity of emissions for which it’s really accountable.

EPH mustn’t declare it’s not accountable for LEAG’s emissions

It’s tough to evaluate from public sources whether or not EPH’s carbon accounting itself is right, at the least from a proper viewpoint, as we wouldn’t have entry to contracts between shareholders, for instance. Nonetheless, the truth that the corporate presents itself to the general public on the idea of those figures gives the look of a deliberate misrepresentation.

“Even when it’s not towards the regulation, I believe the corporate deserves criticism for this. It undoubtedly makes them look higher than they’re,” Lia Wagner from Urgewald instructed Deník Referendum.

The corporate’s exterior communication provides the clear impression that EPH has the truth is been in a number one position within the three way partnership for a very long time and is due to this fact accountable for LEAG’s operations. That is confirmed by the assertion of the opposite shareholder within the PPF Group on this yr’s half-yearly report on the corporate’s monetary efficiency.

In it, PPF says: “As of 30 June 2023, the Group’s complete shareholding in LEAG represented a 50% share in financial rights (for the reason that acquisition in 2016, the Group’s authorized efficient possession is zero, it solely has joint management over LEAG by the contractual preparations with the three way partnership companion).” PPF due to this fact considers itself to be a monetary investor solely.

Lastly, a take a look at the entry within the Industrial Register of LEAG Holding, a.s., by which EPH and PPF collectively personal nearly all of the shares, exhibits that each one members of the Board of Administrators and two of the three members of the Supervisory Board are EPH staff. Due to this fact, it’s debatable as to which precise share of the problem must be counted as EPH’s personal. Nonetheless, a zero share doesn’t mirror actuality.

Křetínský shifts its dirtiest sources to a brand new firm

The truth that Křetínský itself is conscious of that is proven by one other manoeuvre it has launched this yr. Up to now, we have now analysed the most recent out there emissions knowledge for 2022.

In October this yr, nevertheless, PPF bought 20% of its stake in LEAG for one euro to EP Vitality Transition, a brand new sister firm of EPH with the identical possession construction. The 2 firms now collectively personal a full 70% of LEAG, i.e. a controlling stake. The transaction was coincidentally reported by the enterprise day by day E15, co-owned by Daniel Křetínský.

EPH plans to regularly switch its remaining 50% stake in LEAG to EP Vitality Transitions, and ultimately additionally its lignite-fired energy plant in Schkopau, Saxony-Anhalt. Along with the facility crops, EPH can even switch its German open forged lignite mines to the brand new construction, making EPH the third largest coal mining firm within the European Union when it comes to shareholdings. As soon as once more alongside Germany’s RWE and Poland’s PGE.

On this method, a parallel company construction will allow EPH to formally divest itself of its lignite sources, which it doesn’t intend to stop mining till after 2030, the yr to which the German authorities has dedicated itself within the coalition settlement. Formally, EPH will be capable to faux that it’ll abandon coal-fired energy technology itself by 2030.

“The truth that two authorized entities have the identical house owners doesn’t imply that one is accountable for the opposite,” wrote Daniel Častvaj, spokesman for EPH, in a response to Deník Referendum on the choice to separate lignite sources. This not directly confirms the usefulness of the entire operation. With out the creation of this construction, EPH itself would have needed to consolidate the corporate and take accountability for it.

The German organisation Urgewald, talked about above, can be essential of the brand new construction. Amongst different issues, it’s involved that EP Vitality Transition is not going to have enough sources to recultivate the panorama affected by mining.

Karsten Smid, a researcher at Greenpeace’s German headquarters in Hamburg, expresses related considerations. “Recultivation would require an funding of round three to 10 billion euros. Nonetheless, it’s presently unclear whether or not the corporate has these funds,” he instructed Deník Referendum. Nonetheless, EPH spokesman Daniel Častvaj instructed Deník Referendum that “mining firms make provisions for recultivation in accordance with the related legal guidelines and laws”.

However recultivation is just not the one challenge. Even the formal separation of the dirtiest vitality sources from the remainder of the corporate raises critical questions. “EPH wants bond financing. However banks and different monetary establishments are already relying on the truth that coal has no future. The brand new accounting construction will assist the corporate look comparatively inexperienced and proceed to draw financing,” says Smid.

The plan to create a framework for elevating inexperienced finance can be talked about by EPH in its sustainability report, alongside the declare that it’ll nearly utterly part out coal-fired energy technology by the top of 2025. It’s due to this fact potential that the switch of soiled sources is meant to assist EPH meet the factors for acquiring financing from, for instance, inexperienced bonds. These have stricter local weather influence necessities than standard bonds.

EPH energy crops lag behind European pattern in decarbonisation

“EPH is a European chief in decarbonisation and the transition from coal to wash vitality,” EPH proclaimed in its presentation final yr. Even right now, the corporate sees itself as “a frontrunner within the vitality transition in Europe”. This declare was echoed, for instance, by the then editor-in-chief of Křetínský’s media outlet Information.cz. However even on this case, the corporate’s self-portrayal is at odds with actuality.

We’ve analysed the information for all energy and heating crops – lively and retired – presently owned by EPH and in contrast it with the whole vitality sector within the European Union over the past ten years. A assessment of the discount in emissions in comparison with 2013 exhibits that the facility crops during which EPH has an curiosity are following the European pattern and have lagged behind in recent times.

The corporate was 5 share factors worse off than the European energy sector final yr. We see an analogous pattern if we take the typical of the primary three years.

One would possibly ask whether or not the evaluation is biassed by the truth that we have now included all of the sources presently owned by the corporate, together with those who weren’t a part of the holding ten years in the past. In any case, EPH’s asset construction has modified past recognition over the previous ten years.

Nonetheless, the pattern is confirmed even when we take 2019 as a baseline, for the reason that energy plant portfolio has not modified a lot since then till 2022. On the idea of the out there knowledge, it’s due to this fact unattainable to conclude that EPH is main the decarbonisation of the European Union, because it claims to be.

Up to now, we have now been lenient with the largest polluters in our calculations. Nonetheless, the share method we have now used thus far doesn’t take note of who really makes the choices concerning the operation of the plant, particularly in the long run. This too is controversial, as we have now seen.

Nonetheless, can there be a justification for the duty to reveal full emissions knowledge for all operations during which firms or their house owners are concerned? Such a requirement could seem counterintuitive, as it could inevitably result in double counting of an identical emissions to a number of shareholders.

However even such an method appears completely authentic. If the acknowledged intention of local weather coverage is to part out greenhouse gas-emitting vitality sources and redirect sources in the direction of non-emitting applied sciences, the market, along with the general public sector, ought to encourage traders and shareholders to keep away from even partial possession of carbon emitting sources.

This method is kind of frequent after we think about the distribution of accountability for numerous different pathological behaviours or transgressions. Even when a number of perpetrators commit against the law collectively, every is held absolutely accountable. It’s due to this fact applicable to require that the complete local weather influence of all operations during which firms or shareholders are concerned, both by possession or operational management, be accounted for.

It’s clear from the graph that the diploma of accountability for the Lusatian energy crops that we attribute to EPH has a really important influence on the corporate’s local weather accounting. For each RWE and PGE, the reported emissions don’t differ considerably from these attributed to them beneath the share or participation technique. The instance of EPH due to this fact illustrates how vital it’s to know the complete local weather influence of firms if we need to incentivise them to maneuver quickly away from fossil fuels.

On the European degree, the position of carbon accounting is presently being debated. A brand new European directive units out guidelines for so-called non-financial reporting. Massive firms must report on the environmental and social impacts of their actions beginning in 2024. The benefit is that firms is not going to solely have to elucidate how local weather change and decarbonisation might threaten their monetary efficiency, but additionally how their enterprise itself impacts the setting and society.

Nonetheless, the just lately adopted model has moved away from obligatory reporting on emissions particularly, leaving it on a voluntary foundation. Scientists have sharply criticised the European legislators for this.

With out correct data it’s unattainable to make the precise selections, in each the private and non-private sectors. However higher data on the true local weather influence of firms is just one small piece of the puzzle.

📺 Watch Deník Referendum’s editor-in-chief Jakub Patocka’s intervention on EPH’s emssions on the European Parliament in November 2023.

Assessing the true local weather influence of EPH additionally reveals a deeper downside with our present method to remodeling society to a zero-carbon economic system. Up to now, governments have largely left the tempo and nature of the transformation to the non-public finance sector.

It’s about setting guidelines. The fundamental start line would appear to be for the European Union and its member states to determine guidelines that make ‘inventive’ carbon accounting, as practised by EPH, unattainable, and to eradicate the potential of gaining an unfair benefit by intentionally creating parallel firms into which soiled operations are transferred in order that the unique firm can compete for inexperienced subsidies and funding.

Massive polluters like EPH routinely tout their constructive environmental, social and governance rankings and entice monetary traders to purchase their bonds and finance their operations, though the truth of their local weather impacts is essentially totally different. The instance of EPH exhibits that the present method merely doesn’t result in a redirection of sources away from soiled industries in the direction of greener types of enterprise. Governments themselves must take a way more lively position in figuring out the place private and non-private sources are channelled.

METHODOLOGY

Deník Referendum has been analysing the emissions of EPH and different European firms for a number of months. The information tracks CO2 emissions and emissions of different much less important greenhouse gases, transformed into what is named CO2 equal (CO2eq).

The information on emissions from particular person energy and warmth technology crops are primarily based on the European and UK Emissions Buying and selling Scheme (EU/UK ETS) databases, with just a few exceptions. The primary is the emissions determine for the Denizli energy plant in Turkey, which comes from the RWE Sustainability Report.

One other partial exception is the determine for the Lippendorf plant, the place LEAG owns solely one of many two lively items and operates the opposite for EnBW. Nonetheless, the emissions of each items are reported collectively within the EU ETS as they’ve a standard operator (LEAG). The distinction between the collectively reported emissions and the separate unit instantly owned by LEAG is due to this fact calculated by subtracting the emissions reported in LEAG’s sustainability report from the entire of its verified emissions within the EU ETS database.

The reverse case is the Dutch Swentibold energy plant owned by RWE, whose emissions are reported by a separate entity along with different actions on the positioning. The emissions knowledge for the separate energy plant might due to this fact not be separated and added to RWE’s emissions.

Knowledge on the possession of particular person energy crops are primarily based on analysis by the impartial vitality think-tank Ember. These have been subsequently verified, particularly for RWE, PGE and EPH, and corrected for errors within the suppose tank’s analysis, primarily on account of overlooking modifications in possession. We then added the precise possession share for every useful resource owned or co-owned by one in all these three firms.

As a part of our lenient method to company carbon accounting, in monitoring complete emissions we have now not attributed emissions to firms from sources that they function however don’t personal. As a substitute, we have now attributed emissions from all these operations within the case of the participation technique within the final graph, which tracks the complete emissions of all operations during which firms take part ultimately.

In our analysis, we solely tracked emissions from energy and warmth crops. For instance, we didn’t embrace emissions from pure fuel storage amenities. These could also be included within the complete emissions reported by particular person firms. Nonetheless, they often have a negligible influence on complete emissions.

EPH, for instance, consists of emissions from storage and logistics in its carbon accounting, however these are solely a small fraction of the entire. Nonetheless, it’s tough to separate these from the corporate’s carbon accounting. And it’s higher for EPH to incorporate them, as this reduces the distinction between the emissions it studies and the emissions for which it’s really accountable.

To trace the decarbonisation pattern in Europe’s vitality sector over the previous decade, knowledge on complete emissions from European energy and warmth crops relies on analysis by the think-tank Ember. Their database makes it potential to extract the sectoral class of electrical energy and warmth from the listing of emissions from all actions coated by the EU ETS. This makes it potential to trace the EU-wide decarbonisation pattern of the sector and evaluate it with the emissions from EPH energy and warmth crops.

We’ve additionally used this Ember database in an analogous technique to assemble the graph exhibiting the share of the three largest emitters within the European energy sector’s emissions in 2022. Nonetheless, right here we needed to clear the information utilizing the latest knowledge within the EU ETS database.

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