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

Within the introduction to one of many few interviews that Daniel Křetínský, the second richest individual within the Czech Republic, gave to the Czech media this summer time, 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 isn’t true?” The brief reply might be that Daniel Křetínský is a coal baron and one of many world’s greatest polluters, though he tries to fake 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 fastidiously 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 response to the information we’ve got 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”.

In reality, EPH experiences lower than half of its emissions in its carbon accounting, even once we use a conservative methodology. Furthermore, our evaluation reveals that the facility vegetation 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

In fact, it will be significant for firms to transparently report correct details about their carbon footprint for a variety of 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 buyers.

Investor attractiveness is, in spite of everything, one of many principal the explanation why firms hold 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 financial system might jeopardise its monetary efficiency.

Nonetheless, it isn’t solely the personal sector that’s making selections based mostly 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 12 months that it will step by step decarbonise its company bond portfolio, though it will definitely backtracked from its authentic plans this 12 months.

However allocating accountability for greenhouse fuel emissions within the vitality sector isn’t straightforward. Other than the query of whether or not emissions ought to be attributed to the mining firm, the gasoline transporter, the facility plant proprietor, the patron or the entire financial system, there’s additionally the query of methods to divide accountability among the many numerous shareholders of energy vegetation. 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.

Nevertheless it can be helpful to take a look at, for instance, the whole emissions from all of the actions through which the corporate is concerned, as we could also be concerned about details that standard carbon accounting strategies don’t keep in mind. 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 inside the high three might fluctuate relying on the strategy used.

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

Because the chart reveals, the large three’s vital share is because of the truth that every of them owns a disproportionate variety of the dirtiest vegetation. 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 vegetation. And a fourth is shut behind in eleventh place. These are the German lignite energy vegetation of the Lausitz-based LEAG group, which EPH owns along with the Czech funding group PPF. Collectively, these vegetation emitted nearly 56 megatonnes of CO2 final 12 months, or 7.6% of the emissions of your entire vitality sector within the European Union.

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

The emission depth of the Lusatian energy vegetation can also 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 experiences lower than half of its emissions

And the Lusatian energy vegetation merely don’t seem within the complete record of EPH’s emissions introduced within the report. The corporate discloses 23 megatonnes of greenhouse fuel emissions. Nonetheless, our evaluation reveals that even a conservative strategy 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 customary, some of the extensively used carbon accounting methodologies for firms, affords two fundamental methods to account for emissions. An organization can account for emissions based mostly on its possession stake, or based mostly on whether or not it workout routines monetary or operational management over the asset.

The primary strategy is pretty easy, however EPH has not chosen it. Below the second strategy, the corporate information all emissions from the operations it controls in its carbon accounts. In doing so, it should additionally assess the circumstances the place it workout routines management collectively with different entities.

If the calculation is predicated on monetary management and is collectively exercised by associate firms, they need to add the emissions for these belongings in response to 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 vegetation are one such three way partnership. EPH states in its 2022 Sustainability Report that it workout routines 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 experiences its information in response to the operational management technique, i.e. based mostly on whether or not it might probably 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 whole. Then again, 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 whole. Then again, 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 subsequently hold 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 follow.

EPH appears to concentrate on this. Though the 2021 report doesn’t embrace the emissions of the Lusatian energy vegetation within the complete, we will no less than nonetheless discover them within the appendix “Principal 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 gentle,” feedback Lia Wagner, an analyst at Urgewald, a German organisation that specialises in researching fossil gasoline firms after which offering information on them to monetary establishments. The trouble to distance itself from LEAG is confirmed by the truth that, since this summer time, EPH now not even lists LEAG as one of many firms in its portfolio on its web site.

The ensuing image of EPH’s emissions is subsequently 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 vegetation, 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 vegetation past 2030. “LEAG and the just about emission-free Slovenské elektrarne aren’t included in EPH’s sustainability report as a result of that is in keeping with 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 truly accountable.

EPH mustn’t declare it isn’t answerable for LEAG’s emissions

It’s troublesome to evaluate from public sources whether or not EPH’s carbon accounting itself is appropriate, no less than from a proper viewpoint, as we shouldn’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 isn’t in opposition to the regulation, I believe the corporate deserves criticism for this. It undoubtedly makes them look higher than they’re,” Lia Wagner from Urgewald informed Deník Referendum.

The corporate’s exterior communication offers 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 subsequently answerable for LEAG’s operations. That is confirmed by the assertion of the opposite shareholder within the PPF Group on this 12 months’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 (because the acquisition in 2016, the Group’s authorized efficient possession is zero, it solely has joint management over LEAG by way of the contractual preparations with the three way partnership associate).” PPF subsequently considers itself to be a monetary investor solely.

Lastly, a have a look at the entry within the Business Register of LEAG Holding, a.s., by way of which EPH and PPF collectively personal nearly all of the shares, reveals 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 actual share of the problem ought to be counted as EPH’s personal. Nonetheless, a zero share doesn’t replicate actuality.

Křetínský shifts its dirtiest assets to a brand new firm

The truth that Křetínský itself is conscious of that is proven by one other manoeuvre it has launched this 12 months. Thus far, we’ve got analysed the most recent obtainable emissions information for 2022.

In October this 12 months, 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 each day E15, co-owned by Daniel Křetínský.

EPH plans to step by step 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 vegetation, 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 by way of 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 assets, which it doesn’t intend to stop mining till after 2030, the 12 months to which the German authorities has dedicated itself within the coalition settlement. Formally, EPH will be capable of fake that it’s going to abandon coal-fired energy era itself by 2030.

“The truth that two authorized entities have the identical house owners doesn’t imply that one is answerable for the opposite,” wrote Daniel Častvaj, spokesman for EPH, in a response to Deník Referendum on the choice to separate lignite assets. 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 also be important of the brand new construction. Amongst different issues, it’s involved that EP Vitality Transition won’t have enough assets 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 at present unclear whether or not the corporate has these funds,” he informed Deník Referendum. Nonetheless, EPH spokesman Daniel Častvaj informed Deník Referendum that “mining firms make provisions for recultivation in accordance with the related legal guidelines and rules”.

However recultivation isn’t the one concern. Even the formal separation of the dirtiest vitality sources from the remainder of the corporate raises severe 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 also be talked about by EPH in its sustainability report, alongside the declare that it’s going to nearly fully section out coal-fired energy era by the tip of 2025. It’s subsequently potential that the switch of soiled assets 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 vegetation lag behind European development in decarbonisation

“EPH is a European chief in decarbonisation and the transition from coal to wash vitality,” EPH proclaimed in its presentation final 12 months. Even at the moment, 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 Data.cz. However even on this case, the corporate’s self-portrayal is at odds with actuality.

We’ve got analysed the information for all energy and heating vegetation – lively and retired – at present owned by EPH and in contrast it with your entire vitality sector within the European Union during the last ten years. A evaluation of the discount in emissions in comparison with 2013 reveals that the facility vegetation through which EPH has an curiosity are following the European development and have lagged behind in recent times.

The corporate was 5 proportion factors worse off than the European energy sector final 12 months. We see the same development if we take the common of the primary three years.

One would possibly ask whether or not the evaluation is biassed by the truth that we’ve got included all of the assets at present owned by the corporate, together with those who weren’t a part of the holding ten years in the past. In spite of everything, EPH’s asset construction has modified past recognition over the previous ten years.

Nonetheless, the development is confirmed even when we take 2019 as a baseline, because the energy plant portfolio has not modified a lot since then till 2022. On the idea of the obtainable information, it’s subsequently unimaginable to conclude that EPH is main the decarbonisation of the European Union, because it claims to be.

Up to now, we’ve got been lenient with the largest polluters in our calculations. Nonetheless, the share strategy we’ve got used to this point doesn’t keep in mind who truly makes the choices concerning the operation of the plant, particularly in the long run. This too is controversial, as we’ve got seen.

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

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

This strategy is kind of frequent once we take into account 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 subsequently applicable to require that the total local weather influence of all operations through which firms or shareholders are concerned, both by way of possession or operational management, be accounted for.

It’s clear from the graph that the diploma of accountability for the Lusatian energy vegetation that we attribute to EPH has a really vital 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 subsequently illustrates how essential it’s to know the total 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 at present being debated. A brand new European directive units out guidelines for so-called non-financial reporting. Giant firms should report on the environmental and social impacts of their actions beginning in 2024. The benefit is that firms won’t solely have to elucidate how local weather change and decarbonisation might threaten their monetary efficiency, but in addition how their enterprise itself impacts the setting and society.

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

With out correct info it’s unimaginable to make the proper selections, in each the private and non-private sectors. However higher info 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 drawback with our present strategy to reworking society to a zero-carbon financial system. Thus far, governments have largely left the tempo and nature of the transformation to the personal finance sector.

It’s about setting guidelines. The fundamental place to begin would appear to be for the European Union and its member states to determine guidelines that make ‘artistic’ carbon accounting, as practised by EPH, unimaginable, and to remove the opportunity 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.

Huge polluters like EPH routinely tout their constructive environmental, social and governance scores and entice monetary buyers to purchase their bonds and finance their operations, though the fact of their local weather impacts is essentially completely different. The instance of EPH reveals that the present strategy merely doesn’t result in a redirection of assets away from soiled industries in the direction of greener types of enterprise. Governments themselves have to take a way more lively position in figuring out the place private and non-private assets are channelled.

METHODOLOGY

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

The info on emissions from particular person energy and warmth era vegetation are based mostly 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 typical operator (LEAG). The distinction between the collectively reported emissions and the separate unit immediately owned by LEAG is subsequently calculated by subtracting the emissions reported in LEAG’s sustainability report from the whole 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 information for the separate energy plant might subsequently not be separated and added to RWE’s emissions.

Information on the possession of particular person energy vegetation are based mostly on analysis by the unbiased vitality think-tank Ember. These had been subsequently verified, particularly for RWE, PGE and EPH, and corrected for errors within the assume tank’s analysis, primarily as a result of overlooking adjustments 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 strategy to company carbon accounting, in monitoring complete emissions we’ve got not attributed emissions to firms from sources that they function however don’t personal. As an alternative, we’ve got attributed emissions from all these operations within the case of the participation technique within the final graph, which tracks the total emissions of all operations through which firms take part ultimately.

In our analysis, we solely tracked emissions from energy and warmth vegetation. 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, contains emissions from storage and logistics in its carbon accounting, however these are solely a small fraction of the whole. Nonetheless, it’s troublesome 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 experiences and the emissions for which it’s truly accountable.

To trace the decarbonisation development in Europe’s vitality sector over the previous decade, information on complete emissions from European energy and warmth vegetation is predicated on analysis by the think-tank Ember. Their database makes it potential to extract the sectoral class of electrical energy and warmth from the record of emissions from all actions lined by the EU ETS. This makes it potential to trace the EU-wide decarbonisation development of the sector and examine it with the emissions from EPH energy and warmth vegetation.

We’ve got additionally used this Ember database in the same strategy 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 information within the EU ETS database.

👉 Unique article in Deník Referendum. Printed in collaboration with VSquare.