Joint Civil Society letter to Shareholders of Drax Group PLC about the proposed acquisition of Pinnacle Renewable Energy Inc
Recommendation: Vote AGAINST the resolution to approve the acquisition of Pinnacle Renewable Energy Inc by Drax Canadian Holdings Inc an indirect wholly owned subsidiary of Drax Group PLC.
22 March, 2021
Dear Drax Shareholder,
We are reaching out to you as a shareholder of Drax Group Plc (Drax), urging you to vote against the resolution on 31 March, on the proposed acquisition of Pinnacle Renewable Energy Inc (Pinnacle).
Drax presents the acquisition as an opportunity to ‘advance Drax biomass strategy’ and ‘reinforce sustainable and growing dividend’. However, the acquisition of Pinnacle is far from sustainable as well as representing a highly risky move for Drax. If this acquisition proceeds, it is likely to pose financial and reputational risks to Drax and its shareholders. It will increase Drax’s contribution to biodiversity loss, carbon emissions and the potential for Indigenous Peoples’ land rights violations.
- Forest biomass energy and thereby the demand for internationally traded wood pellets is extremely dependent on subsidies to remain financially viable, and thus very vulnerable to policy changes. For example, in February 2021 the Dutch Parliament ruled out future subsidies for biomass – following the example of the UK, where subsidies are due to end in 2027. In Denmark, pellet imports have been falling since 2017. Given the uncertainty of biomass’ future and the growing awareness among public and policymakers that it is neither carbon neutral nor sustainable, it is too great a risk to take on a large acquisition like Pinnacle and become exposed to stranded assets.
- Opposition to biomass burning is also growing in Pinnacle’s key markets in Japan and South Korea. In December 2020, 32 Japanese and international NGOs signed a statement calling on the government not to classify biomass as renewable energy. In South Korea, a pending court case brought by 60 solar power generators and residents living near biomass power stations aims to challenge renewable energy subsidies for biomass.
- Biomass electricity provides poor value for money in comparison to cleaner forms of energy such as wind and solar power.
Voting for the acquisition of Pinnacle is also likely to lead to reputational risks for your investments.
First, a growing (and increasingly well-recognized) body of scientific evidence shows that biomass electricity accelerates climate change, is not carbon neutral and is in fact often worse for the climate than burning fossil fuels. Since the publication of the investors’ briefing Risky Biomass Business in 2019, several further statements have been made by scientists warning policy makers against further reliance on biomass to decarbonise electricity supplies. See for example the European Academies Science Advisory Council’s call for a change in climate accounting rules in 2020, and this letter from 500 scientists to world leaders in February this year. Just last week, Jean Pascal van Ypersele, Professor of Environmental Sciences and a former UN vice chair, called on the United Kingdom to review policies on burning wood for energy, because they are contradictory to the Paris Climate Agreement.
Second, Pinnacle uses wood from one of the one of the most climate-critical forests on the planet – boreal and temperate forests in Canada – to make pellets. This forest has been home to Indigenous peoples for millennia and is a breeding site for more than three billion North American birds and the home of many endangered animals – including the Boreal Caribou. It is also a critical tool in the fight against climate change: more than 300 billion tons of carbon is stored within the forest’s trees and peatland – the equivalent of 36 years’ worth of world fossil fuel emissions. When the forest is logged, it emits this previously stored and sequestered carbon – which Canada does not fully account for nor regulat
To make matters worse, in British Columbia, where the Canadian wood pellet export industry is concentrating, investigations have shown that Pinnacle obtains wood for its pellets using harmful practices such as clearcutting and logging whole trees from primary forests. Additionally, Stand.earth’s analysis of all Pinnacle facilities in BC shows that Pinnacle is very likely sourcing wood from threatened species habitat in the Inland Temperate Rainforest. This is clearly not in line with Drax’s claim to only source sustainable biomass and would link Drax to the irreparable loss of critical carbon-dense Canadian old growth forests.
Drax names Earthworm Foundation as the partner it will work with to ensure that biomass from Pinnacle is sustainably sourced. However, Earthworm has been working with companies such as Enviva who regularly sources mature whole hardwood trees from the clearcutting of highly biodiverse and carbon rich forests in the South East USA. This type of self-reporting on sustainability is not sufficient to ensure that forests are not being damaged, which is not in Earthworm’s control in any case.
Community concerns about Pinnacle pellet plants
Communities living near the Pinnacle pellet plants in Canada have frequently expressed concerns about the company’s activities. Protests range from complaints about noise and air pollution, to concerns about the use of whole logs at the pellet plants and threats to the Boreal forest. The forest is also home to more than 600 Indigenous communities, many of whose cultural identities are entwined with the forest. Widespread logging in the boreal for biomass threatens many Indigenous Peoples’ cultures, livelihoods, and relationships to the land, some of whom have only a fraction of their traditional territory left intact. Becoming the owner of Pinnacle would increase reputational risks, as community protests against the pellet plants in Canada and USA are increasing.
In line with this, we remind you that in February the US state of Mississippi fined Drax USD2.5 million for material violations of its air permit. According to the final order from the Mississippi Department on Environmental Quality, Drax Amite has been exceeding volatile organic compound (VOC) limits for years, risking adverse health impacts to this rural area of southwest Mississippi. Acquiring Pinnacle, which has a poor track record of noise and air pollution management, could result in further fines.
Furthermore, fire is always a risk with processing and storing wood pellets, and Pinnacle has had serious problems with fires at its facilities; for example at Lavington (BC, Canada) in both May and September 2020, at Houston (BC, Canada) in November 2020 in which 3 people were injured, and at Entwistle (Canada) in February 2019 in which 12 people were injured and Pinnacle is facing charges from Alberta Occupational Health and Safety. Pinnacle had operating and reliability issues at Aliceville (Alabama, USA) where it had several unplanned shutdowns related to mechanical and electrical failures and to the reinforcement of safety standards.
The acquisition of Pinnacle would connect you, as a shareholder, to these severe risks and impacts.
We therefore strongly advise you to vote against this acquisition.
We would also like to invite you have a look at:
Stand.earth report (page 9 has a spatial analysis of pinnacle overlap with the Inland Temperate Rainforest and threatened caribou habitat);
Environmental Paper Network’s 2019 briefing for investors “Risky biomass business”;
NRDC’s expert blog on the proposed acquisition; and
Rachel Carson Council, “Bad business: the economic case against woody biomass as renewable energy”.
If you have any questions, please contact us. We are also happy to arrange a meeting of our experts with representatives of your organisation.
Thank you in advance for your consideration.
Conservation North – Canada
Biofuelwatch – UK/USA
Dogwood Alliance – USA
Stand.earth – Canada
ARA – Germany
BankTrack – International
BC Coalition For Forestry Reform – Canada
Centre for Sustainable Economy – USA
Climate Action Now! – Canada
Comite Schone Lucht – Netherlands
Corporate Europe Observatory – International
NOAH (Friends of the Earth Denmark) – Denmark
Dora Stewart Peachland Residents Association – Canada
Fern – Europe
FORPA Forest Protection Allies – Canada
Forum Ökologie & Papier – Germany
Friends of the Earth Scotland – UK
Friends of the Earth US – USA
Fuel Poverty Action – UK
Fund Our Future – International
Global Forest Coalition (GFC) – International
Global Justice Ecology Project – USA
Green Camel Bell – China
Leefmilieu – Netherlands
Mobilisation for the Environment (MOB) – Netherlands
No Electricity from Forests (NEFF) – Australia
Partnership for Policy Integrity (PFPI) – USA
Peachland Watershed Protection Alliance – Canada
Pivot Point – USA
Protect the Forest – Sweden
Reclaim Finance, International
ROBIN WOOD – Germany
ShareAction – UK
Silvequus Selection Systems – Canada
SOS Forêt France – France
The Corner House – UK
Tuesdays with Tillis Indivisible – USA
Wild Europe – Europe
- Please see NRDC’s briefing Drax purchase would implicate the United Kingdom in loss of Canadian forests for more details: https://www.nrdc.org/experts/elly-pepper/drax-purchase-would-implicate-united-kingdom-loss-canadian-forests