Climate change is one of the most important global threats to our modern society. It is having permanent—and devastating—impacts on our modes of consumption and production, with significant variations across the world. Lower-income countries are already bearing disproportionate costs even though their historical contribution to global carbon flows is marginal. Effects are being felt through extreme weather conditions, such as severe droughts, intense heat waves, devastating floods, disturbances of livelihoods, threats of food insecurity, and irreversible impacts on land and water, among other things. Phenomena like El Niño will become recurrent and more acute. If global leaders—public and corporate alike—fail to implement their commitments to reduce their global greenhouse gas (GHG) emissions, the acute effects of climate change will become more frequent, with socio-economic and political implications that will be difficult to contain both at national and global levels.
Likewise, mining operations face high physical risks due to climate change. Many mines operate in areas exposed to climate risks and will become increasingly vulnerable to recurrent shocks moving forward. For instance, extreme weather conditions may affect the stability of tailings storage facilities and exacerbate tailings dam failures, with dramatic implications like those we witnessed in 2014 at Mount Polley in British Columbia, Canada, and more recently, with the collapse of the tailings dam in January 2019 in Brumadinho in Brazil, killing 270 people.
The mining industry needs to produce more sustainably. It is not only a risk-mitigation strategy that is good for business and for investors: it is also an act of responsibility.
Furthermore, extreme climatic conditions combined with changing weather patterns are a key concern for water supply, an important input to mining operations and key to the livelihoods of local populations. It is estimated that between 30% to 50% of copper, gold, iron ore, and zinc is produced in water-stressed areas—a risk that may even double by 2030 for a third of the gold and copper mines, according to S&P Global estimates. Mexico is particularly at risk. Tensions with local communities over competition for access to water and increased costs of operations are likely to jeopardize mining activities.
Ironically, taking climate actions may increase financial risks for mining companies in the short term. Taxing GHG emissions through mechanisms such as carbon pricing is becoming a popular measure. But it will cause cost inflation for mining operations because the tax will be calculated on levels of emissions from energy consumption from operations and fuel consumption from transportation, which can be very high for some mines. According to McKinsey, mining accounts for 4%–7% of global GHG emissions globally, directly, through operations and indirectly, through power generation.
In the same vein, the cost of access to capital is also expected to rise, as climate-related risks are coming under scrutiny by shareholders and investors. Increasingly, pension funds, institutional investors, and the environmental, social, and governance investment community are requiring mining companies to show and execute their plans to adopt low-carbon solutions. Some investors have announced their intentions to hold back investments or even divest in companies that do not show progressive results.
In response to these multifaceted risks, the mining industry needs to produce more sustainably. It is not only a risk-mitigation strategy that is good for business and for investors: it is also an act of responsibility. This means investing in sustainable processing solutions—for example, to reduce risks relating to water as well as stepping up efforts to reduce the industry’s carbon footprint. Investments in decarbonization solutions, notably in electric vehicles, solar panels, and battery storage systems, have increased substantially. In Chile, BHP, Anglo American, and Antofagasta Minerals have announced that they will run their mines solely using renewable energy. Vale made similar commitments to fully produce its own renewable energy for its Brazilian mines by 2025 and for all its other mines globally by 2030.
Mining has a vital role to play in providing the materials needed to combat climate change
On the supply side, mining has a vital role to play in providing the materials needed to combat climate change. In fact, the transition to a low-carbon future is highly minerals intensive. To achieve the objectives set by the Paris Agreement, there will be a significant increase in the production of low-carbon technologies, such as wind turbines, solar photovoltaics, energy storage facilities, and electric vehicles. In 2020, the World Bank estimated that the world would need more than 3 billion tons of minerals and metals to produce these technologies. Some minerals considered “critical,” such as graphite, lithium, and cobalt, could even see an increase in production of nearly 500% by 2050 to meet the growing demand for clean energy technologies. This is a boon for the mining industry, as the sector can arguably decisively contribute to achieving global goals set for a greener future if it manages, at the same time, to emplace sustainable mining practices as highlighted above.
Global leaders are increasingly stepping up efforts to mitigate the impacts of climate change, at least in their discourse. Climate diplomacy is now a top priority of every global summit. At the national or regional level, there are numerous initiatives to secure access to and accelerate the production of so-called critical minerals and metals needed in the production of green technologies. The EU Green Deal and the 2022 budget announcements in Canada highlight ambitions in that regard. But these necessary, laudable initiatives are being driven by economies that have the production capabilities and the technological know-how to ramp up production at scale.
A prosperous and sustainable future requires reversing the resource curse so that developing countries are better prepared for adaptation and mitigation.
A significant amount of minerals needed for the low-carbon transition are produced in developing countries. Historically, many resource-producing countries have been plagued by a resource curse, leaving them overly dependent on mineral rents and revenues and on exports of unprocessed raw materials, with impacts on development pathways. A prosperous and sustainable future requires reversing the curse so that developing countries are better prepared for adaptation and mitigation.
One way to do so would be for developing countries, home to significant mineral resources, to step up actions to develop local and regional value chain capabilities. This is important in many ways. First, industrial development creates wealth and hence generates financial resources that can be used to adapt to and mitigate the effects of climate change. Second, to avoid the energy transition whack-a-mole, the world will not solve the problems of climate change just by replacing one set of energy technologies with another. Today, global supply chains are major GHG emitters, given the fossil-fuel energy intensity of the international global transportation industry. The localization of the production of green technologies closer to the points of extraction can contribute to cutting GHG emissions. Third, developing countries will only be able to embrace green solutions if the cost of production is low to allow people to purchase such technologies at an affordable price. Localizing production in countries and regions where the costs of production are cheap could be an alternative.
As highlighted, mining intersects with climate change in many ways. The sector has a vital role to play, and time is no longer on our side if we want to avoid the worst-case scenarios. Even if interests, timing, and priorities are different—and sometimes diametrically opposed—policy-makers and corporate leaders have no choice but to coordinate their actions to find solutions that work for all. But currently, progress is too slow and lacks ambition. Most strategies to develop climate solutions are nationally driven and have become geopolitical tools. There is little interest alignment to achieve global objectives, and the global architecture, most notably the rules governing trade and investment, seem no longer fit for purpose.
The preceding was originally published on Mexico Business News and is republished here with permission.