Under energy research firm Wood Mackenzie’s 2C scenario, the price of carbon dioxide per tonne 'must rise to $110 everywhere by 2030'
Emissions from metal production will need to halve over the next 20 years to cap the rise in global temperatures to below 2C, says an energy analyst.
With refined metal used in wind, solar, electric vehicle, storage and transmission sectors, the mining industry has a key role to play in reaching the goals set in the 2015 Paris Agreement.
Under energy research firm Wood Mackenzie’s 2C scenario, the price of carbon dioxide per tonne “must rise to $110 everywhere by 2030”, with these taxes designed to “spark massive technological change across emissive industries like metals production”.
It believes a carbon tax levied under a 2C pathway also provides a “good guide as to the budget needed for decarbonisation”.
James Whiteside, Wood Mackenzie’s global head of multi-commodity research, points to the steel sector, which has a “requirement to eliminate 1.7 billion of direct and indirect emissions over the next 20 years”.
“Should these emissions remain, $191bn each year in carbon taxes would be due,” he added.
“That’s 24% of annual global steel revenues of $800bn in a good year.”
Miners’ pathway to a net-zero economy
Whiteside believes the “solution for mining” is consistent across all metals and that is “electrification” – but he admits this can’t just happen overnight.
“Mine designs need to adapt, and more renewable electricity is required,” he added.
“Whether from the grid or self-supplied, power supply arrangements will grow in prominence as miners become increasingly reliant on this single energy source.”
He claims increasing investor pressures will also “accelerate change” in the sector as well.
“Miners are well equipped to access alternative sources of capital like green and ESG bonds through their role in low-carbon technology,” added Whiteside.
“Development banks have ring-fenced funds to support energy efficiency and reduce emissions. But the cheapest forms of finance are typically the most stringent.”
Equity investors to ‘examine the ambiguous aspects of sustainability reports’
He believes that equity investors, who are “currently most concerned with the impact of carbon pricing”, will be forced by their stakeholders to “examine the ambiguous aspects of sustainability reports”.
“The junior miner, seeking finance to develop its first operation, will increasingly find detailed environmental planning a differentiator in capital raising,” he added.
“Most of the diversified miners are mirroring the bold net-zero ambitions of their counterparts in oil and gas. For these companies, a path to eliminate operational Scope 1 and 2 greenhouse gas emissions by 2050 is feasible, if not attractive.”
Whiteside claims that taking responsibility for Scope 3 emissions “opens up some existential questions for coal, iron ore, and even bauxite and alumina producers”.
He added: “Transitioning these commodities to less scrupulous producers means downsizing or finding new high-margin production elsewhere. Carbon offsets aren’t the long-term solution investors will require, though.”
Electrification of thermal processes powered by renewables
Wood Mackenzie said that, where sufficient quantity and quality is available, scrap can “play a role in the decarbonisation of metals supply”.
It added that production of aluminium from scrap takes only 5% of the energy required to smelt alumina and, likewise, electric arc furnace production using scrap has only 30% of the Scope 1 and 2 emissions of blast furnace steel production.
The researcher believes that, alongside increased recycling, the electrification of thermal processes powered by renewables is “the path of least resistance to decarbonising downstream sectors”.
Whiteside said carbon is “intrinsic to the dominant production routes for aluminium and steel” but argues that “sustainable and scalable alternatives are emerging”.
He added: “Aluminium smelters’ carbon anodes now have inert alternatives. Coking coal can be replaced with hydrogen for iron ore reduction. Biomass and carbon capture can play a role in the right location.
“Increased deployment brings down the cost of emerging technologies over time. Signatories to the Paris Agreement hoped their carbon policies would get the ball rolling, yet carbon capture and storage (CCS), and green hydrogen have been slow to truly kick-off.
“The learning curve in wind and solar costs will only be echoed in these technologies when their installation scales up.”
Stakeholder pressure on miners to reduce downstream emissions
Without a financial liability for Scope 3 emissions, Whiteside questions whether stakeholder pressure on miners will offer enough incentive to reduce downstream emissions.
He believes counting on customers to clean up is “no kind of strategy” and that it is “neither certain to happen in time nor sure to benefit the raw materials that miners produce if it does”.
As for direct and indirect emissions, Whiteside said “a lot can change in 30 years” and the point is to “outperform these targets and become the keystone of the energy transition”.
Wood Mackenzie claims a focus on lowering emissions will “drive efficiencies in consumption”, while reduced reliance on oil prices may mean a “less volatile cost base and more reliable returns”.
But it said the flip side is an increasing cost exposure to a single factor, which is electricity.
The energy analyst believes miners will have to work in partnership with the grid and other major consumers to “ensure the economic benefit is balanced”.
With that in mind, Whiteside said this means partnerships will have to be built with consumers and skewing their partners’ strategy towards the low-carbon technologies that “secure a role for their products”.
“It means all metals producers targeting increased recyclability,” he added.
“It means the entire aluminium industry working towards scaling up carbon anode replacement technology.
“It means metallurgical coal miners contributing to CCS research to boost efficiency and reduce construction costs. Miners must spend big on R&D now.
“Ultimately, each producer’s optimal pathway will depend on local electricity prices, renewables generation capability and CCS potential.
“The lead time to development of new technology and installation means this planning needs to start now.”