Mining companies can catalyse energy transition

Mining and metals are a non-negotiable element in the energy transition. This is a now a consensus view among experts, policy makers and business leaders on the topic at the recently concluded World Economic Forum conference at Davos, who are adding their voice to the recent comprehensive reports issued by respected agencies such as the World Bank, the International Energy Agency, Legal & General and Bloomberg New Energy Finance. Among the general public though, mining and decarbonisation are more often than not seen as opposite sides of the clean energy spectrum. It is time to dispel this notion.

The Paris Climate Agreement of 2015 aims to hold “… the increase in the global average temperature to well below 2°C above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognising that this would significantly reduce the risks and impacts of climate change.” There is no defined pathway yet to achieve this climate goal. However, from amongst the various routes to realise the Paris Agreement goals, the salient features of almost all revolve around the following.

There is a pressing need to radically transform the way the world produces and consumes energy; often (though not always) this means an expansion of a decarbonised power sector to enable rapid transitions. Second, there is a requirement for tremendous amounts of financial and physical capital to meet this transformative challenge. Third, this is a global battle - it can’t be won in the developed world alone, but it can be lost in the developing world, where the majority of future emissions are likely to come from under a business as usual scenario. Fourth, this is a global battle - it can’t be won by one industry or industry cluster alone, but it can be lost in either the easier to abate sectors by complacency, or in the hard to abate through difficulty. Fifth, unprecedented levels of international cooperation will be important to accommodate all of these, including the containment of carbon leakage and swift diffusion of clean technology in an affordable way. Finally, there is a need for a step-wise increase in the supply of the ‘future-facing’ metals and minerals that are the building blocks of the hardware of decarbonisation.

Future-facing commodities are defined as those if in a head to head comparison between a Paris-aligned world and a less green alternative, its long-term outlook is demonstrably better in the Paris-aligned world. These are typically battery raw materials, like nickel, electricity conductors like copper, or essential elements in key green technologies, like rare earths in wind turbines, or polysilicon in solar panels. They are also fertilisers like potash that can drive the intensification land-use that the world needs.

Cumulative demand for primary (mined) nickel is expected to rise four-fold in the coming 30 years versus that in the last 30 years. Demand for primary copper and for potash are both expected to more than double during the same period.

Nickel is integral to the batteries that promise to bring about the e-mobility revolution. Copper is ubiquitous across the gamut of the electrification mega-trend. Hence these are also essential for India’s ambitious plans of energy transition and the electrification of its transport sector. India desires to be the global hub for electrical vehicles.

The need to produce food for changing diets, squeeze on availability of arable land, the increased use of biofuels, greater competition for land-use from renewable energy and climate-positive forestry practices and increasingly challenged native soil fertility, call for sustainable intensification of agriculture. This can be met through efficient use of potash.

Steel and the associated raw materials are not future-facing, but they present an interesting case. Cumulative demand for steel is expected to increase only modestly in a Paris-aligned world, even though steel is an essential input for decarbonisation infrastructure like wind turbines, alternative fuel storage and carbon distribution pipelines. The modest net positive effect is not large enough for us to class steel as “future-facing”. even though iron ore and metallurgical coal are attractive businesses for miners and are expected to remain so for many decades. The great promise of Indian industrialisation and urbanisation are a key reason for that, especially regarding metallurgical coal.

It goes without saying that mining companies must aggressively reduce emissions from their own operations. This will help minimise the life cycle emissions of the key downstream decarbonisation technologies on which we will all depend. Industry leaders are actively seeking a basket of net-zero solutions for operational emissions in the long-run and are also seeking early cuts to meet ambitious interim objectives.

It is also imperative that global mining companies support organisations in developing countries through collaborations, sharing of best practices and capacity building to achieve global climate goals for the benefit of humankind.

The article has been authored by Huw McKay, vice president, market analysis and economics, BHP.