Mining is necessary, doing so unsustainably is not

Global - May 09 2019
  • #esg

Mining is necessary, doing so unsustainably is not

The mining sector has bad reputation. Whether it is for its environmental issues in extracting and refining (pollution, consumption of huge amounts of water, use of chemicals, lack of remediation), its social abuses with workers’ exploitation and child labor, or its geopolitical stakes including tensions on supply chains and illegal extraction, mining activities usually come with bad press. On top of this, the mining sector is very energy-intensive, and its expansion could prevent the goal of reducing global CO2 emissions, which is urged by the IPCC and agreed upon by political deciders since the Paris Agreement in 2015.

On May 1, 2019, the World Bank launched the Climate-Smart Mining Facility (CSMF), “first-ever [donor] fund dedicated to making mining for minerals climate-smart and sustainable”. Its aims are to support the sustainable extraction and processing of minerals and metals used in clean energy technologies, help resource-rich developing countries benefit from the increasing demand in materials, and ensure that the mining sector is managed in a way that minimizes its environmental and climate-footprint. This is a significant development, which marks the progress in awareness that the mining sector will play a major role in the transition to a low-carbon world.

Since a few years back, voices have raised concerns – including, for example, Philippe Bihouix[1] or Guillaume Pitron[2], but also institutions such as the World Bank[3]– warning that a low-carbon future will be significantly more mineral intensive than a business as usual scenario. The manufacture of cleaner energy technologies (including alloys, permanent magnets for wind turbines, LEDs, solar panels, intelligent networks, digital technologies, batteries, etc.) will substantially increase the demand for several key minerals and the metal-footprint of energy production. In the World Energy Outlook 2018 report, the “Sustainable Development Scenario” for 2040 advocates an important development of low-carbon technologies, which leads to the following results : all things being equal, ensuring the 2016 electricity production with the 2040 “Sustainable” electrical mix would require twice as much metals than is consumed today, and up to 3.7 as much for non-ferrous metals. That is not even considering the expected growth in global energy demand (efficiency notwithstanding)!

Overall, the energy transition should be particularly voracious not only in rare metals but also in other materials, including copper, iron or even sand (for cement production), resources that could become critical in the decades to come. For example, Tesla announced last week that it expects global shortage of electric vehicle battery minerals in the future (more information can be found on the use of lithium and cobalt in batteries for electric cars in Beyond Ratings’ Analyst Insight, Lithium-ion batteries, a difficult reality?[4]). However, according to Tesla, the risk on future supply of raw materials will not be from a lack of geological reserves but mainly driven by underinvestment in mining. Indeed, as stated at the beginning of this article, the mining sector suffers from its unpopularity, along with other considerations: mining requires long-term investments that, in addition, usually offer poor profitability and can be risky due to high price volatility and exacerbated tensions in often oligopolistic markets (at least for metal commodities). This situation caused several mine closures, mainly in Europe and North America, and reinforced the concentration of mining activities into the hands of few actors. Underinvestment in the sector, coupled with the competition over usages (including for military purposes), could increase mining costs and make raw materials less affordable, therefore limiting their availability for the low-carbon transition. Additional political agendas or local instabilities can further complicate things and tend to favor firms that are less demanding on pollution or social externalities.

As is usually the case, the negative impacts of mining challenges could affect more forcefully the most vulnerable communities, such as developing countries and emerging economies. Indeed, some resource-rich emerging economies rely strongly on foreign investments that they would otherwise have difficulty to attract if not for their resources. For them, the dividends of well-governed resource extraction could offer a path out of poverty. However, in countries with poor resource governance, companies are often lax in their efforts to protect local environments and local communities and without smart management, they are more likely to fall victim to the “resource curse”. Thus, the CSMF will work in priority with developing and emerging economies, to help them implement responsible strategies and sustainable practices. Encouraging governments to build a robust policy, regulatory and legal framework that promotes climate-smart mining could help de-risking investments and provide a clean environment for foreign direct investments and private sector capital flows.

The fund, which is a multi-donor trust, is targeting a total investment of USD50 million to be deployed over a five-year timeframe, with partners both from governments and private sector companies. Practically, the new fund aims to support sustainable and climate-smart practices across the whole mineral value chain: (i) mine design and closure planning, (ii) energy intensity in extraction, (iii) materials handling, (iv) downstream processing, (v) waste and water management. Miners are still the first in line to make things change: examples of initiatives that can be implemented at firms’ level are provided in the graph below, positioned by estimated ease of implementation and degree of climate impact.

Figure: Categorization of firms’ climate initiatives, The World Bank (2019)

The Climate-Smart Mining Facility will focus on four core themes: climate change mitigation; climate change adaptation; reducing material impacts and creating market opportunities; and contributing to the decarbonization and reduction of material impacts along the supply chain of critical minerals needed for clean energy technologies. The last category may be, to some extent, the more paradoxical. Indeed, the mining sector already accounts for up to 11 percent of global energy use, a proportion that could increase as the demand for resources intensifies and mineral exploitation grows more difficult: ores are becoming less geographically or geologically accessible, less rich, and are decreasing in grade. In theory, over the longer term a vicious circle could be looming, within which the amount of energy consumed to extract and refine new resources would eat up the amount of energy they are expected to provide. Encouraging the strategic use of geological data, the sustainable use of existing resources and facilitating the recycling/reuse of materials through the CSMF are also ways to ensure that such a possibility remains far off.

In any case, making the mining sector more sustainable and climate-friendly will obviously not be easy:  a slow complicated process can be expected, and the World Bank’s CSMF clearly represents a first step in the right direction. If the “clean” transition takes its roots on the development of low-carbon technologies, the mining industry may well persist stronger than ever, despite all its shortcomings. A major challenge of the energy transition will therefore be to better understand the role of mineral resources, and to be able to strategically allocate them to selected prime objectives. Let’s hope that public institutions and private companies around the world will also keep developing or requesting expertise on ESG issues, to ultimately integrate them into smart mining practices.  

Claire Hugo, Energy-Climate Analyst
Sources: Beyond Ratings, International Energy Agency (IEA), the World Bank, Institut français des relations internationales (Ifri), Natural Resource Governance Institute (NRGI)

___

[1] L’Age des low tech : Vers une civilisation techniquement soutenable, 2014
[2] La Guerre des métaux rares : la face cachée de la transition énergétique et numérique, 2018
[3] The Growing Role of Minerals and Metals for a low carbon future, 2017, lien
[4] Beyond Ratings’ Weekly Digest n°155, Sept. 2018, lien

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