How carbon is taking centre stage in miners’ energy strategy

MELODIE MICHEL, Reporter, Energy and Mines

Until recently, decarbonisation was not much more than a bonus for mining firms in adopting more efficient and cost-effective equipment for their sites. But the industry is realising that in order to stay relevant in a world where the largest proportion consumers, voters and legislators are climate-conscious millennials and generation Z, they cannot afford to keep carbon as an afterthought.

In the past couple of years, most large miners announced extremely ambitious net-zero emissions targets, most by 2050, some even earlier. But targets are no longer enough: stakeholders now want to see the concrete steps that companies plan to take in order to meet those targets. Speaking at the Energy and Mines Australia Virtual Summit in August, Rio Tinto’s Senior Manager, Energy and Climate Change, Michael Scotton, explained: “Stakeholders want to go beyond long-term goals and understand how we’re implementing our strategy, what are the concrete actions taken to deliver those targets. Customers are also looking to understand the embedded emissions in our products and want to decarbonise their supply chains to provide low-carbon products themselves.” Rio Tinto has committed to cut its absolute emissions by 15% and its carbon intensity by 30% by 2030 — an expected reduction of 4.8 million tonnes of carbon emissions per year.

With only 30 years to fully decarbonise their operations, there is no time to waste: technological advances may still be necessary to abate emissions from some of the most intensive processes, but what miners should already be doing is include carbon considerations in all of their strategic decision making. Fortunately, based on what was said at the Summit, this is the direction most of them are taking.

Across the world, 25 countries currently have a carbon tax in place, including Canada, Singapore, Japan and Argentina. This type of mechanism, whilst far from perfect, tend to increase the viability of decarbonisation projects — with tangible results. A number of research studies have shown that the introduction of a carbon tax tends to reduce a country’s overall emissions by anywhere from 5% to 25%, with a negligible impact on its economy. Not to mention the extra revenue that such a tax generates, which tends to be redistributed in clean energy investments and incentives: Canada is set to collect C$2.81bn from its federal carbon pricing in 2019/20.

Where there is no price on carbon, there often is another form of government incentive to reduce emissions: that is the case of Australia. Jane Wardlaw, General Manager of Australia’s Clean Energy Regulator, presented the country’s carbon policy at the conference, which consists mostly of the Safeguard Mechanism, a scheme introduced in 2017, but that has gone through a number of changes in recent years. “It has been in a state of flux, with miners trying to get their heads around the requirements and changes. But the basic framework is fairly settled now, which should make it easier for businesses,” she said.

Under the Safeguard Mechanism, large emitters work with baselines. These were previously set using a high point of historically reported emissions, but these reported baselines are being phased out. Now, corporates calculate them by selecting production variables predefined by the government, with corresponding default emission intensity values. Companies that exceed the baselines have to offset their emissions with carbon credits, which come at a price.

Recently, the government’s King Review identified further opportunities to reduce emissions, including something very similar to a carbon credit trading scheme. “The proposal was that this would leverage the existing safeguard structure. It is envisaged that it would work as a low emissions technology incentive scheme directed at reducing emissions from safeguard facilities,” said Wardlaw.

But for all its good intentions, the Safeguard Mechanism has come under fire for being too lenient on Australia’s largest polluters, whose emissions increased to 144 million tonnes in 2018/19. So why are Australian miners being so proactive in reducing their carbon footprint?

It turns out it isn’t just governments that can put a price on carbon. “When you look at some of the implied hurdles rate of returns from projects that have been sanctioned in the renewable space in recent years compared to large integrated oil and gas projects, there is clearly a stronger appetite for greener projects,” said Lachlan Shaw, Head of Commodity Research at National Australia Bank, during the summit. “Internal rates of return have been as low as 3-5% for renewable projects and as high as 15 to 17% for traditional oil and gas projects. There’s already a shadow carbon price almost being built into how those projects are financed and the returns required, and these things are progressing quite quickly now.”

Another example of non-governmental carbon pricing is the fact that low-carbon aluminium is now trading at a premium in the European metals market which, according to Shaw, proves that, “the market is now starting to value the reduction of carbon footprint by suppliers”.

In order to meet their net zero carbon targets, mines have to solve a three-part equation involving baseline power, material movement, and processing. On the power side, Energy and Mines regularly covers small and large-scale renewable energy integration projects for mine sites, but these can only offset parts of the emissions from mining activities. To reach net zero, miners will have to go further than that.

Among the options they are looking at for power generation, wind has become very attractive: according to juwi’s Head of Global Business Initiatives Amiram Roth-Deblon, the addition of wind generation can double the carbon savings from a hybrid power plant on a mine — and double or even triple cash operating cost reductions.

One of the biggest stumbling blocks for mining decarbonisation is material movement. For instance, 43% of BHP’s emissions come from diesel, primarily used in fleets. This explains why electrification is one of the company’s highest priorities. “Our purpose is to reduce reliance on fossil fuels, which may also offer financial and other co-benefits, and create the future mining and identify opportunities to electrify our operations, which can enhance the way we produce resources from extraction through to mining and processing,” said Jessica Harman, Principal, Portfolio Strategy and Development at BHP, at the conference.

The company has trialled a number of electric vehicles at its mines, and sent a clear signal to the market that there is a need for an electric heavy-duty haul truck — which OEMs appear to be working on, albeit slowly.

Newmont Goldcorp has also been active on the electrification front: the company’s Borden site in Canada is the world’s first 100% electric mine. But according to its Corporate Director, Environment, the economics of electrifications are not quite there yet. “Fleet decarbonisation is a challenge and I don’t think we’re close despite hybrid vehicles being tested. We’re a long way from commercialisation. At the Borden mine, the savings in ventilation drove the economics, but without that, it wouldn’t have been economical. I’m hoping to get there in the next five years,” Aire pointed out at the Australia Summit.

Hydrogen is another technology where miners see a lot of potential, but again, it is still early on its development journey. In the meantime, several miners are exploring the use of existing renewable fuels such as biogas. Newmont Goldcorop, for instance, is “looking at biodiesel seriously for the next two to five years,” according to Aire. The company has engaged with Caterpillar on the topic, and noticed a change of tone. “Two years ago, if you wanted to run more than 20% biodiesel on a haul truck they would say you voided your warranty, but they’ve done research and realised that their engines can run on 100% biodiesel and therefore by doing that you do not void the warranty anymore,” he said.

Processing is another area where it may be difficult to reduce carbon intensity, but a number of initiatives are showing promise. One of them is Mechanical Vapour Recompression for bauxite refining, which would create the heat needed to produce aluminum from renewable electricity. “Mechanical Vapour Recompression offers many benefits: it has a zero-carbon potential with renewable power, no need for back-up infrastructure, the economics for new facilities appear good, and plausible for retrofit on existing facilities,” explained Ray Chatfield, Global Technical Manager, Refining Energy at Alcoa, in a presentation during the summit.

It may be a steep learning curve, but decarbonising their operations is set to bring substantial commercial benefits to miners. Now that green aluminium is sold at a premium compared to its traditionally produced version, metal markets have spotted an opportunity. In June 2020, the London Metals Exchange announced plans to create a platform specifically for low-carbon aluminium trade. According to the Financial Times, this is the first time in the LME’s 143 years of existence that a metal will be traded based on its environmental footprint.

This type of market signals will pressure metal producers into disclosing exactly how much carbon is embedded into their products. With increased environmental transparency, this trend is set to snowball into more and more opportunities for green materials.

Justin Brown, Managing Director of Element25, a high-purity manganese producer looking at adjusting its production schedule to renewable generation, noted the importance of large-scale decarbonisation for future business development at the Australia Summit. “Lowering the carbon intensity of the supply chain is becoming more and more important if you want to supply modern companies,” he said. “It’s also driving capital flows: investors don’t want to invest in coal and I think over time that will spread to other fossil fuels. And finally, there are carbon price considerations.”

The triple-whammy of carbon price (whether set by governments or by markets themselves), customer demand and investor appetite is set to be an efficient propeller for miners on their 30-year race to decarbonisation.