Mining’s Carbon Privilege: Research Reveals Carbon Tax Benefit

The world is about to face some hard truths about decarbonizing the world: it will require a lot of materials. Scaling up renewable energy sources means a massive increase in the use of metals and minerals such as lithium such as copper, nickel, lithium, aluminum and many others. 

Governments around the world plan to decarbonize the economy with an expansion in the use of solar, wind, and battery technologies, minerals and TAXES on carbon intensive industries to force down carbon consumption. 

The general idea behind carbon taxation is that it discourages the release of carbon dioxide by making companies pay for emissions from their activities. The policy could mitigate climate change and limit the rise in global mean temperatures to 2 C by 2100, a goal laid out in the 2015 Paris Climate Agreement. 

But not all carbon taxes land equally on all industries and materials.  

According to a new paper published in Nature by researchers at the University of British Columbia's Norman B. Keevil Institute of Mining Engineering and School of Public Policy and Global Affairs, Benjamin Cox and Sally Innis reveal the industry’s low carbon footprint and its resulting low carbon tax burden makes it a prime beneficiary from carbon taxes.

Transforming the global energy system creates a rise of wave of demand for metals and minerals such copper, lithium, nickel, cobalt and rare earth metals, inevitably encouraging the construction of more mines and more local environmental disruption. 

Using data from the International Energy Agency (IEA) on the metal demands requirements to reach the Paris Accord global warming targets, the figure below shows that in 2020 total global copper demand (dashed, transparent orange) was 20 million tonnes, of which 5.7 million tonnes, shown in the darker orange

At the center of their research, Cox and Innis look at the value of carbon emissions per metal and industry which their research reveals that the mining industry is relatively less carbon intensive than other industries.

This chart shows the economic value per tonne of CO2 for select metals used in renewable technologies compared to construction materials, energy industry, and agriculture commodities.

All products’ carbon footprint is in a final consumer state, meaning this includes the refining, smelting, growing, or power generation adjustment for each commodity.

Cox and Innis in an email exchange succinctly explained what this chart means:  

“Mining companies have a carbon privilege. The carbon emissions of mining are not material, the impact falls on the finished products we need and use. So the industry should focus on maximum recovery and pay carbon tax.”

In short, the mining industry has a relatively low carbon footprint because the bulk of the carbon emissions occur at the refining, end use stages, carbon intensive industries such as energy production and fossil fuels. This means the extractive industry avoids the large portion of where carbon taxes would fall under plans to tax carbon emissions.  

Demand for mining commodities would skyrocket under a global carbon tax, fueled by other industries forced to transform in order to survive the tax, while increased investment in renewables from taxation would shift money to mineral intensive energy transition metal production.

If we take a look at the aluminum supply chain, we can see the clear case that carbon emissions are lowest at the mining stage of aluminum production. 

So if the mining industry is not to worry about taxation because carbon taxation falls heavier on other sectors, how can the mining industry offer the greatest benefit for reducing its impact on the environment?

Benjamin Cox believes his research points to an answer: 

“The mining industry will get more ESG credit by supporting carbon taxes and focus on recovery, rather than reducing the overall carbon impact of its operations…Mining companies present their operations as a sleek Ferrari but in terms of recovery they are a VW diesel bus.”

The recovery rate of a mining operation refers to the quantity of metal available for sale after the refining process. The efficiency of miners to produce the needed metals from the rock they discover means more economic output per amount of material moved, meaning better profits from less.

The paper concludes that the mining industry could actively support zero-emission goals while paying relatively minor taxes relative to other sectors and focusing on easy carbon reduction strategies such as recovery and fleet electrification. 

“The combination of relatively low costs of mining carbon taxation, increased demand for metals as others work to reduce their tax footprint by not emitting carbon creates an opportune environment for global mining to be a prime promoter of carbon taxation.” - Cox and Innis, 2022

Accepting carbon taxes would give the mining industry the real green credentials it needs to meet demand while appropriately focusing on doing what it should do best, making the most of metals in the ground.

The world can’t go carbon free, too many technologies will consume carbon far past 2050, at best we can go on a carbon diet, and the industries that generate the most tools to reduce carbon, and have the highest economic footprint per tonne of carbon consumed will win. 

Mining is shaping up to be the champion of the energy transition.

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