What does the pathway to net zero look like for miners?

The mining industry is key to the refined metal used in the wind, solar, electric vehicles, storage and transmission which will help us achieve Paris goals of net-zero emissions by 2050.

While miners deliver supply growth the energy transition demands, they also need to decarbonise their own sector. A tall order? Yes. But it needs to start now.

Most of the diversified miners are already mirroring the bold net-zero ambitions of their oil and gas counterparts. For them, a path to eliminating their own operational greenhouse gas emissions by 2050 is feasible, if not attractive.

This year, BHP and Vale will set targets for reducing customers’ carbon emissions. But the industry — and investors — will require more than just carbon offsets to fully decarbonise at the required pace.

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Carbon taxes will provide part of the incentive. Under a Paris aligned two-degree scenario, the price of carbon dioxide per tonne needs to rise to $110 a tonne everywhere by 2030. These taxes aim to spark massive technological change across emissive industries, such as metals production.

Of the metals, aluminium will be most affected by carbon pricing. Smelters using coal-fired electricity may find that their power prices become unsustainable. Taxing carbon at this level will provide the desired incentive to reduce emissions.

Carbon taxes levied under a 2 degree pathway also provide a good guide as to the budget needed for decarbonisation. Take the steel sector, with a requirement to eliminate 1.7bn tonnes of direct and indirect CO2 emissions over the next 20 years. Should these emissions remain, $191bn each year in carbon taxes would be due.

Electrification of operations is another crucial way towards net-zero mining, processing and transportation. The first step is to electrify the fleet. Removing 6.1bn litres of diesel per year at copper mines (equivalent to 105,000 barrels per day) would cut about a quarter of mine greenhouse gas emissions.

Electrification allows safer operations, automation and regenerative braking to boost efficiency. But these efficiencies will not offset the increase in energy intensity of deeper, more remote and lower grade mines.

More electricity is required, and it needs to be renewable. Economics and reliability have already driven some miners to lease, contract or owner-operate solar-plus-storage.

Mines need time to reap the full benefits of electrification. Designs must adjust to less ventilation, a smaller human footprint and new charging patterns. Higher capital expenditure may characterise the mine of the future, but that will be offset by lower power, fuel and labour costs.

Where sufficient quantity and quality is available, scrap can play a role in the decarbonisation of metals supply. Production of aluminium from scrap takes only 5 per cent of the energy required to smelt alumina. Likewise, electric arc furnace production using scrap has only 30 per cent of the direct and indirect emissions of blast furnace steel production.

Replacing certain materials in the metal production process with sustainable and scalable alternatives will also help. Carbon is intrinsic to the production for aluminium and steel. But 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.

There is also hope that costs of emerging technologies will fall over time as installation scales up. Although carbon capture and storage (CCS) and green hydrogen have been slow to truly kick off, the path taken by wind and solar energy costs will only be echoed in these technologies as take-up rises.

A focus on lowering emissions will drive more efficient energy use. Reduced reliance on oil prices may mean a less volatile cost base and more reliable returns. The flip side is an increasing cost exposure to a single factor — electricity. Miners will have to work in partnership with the grid and other major electricity consumers to ensure the economic benefit is balanced.

This means building partnerships with consumers, as many have, 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. It means the entire aluminium industry working towards up-scaling 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 preparations need to start now.

James Whiteside is the global head of multi-commodity research at consultancy Wood Mackenzie

The Commodities Note is an online commentary on the industry from the Financial Times