Hooray, we lose!
The battle will be ferocious. The odds are the industry will lose. And that is good news for the mining supply and service sector.
The mining sector is energy intensive. Its energy is carbon intensive. Sooner or later, mining will have to “decarbonize.” The science is done and politicians are slowly coming to terms with the fact that world carbon emissions have to get to something like zero. Industry will have to find ways to produce metals without producing the carbon dioxide that is causing global warming.
But this is good news for the supply sector. Population growth will add two to four billion more consumers. The stunning rise in consumption outside of the old developed countries means more consumers want even more metals. Mining will keep growing, tax or no tax. Getting to zero emissions just means mining companies will need even more from suppliers.
Is it really possible for the world to get to zero emissions? Bill Gates thinks so. In a recent TED talk, Gates did the simple math. Carbon dioxide emissions are the product of four factors: the number of people, their consumption of services, energy input per service, and the carbon per energy unit. To get to zero, one of these factors has to go to zero. We don’t want to get rid of the people or the services. We can reduce energy intensity, but not to zero. The only thing that can go to zero is carbon released per unit of energy. That’s where Gates is putting his money.
Is it possible for mining and smelting to get to zero emissions? For an industry that routinely does the impossible – working kilometres beneath the earth, moving hundreds of millions of tonnes of material, extracting tiny fractions of valuable material from masses of worthless rock - the challenge is almost trivial. It all depends on the industry suppliers.
In the end, mining output will be slightly smaller than it would be in a free-carbon world, but mining inputs will be much bigger. Suppliers will be selling to an industry that is remaking itself.
So what is the big opportunity for the supply industry? Mines need a lot of energy. Smelting needs even more. The industry will need billions of dollars worth of new zero-carbon energy and energy systems. In Ontario, a single proposed chromite processing plant will need 300 megawatts, which is two thirds of the planned hydro expansions for all of Northern Ontario. The provincial government desperately wants this power to prevent brownouts in the south of the province. Mining may have to find energy elsewhere.
There are three things that could prevent the mining supply sector from taking full advantage of the carbon crunch. First, the supply sector is already running as fast as it can to keep up with growing demand. Companies may be too busy making money to think about dramatic new opportunities. The second impediment is capital. The changes that have to come will be very big, and mining suppliers may not be big enough to make investments on the scale needed. The third potential constraint is that few suppliers work with the whole energy chain, so suppliers don’t have the technical expertise to deal with the challenges.
It is easy to see where the story is headed. Energy providers will move in and scoop up the money, or firms already in the industry will find outside partners with expertise in producing energy. Who will the new players be? For the biggest mines and smelters, they will almost certainly be nuclear suppliers. Look for an alliance between Toshiba and Vale or BHP-Billiton, for example.
Right now, the big companies are fighting a rearguard action against a carbon tax in Australia. They should probably be lobbying for a carbon tax everywhere. The question is not whether there is a carbon tax. The real question is who will make the first move to the next generation of mining.
