Note: This blog post was updated on 6 September, 2023.
Mining has long been a key source of income for Australia, with around $455 billion AUD of revenue generated from exports in the financial year 2023. However, to be consistent with a net zero,1.5°C warming pathway, global coal production must decline each year by around 11%, amounting to a total phase out of unabated coal power by 2040.
Yet mining companies also produce key minerals and metals that can support the transition to a decarbonised economy. In fact, with the wealth of minerals in our earth, Australia's mining sector has the opportunity to be part of the solution. The CSIRO's Critical Energy Materials roadmap estimates that the annual demand for metals and minerals by 2050 exceed 700 million tonnes including:
This demonstrates that there is strong growth in demand across the minerals and metals sector.
Understanding the balance between climate impact and actions that support decarbonisation is key to ensuring that the role mining plays in a net zero world is a net positive one. With investor and stakeholder pressure growing and many of Australia's global trading partners setting net zero targets, the risk to this sector is increasing.
Although the Australian government has set a long-term net zero target of 2050, both state and federal governments continue to support new fossil fuel projects. Any mining company that wants to remain competitive in the evolving global economy should prioritise decarbonisation and not wait for regulation. Without delay, they should begin their own journey to strike the right balance between decarbonisation and providing the metals that can help make it happen.
Thermal coal (used for electricity generation) is the first to face pressure from investors and stakeholders. Change is already underway within the fossil fuel industry with the launch of the Global Investor Commission on Mining 2030 which will introduce sustainability standards within the mining industry. While here in Australia, the leader of the Australian Greens political party, Adam Bandt, is urging the public to join climate protests as Bandt tells of his plans to join the blockage against the country's largest coal mine.
Even mining companies themselves are looking to diversify away from coal with Rio Tinto exiting from mining fossil fuels in 2018, and BHP divesting its interests in Columbia's Cerrejón coal mine by selling its $294 million USD stake to Glencore. It should be noted that by divesting in the mines, either a financier or an operator does not decrease the overall global emissions as the mines still operate. What is needed for decarbonisation is for the mines to decrease output and eventually close.
Following the announcement of the International Sustainability Standards Board's (ISSB) first two standards, the IFRS S1 and S2, the Australian government has announced intentions to align their mandatory sustainability reporting requirements with the ISSB.
The standards draw heavily upon the Task Force for Climate-related Financial Disclosure (TCFD) which has to date been considered the gold standard for sustainability disclosure and has been adopted in multiple jurisdictions globally. From 2024, the ISSB will also take over the monitoring of progress on companies reporting against the TCFD.
This would require mining companies to understand their climate impacts and risks under a range of scenarios. For those already reporting under TCFD, more scrutiny over the scenarios modelled is expected as investors increasingly look to these reports to understand the long-term risk of their investments. If mining companies do not transparently disclose their risks and impacts, then they may face increasing scrutiny from both regulators and investors.
Of Australia's top 15 trading partners, 5 have net-zero targets set in law and 6 have targets in policy documents. As they look to decrease their emissions, our trading partners will need to reduce their reliance on Australian coal — which may have major implications for the mining industry. For example, as one of the key policies to achieve net zero, the European Taxonomy and other carbon border mechanisms essentially put a carbon price on products imported from other countries, which will impact Australian exports if they do not meet the carbon requirements of the importing country.
As shown in the table below, 80% of Australia's thermal coal by value is currently heading to countries with net zero targets. These countries all have Paris Agreement targets to reduce emissions over the next decade. It should be noted that the value of other minerals and metals exports is more than five times greater than the value of exported thermal coal, demonstrating the demand for Australia's mining commodities.
| Country | $ Billions (thermal coal) | $ Billion (minerals and metals) | Current Nationally Determined Contribution (NDC) | Net zero targets |
| Japan | $7.5 | $9.1 | 25.4% reduction compared to FY 2005 | 2050 |
| China | $12.9 | $98.5 | >65% from the 2005 level by 2030 | 2060 |
| Republic of Korea | $4.9 | $10 | 40%reduction from 2018 baseline by 2030 | 2050 |
| India | $11.5 | $0.8 | 45% reduction from 2005 baseline by 2030 | 2070 |
| Other | $9.3 | $305.4 | ||
| Total | $46.1 | $423.8 |
Whilst the $46.1 Billion ($71.7B AUD) of thermal coal exports may be at risk, the benefit of transitioning to alternative products may support the financial and environmental performance of mining companies in the long run.
Many large mining companies have set net zero or carbon neutral targets including BHP, Rio Tinto, and Glencore, however most stop short of including scope 3 emissions. Some have set scope 3 targets, but they are often not aligned with climate science. Fortescue Metals Group is an exception to this, having set their Real Zero targets of no fossil fuels emissions across their Scope 1 and 2 iron ore operations by 2030 and net zero Scope 3 emissions by 2040. Large emitters should expect continued scrutiny on their targets and claims - for example, oil company Santos is being taken to court over its claims that natural gas is a “clean fuel" and its plan to reach net zero emissions by 2040. The SBTi's net zero standard creates a framework for companies to set robust and credible net zero targets in line with a 1.5°C future, forcing consistency and reducing the grey areas that many high emitters have taken advantage of.
This spotlight on the sector shouldn't scare companies off from taking action - the journey to net zero will be long, but transparent and meaningful action based on scientific best practice will convince stakeholders of your serious commitment to the longevity of your business.
In the short term, opportunities to decarbonise should be explored, such as renewable energy, and unavoidable emissions should be compensated for through purchasing carbon credits. Mining companies could also identify opportunities to develop carbon projects on their land. As well as securing long-term access to carbon credits at stable prices, projects like this can create community and biodiversity co-benefits and help advance project technologies and methodologies.
In the long term, pivoting to lower carbon intensive products such as copper, nickel, lithium and cobalt - needed to produce wind turbines, batteries and electric vehicles among other things - will be necessary. Until a fully circular economy is realised, mining will continue to be a key source of materials for the world to decarbonise.
South Pole can assist in understanding the total environmental impacts of your operations from mining through to the use of the product, and identify emission reduction and carbon removal projects to achieve your net zero ambitions. Talk to us today to see where we can help on your climate journey.
