Senior Vice President, Vice Chair Metals and Mining
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Opinions on the impact of COP26 may differ, but there is at least broad agreement on one thing: a lack of rapid, decisive action on carbon emissions now will inexorably magnify the challenge in the future.
Regular readers of this article series will be familiar with my argument regarding the centrality of metals to the successful decarbonisation of the global economy. You’ll also know my opinion on the scale and speed of the investment in metals and mining required to decarbonise the global economy soon enough to pursue a 1.5-degree pathway – and that so far concrete action is lacking.
So, what, if anything, has changed for metals and mining in the wake of the conference?
What will ‘phasing down coal’ mean?
At COP26, bold statements about a “rapid phase out” of coal gave way to language around a “phase down”. Some might argue that the final statements were less about real commitments and more a play on words. Certainly, “phase down coal” is a phrase that requires some thought. What does it really mean?
For sure the financing and production of unabated coal-fired electricity generation and associated thermal coal mining is going to come under intense pressure. At COP26, 34 countries and five public finance institutions committed to end direct public support to the international unabated fossil fuel energy sector (worth US$24 billion annually) by the end of 2022. Furthermore, all major coal financing countries have committed to ending international coal finance by the same date. But what about domestic financing of coal, especially by the two coal behemoths, China and India?
Will COP26 statements be turned into actionable policy?
At COP26, participating countries agreed that by the end of next year they would set more ambitious 2030 emissions reductions goals. If enacted, this will lead to a major boost to the demand for metals critical to the energy transition. However, only time will tell if action on these goals will be forthcoming, or if they will be enshrined in law.
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Meanwhile, statements around the adoption of zero emission vehicles clearly aligned EVs with achieving accelerated decarbonisation targets, but lacked teeth. “We commit to rapidly accelerating the transition to zero emission vehicles to achieve the goals of the Paris Agreement” is a positive step. But “rapidly accelerating” is not a clearly defined target. “Together we will work towards all sales of new cars and vans being zero emission globally by 2040, and by no later than 2035 in leading markets” at least provides a timeline. But “working towards” a goal is not the same as achieving it, so the commitment is open to interpretation. For now, we will have to trust that at some stage these statements will be translated into actionable policy.
The challenge for the EV supply chain is the speed at which change needs to happen to deliver an accelerated decarbonisation pathway. EV/hybrid build and sales needs to ramp up to around 45 million vehicles by 2025, and more than 80 million units by 2028. While vehicle assembly plants can be built or reconfigured in time, the additional 4600 GWh of battery manufacturing capacity required is a much tougher ask. Battery plants are modular in nature, take time to ramp up and need to pass rigorous qualification by auto manufacturers. And they’re expensive — that additional capacity will cost around US$350 billion.
However, with timelines for discovery to production stretching to more than ten years, inelasticity of metal supply is arguably going to be the biggest challenge. Ironically, a once-in-a-lifetime opportunity for metals is also a headache, since the supply chain is unlikely to be able to scale fast enough to meet demand. Even if it can, it will struggle to reduce its own emissions fast enough to offset the growth in output.
What halting and reversing deforestation means for mining
At COP26, a pledge from 137 countries to end deforestation by 2030 covers 91% of the world’s forests. This creates a huge challenge for the mining sector, since many of the commodities essential to the energy transition are located in areas of extreme biodiversity. An example of this is the extraction of nickel ores in Indonesia, where there is a 100% correlation between the locale of resources and extreme biodiversity.
This represents a sinificant challenge and a responsibility for mining companies to ensure they have minimal impact. In his opening address at COP26, UN Secretary-General António Guterres gave a stark warning: “We’re digging our own graves by burning, drilling, mining deeper”. It is certainly true that irresponsible, unsustainable and non-ESG compliant mining is a major issue and patently needs to be eliminated.
Will Paris-aligned financing help the mining sector?
For metals and mining, perhaps the biggest potential success of COP26 came during Finance Day when Mark Carney, UN Special Envoy for Climate Action and Finance, assembled the Glasgow Financial Alliance for Net Zero.
This group of bankers, insurers and investors committed to align US$130 trillion of assets with the climate goals set out in the Paris agreement. That could ultimately ensure the nearly US$2 trillion of financing required to deliver the metals necessary for an accelerated energy transition scenario. However, even here there is ambiguity – what exactly does it mean to “align US$130 trillion of assets”?
In my view, COP26 was something of a paradox, with some grand statements of intent yet – so far – little actionable policy to enable the delivery of the metals needed for an accelerated energy transition. Policy-makers are yet to heed the challenge of developing metals supply and the slow timelines it entails. Unless the necessary policies – and mind-blowing level of finance – to enable accelerated mining development are forthcoming, good intentions will remain just that.