Coal is one of the industries most impacted by the shift to net zero. Producers are feeling the weight of public scrutiny and investor pressure as increasingly stringent carbon emission policies threaten future demand. A price on carbon – a key policy for emissions reduction – could also transform industry costs and prices.
Visit the store to read Coal mine emissions under the microscope in full, or read on for an overview.
Coal is under pressure
The Paris Agreement has put high-emission industries like coal under the spotlight, and the pressure to effect rapid and significant change is growing. Listed coal miners in particular are under scrutiny, as investors intensify their focus on environmental, social and governance (ESG) issues.
The bulk of coal-related emissions still come from consumption, rather than production. But increasingly, the world expects major mining projects to pay far closer attention to Scope 1 and 2 emissions from mining and transporting coal.
Who has the highest emissions in the coal industry?
Analysis from our Metals & Mining Emissions Benchmarking Tool (EBT) shows a massive range in miners’ Scope 1 and 2 emissions, from around 10kg–630kg CO2 equivalent per tonne of raw coal.
Methane dominates coal’s GHG emissions, so those at the higher end of the scale tend to be in areas where there is greater methane content. Deep coal seams, for example, contain higher levels of adsorbed methane (held in place by water pressure, not lost through natural seepage or oxidation). Underground mining typically creates more methane emissions than surface mining.
The type of coal is important too. Higher-rank bituminous coal – including metallurgical ‘met’ coal – is more methane-rich, and more often mined underground. As a result, we estimate emissions from met coal to be 254 kg CO2-e per tonne in 2021, nearly three times higher on average than thermal coal.
Which countries have the highest levels of GHG emissions from coal mines? Read the full report for average emissions broken down by country.
Time for carbon pricing?
So, what impact will these emissions and the efforts to curb them have on miners? Up until now, carbon taxes imposed on seaborne coal producers have either been short lived (Australia’s lasted just two years) or failed to limit emissions (as we have seen in South Africa). But miners will know a future of carbon prices isn’t far away.
In a recent insight on the value at risk from carbon policy across metals and mining, our experts noted that 2021 could be a pivotal year – as EU proposals for a carbon border tax could be followed by other jurisdictions. We believe a carbon price of US$110 per tonne will be required everywhere by 2030 to meet the two-degree demands of the Paris Agreement (against our current base of US$40 per tonne). Should that price be imposed, costs will see a significant jump for thermal and met coal. As the higher emitter of the two, the hike could be particularly severe for met coal – we estimate that the 90th percentile of the cash cost curve could see a 34% increase in this scenario.
The full report outlines the cost impact for met and thermal coal under three carbon price scenarios. Visit the store to find out more.
Will mitigation help coal miners stay competitive?
Miners face a challenge to stay competitive. Our carbon price analysis shows that mines further along the emissions curve could be susceptible to significant loss of margin at higher carbon prices. Costs can quickly escalate and make companies less competitive.
Most underground mines already use some form of mitigation, such as flaring or power generation. The prospect of a higher coal price environment is likely to push producers to introduce more mitigation measures. At the company level, as many operators set ambitious decarbonisation targets, the success of those measures will be crucial.
Interested in the future of coal?
Our team presented a thermal and metallurgical coal market update at our recent metals and mining briefing. Fill in the form at the top of this page for a complimentary replay, plus selected presentation slides.