US exiting Paris Treaty not expected to impact minerals sector

By IM Staff
Published: Friday, 07 July 2017

In the wake of President Trump’s announcement that the US will be pulling out of the 2015 Paris Climate Treaty, IM looks at the significance of this move and the possible impact this will have on the industrial minerals market. By Mark Rowe

Donald Trump’s decision to pull the US out of the 2015 Paris Climate Treaty will not halt moves to cut fossil fuels or reduce decarbonisation requirements on the non-energy minerals sector and other industries, say experts.

Trump called for a new "fair" deal that would not disadvantage US businesses and workers, and claimed that China and India had "no meaningful obligations" placed on them by the agreement.

Yet far from triggering a collapse of the treaty, analysts say the US move has, if anything, bolstered determination to enforce it. The announcement has prompted widespread reaffirmation of the treaty by China and the G6 group of the largest six European Union (EU) member states - Germany, France, Britain, Italy, Spain, and Poland. Several US states, such as California, along with US businesses have also reconfirmed their commitments to work unilaterally of the American federal government to work towards achieving Paris-based commitments. 

"Trump is trying to throw a spanner in the works but the treaty has started a process that is not reversible," said Maria Panezi, a post-doctoral fellow with the International Law Research Programme at the Canada-based Centre for International Governance Innovation (CIGI). 

The Paris agreement committed 188 countries to keeping rising global temperatures well below 2C above pre-industrial levels. The accord endorsed an enhanced emissions trading system and a restructuring of the UN’s Clean Development Mechanism to allow companies to offset emissions by funding compensatory schemes in developing countries. Funding is also expected to be released for research into renewables.

The agreement creates a more robust transparency framework and demands that all signatory nations publish "nationally determined contributions" (NDCs) and report every five years under peer review on their emissions and on their implementation efforts.

Trump_1 
President Trump announced that the US would pull out of the Paris accord in
May this year.
White House, via Wikimedia 


The Paris Treaty and industrial minerals

The treaty is highly relevant to the non-energy and non-metallic minerals sector.  Mining and processing such minerals requires a great deal of energy, making the sector sensitive to changes to how energy is priced and its availability. Furthermore, silica sand and minerals including bauxite, alumina, kaolin and boron are used in processes such as fracking, which the treaty also puts under scrutiny. Other non-energy minerals meanwhile are used in renewable energy production, for which the accord is designed to provide stimulus: new solar panels require bauxite, boron, phosphate, silica, and titanium dioxide (TiO2) while wind turbines use concrete, bauxite and rare earth elements to reduce the weight and size needed for magnets in wind turbines.

The EU’s climate action and energy Commissioner Miguel Arias Cañete declared the treaty "fit for purpose" and added that Trump’s "decision has no benefits for jobs or the citizens of the US." Declaring that EU institutions would continue to support the agreement, he said: "In the long-term there will always be political change but the most important things is we stick to the principles." 

The EU has seven principal producers of non-energy mining - the UK, France, Germany, Italy, Spain, Poland and Sweden, with Portugal, Ireland, Romania and Bulgaria having created specialist niche markets in the extraction of minerals such as feldspar, salt, gypsum, barite, dolomite and talc. Cañete added that the EU and China would, before 2020, publish an "ambitious" joint decarbonisation strategy.

A spokeswoman for Cefic, the European Chemical Industry Council, reaffirmed commitment to the Paris deal: "It gives us the flexible framework to manage climate change while providing a smooth transition for business. Chemical innovations enable current and future climate change solutions, including renewable energy, energy storage and thousands of products to improve energy efficiency," she said.

According to Professor Jim Skea, president of London-based global energy professional body the Energy Institute, decarbonisation is "hard-wired" into the world’s energy system "in a way that will ride out the ups and downs of short-term political cycles".  Skea, also a member of the UN Intergovernmental Panel on Climate Change (IPCC), said costs for renewables - many facilitated by non-energy minerals - were dropping quickly. "Global investment in renewable power capacity reached a record $265.8bn in 2015 which was more than double that for new coal and gas generation."

Meanwhile, Shu Yinbiao, chairman of the State Grid Corporation of China, the world’s largest utility, followed the Trump announcement by saying that his company was "dedicated to the interconnection of world power infrastructure to realise efficient, clean and sustainable development of global energy."

So what happens now?

In a practical sense, the US cannot leave the treaty for another four years (the agreement demands that nations cannot give notice of leaving for three years after it has been ratified and then takes another year to formally leave). But in reality, as Silvia Maciunas, deputy director of international environmental law at CIGI points out, the US can in the meantime choose not to implement the treaty: "While the treaty is legally binding, the achievement of national climate plans is not legally required. So, the treaty is essentially about peer pressure and the compliance mechanisms are not strong."

Trump’s move is still likely to apply a brake to the speed of action. "The treaty is not at risk of being nullified but it will probably struggle to have as much impact as quickly as it could because of the money the US was promising to put into it," said Maciunas, who warned that "a bit of a battle" in high energy consumption industry markets was shaping up, with US fossil fuel companies and heavy industry looking "to continue with business as usual".

The concern for the non-energy metals industry in Canada, is that if US rivals are not being penalised for emitting carbon then Canadian companies will become less price competitive. However, Panezi points out mechanisms do exist: "There are tools at your disposal including border carbon adjustments. When dirty products hit your border - and you already have a carbon pricing regime in place - you can put a tax on the import."

The US has threatened retaliatory measures in such circumstances and indicated it would take the issue to the World Trade Organisation (WTO). However, Panezi believes that America may not succeed in claiming such protection breaks WTO rules, and indeed its slow-moving procedures may place enormous pressure onto the US to ultimately comply with Paris. "[Carbon taxing] countries would have a good case at the WTO," she said, "such cases take a while to materialise and it would be a product by product approach - perhaps taxing cement or steel - and the WTO [disputes settlement cases] can take a couple of years from beginning to end."

Panezi believes that similar expressions of intent made by France and China will have the effect of "tying the giant that is refusing to comply down like Gulliver in Lilliput. The US approach may galvanise action."

Other mechanisms in the US also mean Trump is likely to have less of an impact on 
the Treaty than he might have hoped. These include the US’s national Clean Power Plan (still in place, at least for now) and state-based legislation, such as California’s Environmental Quality Act, which controls industries operating in this populous state. "The [latter] act gives California a very expanded environmental mandate and gives the state a lot of leverage and standard-setting opportunities," said Panezi.

As for how carbon taxes and duties may operate, the CIGI does not anticipate a universal tax on all metals or high-energy cost minerals. "That would be a big category, you can’t just regulate all metals with blanket legislation," said Panezi. "Metals that are on the higher emissions scale would be good candidates. If we just price out metals where there are no alternatives you may be imposing an environmentally responsible tax but not offering the economy a way out in the long run."

Taxes would only be applied in such circumstances on materials where less intensive or green alternatives exist. "Take cement," said Panezi, "How close is the construction industry to using timber and other materials? The better strategy is to start with commodities where there is an immediate alternative."

Canada and the US 

Pierre Gratton, president and CEO of the Mining Association of Canada, reiterated his support for a broad-based price on carbon and said he backs meaningful emissions reductions while simultaneously protecting trade-exposed sectors: "The transition from 'policies that push’ renewables to 'market forces that pull’ them into viability is not something that the US Administration’s withdrawal from the Paris Agreement will reverse," said Gratton.  

The US is Canada’s largest export market for mineral and metal products and the Canadian mining industry produces more than 60 minerals and metals; in Alberta alone it produces sand and gravel (production value $218m), sandstone, iron and magnetite, and gold. "The US withdrawal may affect the Canadian minerals industry in a couple of ways, but it is too early to say with certainty," he said, adding that demand for Canadian minerals used for renewables may be affected. "Trump’s decision could also affect the extent to which the US produces certain greener technologies, many of which rely on Canadian mineral and metal inputs."

Gratton also expressed concern that uneven application of the Paris treaty could see high-carbon industries relocate, affecting non-energy mineral production and costs. "Policy-driven carbon leakage would see Canadian mining, a significant engine of the Canadian economy, needlessly damaged. Carbon leakage could lead to a significant increase in global GHG emissions, resulting in less environmentally-responsible jurisdictions absorbing lost Canadian market share," he warned.

Australia 

In Australia, the Minerals Council of Australia said it continued to support the government’s commitment to the Paris Treaty (though it has opposed domestic carbon taxes). In a statement, a spokesman for the MAC cautioned, however, that Australia’s emissions policies needed to be "calibrated with those of our trading partners".

The US is Australia’s third largest trading partner. China, which remains committed to the agreement, is Australia’s biggest trading partner and receives five times as many Australian exports than the US. Among other minerals, Australia produces salt, lithium, graphite, alumina, TiO2 and zircon.

Legislation taking effect elsewhere 

More widely, legislation and action prompted by Paris is taking shape (the treaty gives nations until 2025-2030 to produce their NDCs and the treaty’s exact rules will not be published until 2018). In 2016 the European Commission brought forward proposals for accelerating the EU’s transition to a low carbon economy - in November 2016 it published a 'Clean Energy for all Europeans’ package to fully implement the EU’s 2030 climate and energy framework, including legislative proposals on energy efficiency, renewable energy and actions to accelerate clean energy innovation.

In June this year, the International Renewable Energy Agency (IRENA) and the State Grid Corporation of China agreed to enhance co-operation to advance energy transition to low carbon systems under global and regional initiatives. China has the largest renewable energy market with more than 27% (545 GW) of the world’s installed renewable energy capacity and more than 40% of the world’s renewable energy workforce.