Looking for answers on carbon reduction

The governments of most of the major regions of the world have either begun or intend to establish aggressive targets to support the "green" transformation, with many looking to achieve carbon neutrality by 2050 and some – including Europe and the US – looking to make big cuts in carbon dioxide and other greenhouse gas (GHG) emissions by 2030. This presents both opportunities and challenges for the global metals industry. 

"It has come to the point that the green agenda can no longer be ignored by any government," Sergey Donskoy, metals and mining analyst for Société Générale, said. Robin Bhar, an independent analyst at RBMC, agreed, declaring, "We have come to a point of no return where we are wrecking the planet and where we need to 'build back better’ to find a way to curb GHG emissions and global warming." 

The problem, however, is that a lot of the plans that various governments have been putting forth are just that – plans or promises – and, according to Michael Haigh, head of commodity research for Société Générale, at this time it is still uncertain how long it will take for these governmental policies to actually be implemented and when and by how much they will impact metals demand. 

Right now, recent government policies could only be described as a "patchwork", Laurent Chokouale Datou, vice president of the International Copper Association said, given that there is not any uniform set of rules, regulations or policies that apply globally.

Geordie Wilkes, head of research for Sucden Financial, noted that Europe, as part of its Green Deal initiative, is the furthest ahead in terms of green policy. But, like the European Union, the United States, the United Kingdom, Japan and China are all looking to achieve carbon neutrality by 2050, in addition to other governmental policies on the environment.

While decarbonization has become a global priority, there are many factors that play into who is doing what and to what extent. One such factor, according to Jean Simard, president and chief executive officer of the Aluminium Association of Canada, is geographical location. "Many of the countries that have already been doing something about this are those that have natural endowments or other advantages granted to us by our geographical location while some others still have a long way to go because they are at the wrong place at the wrong time," he said, noting that hydropower-based regions tend to be more northern while many industries, including metals producers, in the south tend to be more reliant upon coal-based power. 

The goal of truly getting to net zero emissions globally could be an illusion, Philip Gibbs, senior metals and mining analyst with KeyBanc Capital Markets, maintained. "But we can move the dial and even eventually get close to net zero," which is something that both governments and companies are being pressured to do.

Europe has been a pacesetter in terms of not just announcing green initiatives, but in actually taking some concrete actions to put them into play, John Mothersole, director of research for IHS Markit’s pricing and purchasing service, observed.

According to Pål Kildemo, Norsk Hydro’s chief financial officer, governmental policies aimed at environmental transformation have been on the European agenda for some time. He said that the European Green Deal – an action plan for the investments and financing tools needed to boost efficiencies and the better use of resources in an effort to create a cleaner, circular economy while also restoring biodiversity and cutting pollution – is one such action, but that the European Union also has a proposed climate law that, if passed, would take what is now just political commitments and turn them into a legal obligation.

John Anton, associate director of IHS Markit’s pricing and purchasing service, observed that Europe is also looking very hard at imposing a carbon border tax, which he said would make a lot of sense as long as other regions do the same and that they do not set the price of the tax so high that it adversely impacts the domestic industry and results in some manufacturers abandoning Europe completely. 

Donskoy observed that Europe started its journey away from fossil fuels some time ago – a move that is already resulting in a dramatic decline in coal consumption for energy generation. "It will snowball to include other countries and regions that had been hesitant," he said, noting that so far most countries focus on the development of renewable energy generation capacity, particularly wind and solar. "Hydropower also fits into this, but it is a bit different given that many mature economies don’t have a lot of underutilized hydropower potential," Donskoy added.

These moves are also branching out to some neighboring areas of green power, Donskoy said, including the development of energy storage facilities and the implementation of new solutions for distributed generation, as well the rollout of larger electric vehicle fleets. 

Wilkes pointed out that certain growing economies, such as Argentina, Saudi Arabia and Turkey, are less advanced in stimulus plans for green initiatives. Donskoy noted that some other countries, such as Russia, do not yet have a coherent state policy aimed at the transition to a zero-carbon economy. 

Both the US and China have started to look at certain actions, "But even if they do everything they can to get greener and to use metals to do that, the Earth doesn’t care where the carbon is coming from," Haigh pointed out. "If other places are still polluting heavily and not transitioning, then it makes it a lot harder."

In the US, over the past few years under the Trump administration there had been fewer green initiatives and even some reversal of previous moves, Kildemo said, pointing to the nation’s exit from the Paris Climate Agreement in that period. "But under the Biden administration, the US has been committed to address environmental challenges, including the climate crisis."

That was not surprising. "We knew that Biden would pursue a green agenda," Philip Bell, president of the Steel Manufacturers Association said. And that is what he has done. Almost immediately after he was inaugurated as president, he rejoined the Paris Climate Agreement. 

While it does not immediately impose any requirements, Paul Balserak, environment vice president at the American Iron and Steel Institute (AISI), said that re-entering the accord demonstrates a high-level commitment.

Bell noted that in February the US administration announced a $2 trillion climate plan to significantly escalate the use of clean energy in the electrical grid as well as the transportation and building sectors. In April it was announced that the federal Environmental Protection Agency (EPA) is planning a series of actions to advance environmental justice in certain marginalized communities. 

Balserak noted that the Biden administration has announced its intention to reset light vehicle fuel efficiency and emissions standards close to where they had been under Obama before the Trump administration rolled them back. There is still some debate, however, as to where exactly they will be set when the regulation is finalized this summer. 

Wilkes said that California environmental standards are also likely to return to where they had been during the Obama administration.

According to Christopher Plummer, managing director of Metal Strategies Inc., the biggest environmental push in the US came from Biden targeting a 50-52% reduction of GHG emissions from their 2005 level by 2030. This, he said, would be four times the rate of emissions reduction than the US has achieved over the past 15 years, given that, according to the EPA, the US reduced GHG emissions by 10% between 2005 and 2018. "This would seem to be a very challenging goal to meet without doing significant damage to the economy," he said.

The California-based Citizen’s Climate Lobby states on its website that climate change threatens America’s economy and maintains that a quick path to reaching Biden’s goal would be by raising the price of carbon, calling that "a tried and tested tool" with more that 45 countries around the world already doing so. 

Simard said that while the US currently has some regional carbon pricing mechanisms – most notably a cap and trade system in California – they are limited in what they can achieve as those systems are not interconnected with each other.

As is usual, the regulatory side of things in the US is moving a little quicker than the legislative side, even with several pieces of legislation that deal with carbon emissions broadly and with carbon and GHG emissions components in other legislation, Brett Smith, AISI’s senior director of government relations, noted, given that in the current political climate is it is difficult to get the unanimity in each party to move any legislation. For example, he said that even with the support for electric vehicles on Capitol Hill, it will be difficult to progress carbon reduction mandates under the guise of the proposed infrastructure legislation despite some recent attempts to do that. 

While the US is in a very partisan environment, Tom Dobbins, president and chief executive officer of the Aluminum Association, said there is growing bipartisan consensus for the need for major investment in such hard infrastructure as roads, bridges and the electric grid, which, he said is the backbone of the US economy.

Gibbs noted the importance for changes to be made in Chinese policy, given that the country accounts for a quarter or more of the world’s emissions.

Wilkes said changes have begun in China, with the country’s policies becoming increasingly environmentally focused with the nation’s 14th five-year plan placing more emphasis upon renewables and better growth as opposed to pure industrial growth, including a reduction in the carbon intensity of a lot of manufacturing. 

As part of its goal to achieve carbon neutrality by 2060, China plans to focus on developing its non-fossil energy sources, including wind and solar power and constructing more hydropower bases in southwestern China. "I am pleasantly surprised that China has been going down the green path as quickly as they have," Haigh said.  

Some industry observers question to what extent China will follow through on its plans. "China tends to talk a good game," Mothersole said, noting that while the nation is heavily subsidizing its electric vehicle (EV) industry, at the same time investments in energy-intensive heavy industries continue. And while China has added significantly to its solar, wind and hydropower generating capacity, it still has a large amount of coal-based generation capacity. 

"All of this is having a significant impact on metals," Wilkes said, including pressure to reduce China’s carbon dioxide emissions and to increase environmental, social and governance (ESG) standards. 

Bhar agreed, stating, "Achieving this green revolution will result in much higher demand for metals with most metals being winners." He said that it is almost guaranteed that there will be a surge in demand over the next 20-40 years, which will require more supply – possibly at double current levels, which has made some people question whether there will be enough supply in place. 

This view is echoed by the International Energy Agency’s (IEA’s) recent "Role of Critical Minerals in Clean Transition" report, which said that it will bolster a wide array of metals and minerals, including copper, nickel, cobalt, lithium, cobalt, manganese and rare earths between now and 2040. Demand for other metals, including aluminium and steel, is also expected to see significant growth with this transition. 

According to Haigh, while at present about 20% of copper consumption and 10% of nickel consumption is used for green applications, copper consumption for those applications is expected to increase to about 40% and for nickel consumption to about 70% by 2030.

Carlos Risopatron, director of economics and environment for the International Copper Study Group (ICSG), said that, according to ESG analysts since the global copper market is resource constrained, to meet governmental environmental policies companies throughout the copper supply chain will need to eventually decarbonize all the metal’s supply, which will require innovation and investment at every step in the chain.

Datou pointed out that investments in decarbonization, including the use of more renewable energy sources and electric- or hydrogen-powered trucks, is not new, but that the rate has clearly been accelerating. 

Bhar pointed out that supply chains for many metals – including copper, iron ore and tin – are already under strain because of the closure of some operations and the delay of some new projects or new mine openings because of the Covid-19 pandemic.  He said that metals supply chains will likely be even more strained going forward as manufacturers look for more for more copper, nickel, aluminum, cobalt and steel, given the increased demand for EVs and EV charging infrastructure, wind and solar farms, energy storage systems and other things supporting the green revolution. 

The future impact is likely to vary metal by metal, Kildemo observed, maintaining that while it creates opportunities for green players to increase their profitability, the robustness of their product offerings as well as to make further decarbonization moves, it is more challenging for players that are further behind and need to make major investments to get to a better position – even with increased governmental incentives. 

While the properties of a metal and its recyclability helps, he said that making further improvements involves looking throughout the value chain to see how to progress from the present position to as close to net zero as possible. For example, Hydro is not only changing the electricity fuel source at its Alunorte alumina refinery from coal to natural gas, but is also investigating the possibility of replacing that natural gas with hydrogen and to use some technologies that are currently in development, such as carbon capture and inert-anode carbon-free smelting technologies that Hydro, Rusal and the Alcoa/Rio Tinto Elysis joint venture are researching for aluminium production.

The steel industry also continues to move in the direction of being more environmentally responsible, Gibbs noted. That includes growing its share of electric arc furnace steelmaking and the greater use of alternative irons units such as direct reduced iron and hot briquetted iron, he said, adding that there are expectations that over time the industry will be using more off-gas collection and more renewables.

Plummer said that over time there could be more use of hydrogen to displace fossil fuels both in steelmaking and in iron ore pellet plants. Boston Metal is researching a technology to use electrolysis as an emissions-free process for the reduction of iron ore.

"There is a massive opportunity for metals and mining companies to do things the right way, including righting previous wrongs," Wilkes said. The challenge is that this will result in an increase in the cost curve, which some fear could slow the transition to a greener economy. Nevertheless, Wilkes said that metals companies will invest more into renewable electricity feeds for their production process and in new production technologies, which could increase demand for metals. 

Bell said that to some degree recent environmental policies have seen mixed results with companies trying to balance the strength of the economy with green goals. "Everyone wants a clean environment, including clean air, clean water and clean soil," he said.

Smith agreed with their importance, noting, "These issues aren’t going away. Interest will only increase from policy makers and other stakeholders. Because of that companies will continue to work to build upon the successes that they have already achieved and to help their customers meet these environmental goals as well."