Back to Sustainability Blog

Here’s how the mining industry can respond to climate change

Building a climate strategy won’t be quick or easy—but waiting is not an option.
Kimberly Henderson

Supports companies, investors, and public and social sector entities to address climate change

jukka maksimainen

Leads the Helsinki office and global work in basic materials, using global experience in serving natural-resources companies, advanced-industries companies, and financial institutions

Although the COVID-19 crisis has understandably consumed the attention of mining executives around the world, the threats that mining companies face because of climate change remain urgent. Forecasts indicate that climate hazards such as heavy precipitation, drought, and heat will get more frequent and intense, increasing the physical challenges to mining operations. Widespread decarbonization efforts across industries could create major shifts in commodity demand for the mining industry. And the mining sector, responsible for 4 to 7 percent of greenhouse gas (GHG) emissions globally, will also face pressure from governments, investors, and society to reduce emissions. Scope 1 and Scope 2 CO2 emissions from the sector (those incurred through mining operations and power consumption, respectively) amount to 1 percent, and fugitive methane emissions from coal mining are estimated at 3 to 6 percent.1 A significant share of global emissions—28 percent—would be considered Scope 3 (indirect) emissions, including the combustion of coal.

Mining companies must prepare for climate hazards. Today, 30 to 50 percent of production of copper, gold, iron ore, and zinc is concentrated in areas where water stress is already high. Climate change is expected to cause more frequent droughts and floods, altering the supply of water and disrupting operations. Even in areas with low water stress, certain water-intensive mining processes can be jeopardized. In Germany—not a country known for being vulnerable to drought—a potash miner was forced to close two locations because of severe water shortages in the summer of 2018, losing nearly $2 million a day per site.

Another issue for mining companies is shifting demand for minerals. Significant growth of low-carbon technologies, such as wind turbines, solar photovoltaics, and electric vehicles, should boost demand for the raw materials needed for these technologies. As the global electrification of industries continues, electric vehicles and batteries will create growth markets for cobalt, lithium, and nickel. Deep decarbonization of industrial segments would also favor green hydrogen and biomass over metallurgical coal. According to our analysis, to achieve a 1.5oC pathway, the amount of coal used to manufacture steel would need to decline by 80 percent by 2050, compared to current levels. Thermal and metallurgical coal are currently about 50 percent of the global mining market and would be the most obvious victim of such shifts.

In addition, any serious effort to implement Paris Agreement goals for limiting global warming would require participation from the entire mining value chain. Large capital investments are required for mines to fully decarbonize, but certain measures, such as adopting renewables, electrification, and operational efficiency, are economical today for many mines.

Shifting to renewable sources of electricity is increasingly feasible, even in off-grid environments, because the cost of battery packs is projected to halve from 2017 to 2030. Codelco, for instance, uses solar power for one of its copper mines in Chile, and Fortescue Metals Group is investing in renewable energy at its iron ore mines in the Pilbara region in Australia. BHP, a multinational mining company, recently signed contracts for renewable energy at its Escondida and Spence copper mines. For the average on-grid mine, there are usually several percentage points of energy efficiency improvements to reduce operating costs and indirect emissions from the electricity consumed, such as reducing the idle time of equipment.

Another economically viable decarbonization option is to electrify mining equipment, such as diesel trucks and gas-consuming appliances. Right now, only 0.5 percent of mining equipment is fully electric. However, in some cases, battery electric vehicles have a 20 percent lower total cost of ownership versus traditional internal combustion engine vehicles. Newmont, for example, recently started production at its all-electric Borden mine in Ontario, Canada.

Some decarbonization actions will benefit the bottom line, while others will prioritize social responsibility. Several big mining companies have installed their own sustainability committees, signaling that mining is joining the wave of corporate sustainability reporting and activity. Reporting emissions and understanding decarbonization pathways are the first steps toward setting targets and taking action.

Future regulatory and technological developments may change the viability of certain decarbonization actions, but one thing is certain: The business case will vary for each mine—and each company. To effectively respond to the impact of climate change, mining executives should take five main actions:

  1. Perform an end-to-end diagnostic of climate change’s effects on the business to understand which assets to protect from physical climate change and which stand to gain or lose from decarbonization.
  2. Mobilize the C-suite and the board to set ambitious climate targets that come from the top.
  3. Shift to renewables, which can lower the mine’s electricity costs and reduce volatility.
  4. Introduce “climate intelligence” to decision-making processes, such as capital allocation.
  5. Engage through reporting, partnerships, and other proactive measures, such as climate risk disclosures, which will become more important as climate expectations mature.

As recent McKinsey analysis illustrates, every part of the economy would need to decarbonize to achieve a 1.5 degree Celsius warming pathway. Yet actions taken to date by the mining industry are too modest to reach this scenario and may not be keeping up with society’s expectations, as increasingly voiced by investors seeking disclosures, companies asking their suppliers to decarbonize, and communities advocating for action on environmental issues. Mining companies concerned about their long-term reputation, “license to operate,” or contribution to decarbonization efforts may start to consider more aggressive decarbonization and resilience plans, even as part of their recovery agendas for the post-COVID-19 period.

Read more in our article “Climate risk and decarbonization: What every mining CEO needs to know”.

1 Emission estimates are based on research by McKinsey’s Basic Materials Institute. The range of fugitive methane emissions is a function of the time horizon at which the warming impact of methane is calculated. The lower number refers to global warming potential on a 100-year time frame (GWP100), and the higher number refers to global warming potential on a 20-year time frame (GWP20).

Stay current on your favorite topics