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Supply chain
Why mining matters in the era of climate change
The mining sector’s ability to produce the raw materials required for climate change mitigation will have significant supply chain implications, argues IMD’s Carlos Cordon.
The traditional advice to those who find themselves in a hole is to stop digging. When it comes to mining, however, that may not be an option. Undeniably, the mining sector is a significant contributor to the climate emergency the world is facing. Equally, however, it will be difficult to resolve that crisis without significant further investment in mining capacity.
Staying on the emissions-reduction pathway agreed by the world’s major economies will require a huge shift to renewable power sources (including stored energy), new electricity-transmission infrastructure, and large-scale deployment of electric vehicles. All of these initiatives require massive quantities of industrial materials, including aluminum, copper, and the metals and minerals used in battery production, such as cobalt and lithium.
Currently, the mining sector simply isn’t producing those materials in the quantities required. One recent study suggests mining firms would need to invest nearly $1.7tn over the next 15 years to supply enough of the raw materials required for the world to hit the agreed targets. Elsewhere, the Energy Transitions Commission estimates that, since 2012, the world has been investing $45‒5bn a year in metals mining (excluding the gold and iron industries, which are less relevant to clean energy), but that this must now increase to $70bn a year over the next decade.
It doesn’t help that many of the potential solutions to climate change are so resource-hungry. A typical electric car, for example, requires six times the mineral inputs of a car powered by a traditional internal combustion engine. Similarly, construction of an onshore wind plant requires nine times more mineral resources than does a gas-fired power plant.
Miners must do more – and less
There are big question marks over whether the mining sector can rise to the challenge. The global economic slowdown of the past two years has certainly not helped, with reduced demand discouraging miners from committing to large-scale capital projects. But arguably the bigger impediment to investment is the pressure that the mining sector faces to reduce emissions, cut pollution, and pull back from perpetrating further environmental damage, with the sector currently responsible for 8% of global emissions. Ramping up or just maintaining productivity levels in the face of these imperatives is a tough ask.
However, it’s not necessarily an impossible situation. Many mining companies are already taking steps to reduce their greenhouse gas (GHG) emissions without cutting production. Electrification of mining equipment can drive improvements, for example. Optimization techniques that reduce waste and improve energy efficiency represent another possibility. Changes in production methods – such as a move from coal to green hydrogen in the steel-making process – will be beneficial, too.
In addition, mining has created or accessed geological structures that may prove useful for storing CO2, rather than releasing it into the atmosphere (carbon sequestration), a possibility that several mining companies are investigating.
Nevertheless, all these ideas will carry significant cost. Realizing them will require leadership and vision, not least from policymakers, who must demonstrate the courage to support the mining sector’s endeavors to facilitate the energy transition.
Giving a helping hand to hard-to-abate sectors will not be easy for governments under increasing social and political pressure to crack down on them. Amid concern about greenwashing on the part of both governments and corporates, sanctioning new mines or expanded capacity will inevitably prompt widespread criticism.
Policymakers must, therefore, be ready to make the argument for initiatives intended to secure the future supply chain of energy transition. They will need to be transparent, consistent and even-handed in their communications regarding such projects. Governments with a good record of acting on climate change will find this process easier to navigate than those perceived to be poor performers.
New headaches for supply chain leaders
For other organizations, there will be significant supply chain implications. Any organization that needs to secure materials such as copper, aluminum, lithium, or cobalt, for whatever purpose, will find itself facing ever stiffer competition in the market. Moreover, prices are already rising. The average price of seven metals used to manufacture offshore wind turbines, for example, rose by 93% between January 2020 and March 2023, according to data from Energy Monitor.
There is also a significant danger that organizations will find themselves caught up in geopolitical tensions. In many cases, the supply of clean-energy minerals is highly concentrated in a small handful of countries. That makes it challenging to diversify supply chains to manage risk and leaves organizations vulnerable to political interventions.
Indeed, critical minerals are already a top-of-the-agenda item in international diplomacy circles. Indonesia, for example, has sought to secure more favorable trade deals with the West by offering to sell more of its nickel, which is vital to electric vehicle manufacturing. China’s decision earlier this year to restrict exports of two rare earth minerals, gallium, and germanium, is a good example of how political tensions can quickly feed into trade disruption.
Certainly, extractive industry executives have some tough decisions ahead of them; the choices they make will impact supply chain leaders in a range of sectors around the world.
Moreover, many resource-rich countries are far from politically stable. The Democratic Republic of Congo (DRC), for example, a crucial source of cobalt, has been plagued by civil war and insurrection. Niger, the scene of a recent coup, is a significant player in the production of uranium for use in nuclear power plants.
Western governments, moreover, may feel compelled to intervene directly in supply chains. Where a material is in short supply, it is not difficult to imagine policymakers directing resources to those projects they expect to deliver the most significant climate change benefits.
With supply chains potentially becoming tools in political maneuvering, certain industries will come under increasing pressure. Copper, for example, is hugely important to manufacturers and producers in industries from construction to transport. However, it is also widely used as a conductor in electrical renewable-energy components, such as turbines, generators, transformers, and inverters, as well as in transmission infrastructure. By 2030, analysis suggests, there will be a 6.5-m-tonne deficit between demand for and supply of copper.
Even stockpiling (assuming it is a possibility) may not provide the means to avoid supply chain disruption. However, in the face of the climate emergency, no market intervention is off the table. Industries may be compelled to share resources, either by their own governments or by the compulsion of international agreements.
Mining’s climate change dilemmas, in other words, will have ramifications that go well beyond the mining sector. Certainly, extractive industry executives have some tough decisions ahead of them; the choices they make will impact supply chain leaders in a range of sectors around the world. Planning ahead to absorb those impacts, particularly in a world of mounting geopolitical risk, will prove exceptionally challenging.
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