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The economic case for carbon taxation in the mining industry

The economic case for carbon taxation in the mining industry

a graph showing projected demand for copper and nickel increasing over time.

As governments attempt to find a way to a safe climate for the 21st century the public debate has been on net zero, carbon taxes and electrification. Despite the fact that low-carbon technology and infrastructure require large amounts of metals and minerals, mining is not often a focal point of the discussion.

Nickel is, for instance, essential for electric vehicles or battery storage. Only the amount of nickel needed for the energy transition will be sufficient to meet demand by 2040. The International Energy Agency estimates that the total demand for nickel in 2020 will be equal to the total demand across all industries..

a graph showing projected demand for copper and nickel increasing over time.
Projected demand growth for copper- and nickel-based energy transition technology. The solid bars represent the projected amount of metal demand for the energy transition technology, while the transparent bar represents the actual total demand for copper or nickel across all industries in 2020.
(Cox et al. 2022)

Economists agree that there is a consensus that Carbon taxation is one of most effective ways to reduce carbon emissions. Presently, 27 countries have adopted a carbon taxation policy at their national level.Yet, it is the only way. Seven countries are the most important in miningMany countries in these countries have carbon tax laws that are opposed to mining companies and other industry organizations.

To address climate change, industry and government must work together. It is counterproductive to assume that the industry that supplies technology for renewable energy opposes the economic policy necessary to reduce emissions.

Simple economic modeling shows that resisting the introduction of a carbon tax is not the best strategy for the sector. Our recent paperIt is clear that the mining industry has an economic incentive for a carbon dioxide tax.

Opposed to taxes

The mining industry has always opposed taxes, particularly carbon taxes. When Australia introduced a price for carbon emissions in 2011.The Minerals Council of Australia was the leader in a Multi-million-dollar campaign to stop the carbon tax policyEven though there are Tax-relief provisions are available for emissions-intensive sectors like steel and co.

In 2014, the Australian carbon tax policy was abolishedHowever, some mining companies support carbon taxes. BHP Billiton Ltd. backed carbon pricing in 2017 but distanced itself from Minerals Council of Australia.

This fractured industry perspective on carbon pricing is also prevalent in Canada. Some mining companies have made public commitments for carbon neutrality by 2050However, there has been opposition from some industries at the provincial level.

Metals out, a little more CO2 in

Many factors contribute to carbon emissions during the mining process. The commodity being mined has a significant impact on the amount and location of carbon emissions.

Iron and steel are most likely to emit emissions in the latter stages of production. smelting. However, most of the emissions from copper ore mining are generated in the early stages. During the crushing, grinding, ore hauling.

One way to look at the impacts of carbon taxation in mining is to compare the the commodity’s carbon footprint to its economic value. For example, Copper’s average carbon footprint3.83 tonnes of carbon dioxide per ton of copper.

Based on 2019 copper prices, that’s 261 kilograms of copper for every tonne carbon dioxide. This is a high value. This is not true for other industries like animal agriculture. A tonne of carbon emission corresponds to approximately US$125 worth of wholesale beef (using the equivalent 2019 pricing).

What would a carbon tax do to mining?

The basic idea behind a carbon tax is that more carbon-intensive industries would be subject to higher taxes. Our study compared three levels of carbon taxes: US$30 to US$70 and US$150 for a tonne of carbon dioxide. These levels are closely related The Pan-Canadian approach towards carbon pollution pricingThey are currently set at $50 per tonne, and will rise $15 per year to $170 by 2030.

We modeled the impact of a carbon-tax on a variety of commodities. Our model included all Scope 1 and Scope 2, respectively, — direct emissions from the source and indirect emissions associated with heating, cooling or electricity. The carbon price will be affected by the fact that some commodities are more carbon-intensive than others.

In some cases, the carbon tax can be greater than the product’s value. If carbon’s price is US$150, then coal is taxed at 144% of its value. Copper, on the contrary, is subject to a 10% tax.

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The impact of three levels carbon taxation (US$30-$70 and $150) was calculated as a percentage on the present value of selected commodities. This shows that the majority of energy transition and mining commodities will not be subject to the same taxation as other commodities.

Aluminum and steel are two exceptions to the industry. The extraction of the raw materials is not very carbon-intensive. Bauxite, iron ore, and iron ore each produce 0.005 tonnes and 0.02 tonnes respectively of carbon dioxide per tonne. However smelting these metals into metals produces more carbon.

Mining for carbon taxes

A carbon tax will make the mining industry more efficient than it would without one, except in the case of steel mills and aluminium refining. This is because a carbon tax would cause a rise in the cost of fossil fuels relative it renewable energy and the costs of materials needed for renewable energy technology.

To illustrate, the cost of coal to produce electricity will more than double. This will make electricity from coal less competitive. The demand for more solar and wind power will result in an increase in the consumption base metals to make solar panels and turbines.

Although a carbon tax on a global basis would not reduce the underlying costs of the base metal business it would have enormous financial benefits for mining companies. These benefits result from increased demand for metals due to the energy transition. They are also accompanied by a smaller percentage of global carbon tax, compared to other industries.

Instead of opposing carbon taxes, the mining industry should be a global advocate for aggressive targets and the harmonization international carbon taxes. Electricification of FleetsOr Carbon offsets.

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