The economic case for the mining industry to support carbon taxation

As governments try to navigate their way to a safe climate in the 21st century, public debate has focused on net zero, carbon taxes, electrification and renewable energy. Mining is rarely a focus of discussion, even though renewable energy infrastructure and low-carbon technologies require large amounts of metals and minerals.

Nickel, for example, is essential for electric vehicles and battery storage. The amount of nickel needed by 2040 for the energy transition alone will be equal to total nickel demand in all industries in 2020, according to the International Energy Agency.

There is a broad consensus among economists that carbon taxation is one of the most effective policies to reduce carbon emissions. Currently, 27 countries have adopted a national carbon tax policyyet only seven are leading mining countriesand mining companies and industry organizations oppose carbon taxes in many of these countries.

The fight against climate change requires a coalition between industry and government. The idea that the industry providing the technology for renewable energy also opposes the economic policy needed to reduce emissions is counterproductive.

Simple economic modeling proves that resisting a carbon tax is the wrong strategy for industry. Our recent article shows that the mining industry has an economic incentive to support a tax on carbon dioxide emissions.

Opposed to taxes

The mining industry has historically opposed taxes, particularly carbon taxes. When Australia introduced a price on carbon emissions in 2011the Minerals Council of Australia conducted a multi-million dollar campaign against carbon tax policy even if there is tax relief provisions for emissions-intensive industries such as steel and coal.

Australia’s carbon tax policy was repealed in 2014but some mining groups support carbon taxes. BHP Billiton Ltd. supported carbon pricing in 2017 and distanced itself from the Minerals Council of Australia.

This fractured industry view of carbon pricing is also present in Canada. Some mining companies have publicly committed to carbon neutrality by 2050but there has been opposition from some industry groups at the provincial level.

Forecast evolution of copper and nickel demand for energy transition technologies. The solid bars indicate the amount of metal demand projected for the energy transition, while the transparent bar indicates the actual total demand for copper and nickel across all industries in 2020. Credit: Cox et al. 2022

No more metals, a little CO2 in

Many factors throughout the mining process contribute to carbon emissions. The product being mined strongly influences the amount of emissions and where the emissions are generated throughout the mining process.

For iron and steel, most emissions are generated in the later stages during melting. Copper ore mining, on the other hand, generates most of its emissions in the early stages during crushing, grinding and ore transport.

One way to examine the impacts of carbon taxation in the mining sector is to compare the carbon footprint of the raw material to its economic value. For example, the average carbon footprint of copper is 3.83 tonnes of carbon dioxide per tonne of copper.

So for every ton of carbon dioxide emitted, 261 kilograms of copper worth US$1,700, using 2019 copper prices, are produced. This is a relatively high value. The same cannot be said for other industries, such as livestock, where one tonne of carbon emissions corresponds to about US$125 of wholesale beef (using 2019 equivalent prices).

How would a carbon tax affect mining?

The basic principles of a carbon tax are that more carbon-intensive industries will be taxed more. Our study tested three levels of carbon taxation: $30, $70, and $150 per tonne of carbon dioxide, and compared them to commodity prices in 2019. These levels closely track the pan-Canadian approach to pricing carbon pollutionwhich are currently set at $50 per ton and will increase by $15 per year to reach $170 in 2030.

We modeled the impact of a carbon tax on a range of raw materials. Our model included all Scope 1 and Scope 2 emissions— direct emissions from the source and indirect emissions associated with heating, cooling or electricity. The production of some commodities is more carbon intensive than others, which affects the impact of the carbon price.

The impact of three levels of carbon taxation (US$30, US$70, and US$150) modeled as a percentage of current product value for selected products. This shows that most mining and energy transition commodities will not be taxed to the same degree as other commodities. Credit: Sally Innis, Benjamin Cox, John Steen and Nadja Kunz

In some cases, the carbon tax may be higher than the value of the product. When the carbon price is US$150, coal is taxed at 144% of its value. Copper, on the other hand, is taxed at 10% of its value.

Two metals are outliers for the industry: aluminum and steel. The extraction of raw materials is not carbon intensive. Bauxite and iron ore generate 0.005 and 0.02 tonnes of carbon dioxide per tonne of product, respectively, but smelting these ores into metals emits more carbon during production.

Mining for carbon taxes

Outside of aluminum refining and steel mills, the mining industry will perform better with a carbon tax than it would without. In effect, the carbon tax would increase the price of fossil fuels relative to renewable energy and the materials needed for renewable energy technology.

For example, the costs of coal used for power generation will more than double, making electricity generated from coal increasingly uncompetitive. Growing demand for solar and wind power will drive further increases in the consumption of base metals for wind turbines and solar panels.

If implemented globally, a carbon tax would not change the underlying cost of the base metals business, but it has vast financial benefits for the mining sector. These benefits come from the increased demand for metals linked to the energy transition, coupled with a relatively lower percentage of global carbon taxes, compared to other industries.

Rather than opposing carbon taxes, the mining sector should become a global advocate for aggressive carbon targets, harmonization of international carbon taxes, and pursuing further emissions reductions such as fleet electrification Where carbon offsets.

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