Mining's green road

With the ever-increasing likelihood of increased carbon emission regulation, taxation and divestment, the pressure is on for mining companies to act. Forward-thinking miners adjusting their carbon footprint are already experiencing benefits, including higher valuation multiples, greater access to investment funding and reduced costs from energy savings. Equally important, they’re attracting talent passionate about sustainability.
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Marc Schmidt, Martin Feth, Patrick Herhold and Caitlin Baker*

In ‘Changing climate offers risks, opportunities for mining companies we outlined three pillars that define a holistic response to a changing business and regulatory climate: a low-carbon business strategy; ‘climate-proofed' mining operations; and honest, effective stakeholder narrative and engagement.

Here we focus on emission-reduction programmes and measures.

Leading mining majors have already made progress reducing Scope 1 greenhouse gas (GHG) emissions (those generated by mining operations) and Scope 2 emissions (generated by third-party facilities supplying electricity or steam). They're setting even more ambitious targets for the longer term, striving toward net-zero mining operations by mid-century (see figure 1, below). Whether accelerating current efforts or stepping into emissions reduction for the first time, mining companies will need a structured approach to achieve required results.

Wanted: a structured approach

Reducing emissions in mining comes with challenges.

Companies must set appropriately ambitious reduction targets, often with limited understanding of where their GHG emissions currently stand. Moreover, they must evaluate emission-reduction levers from a complex array of options (ranging from straightforward efficiency improvements to developing new carbon-reduction technologies) that often exert a deep impact on operations. A structured approach can help miners surmount these and other challenges.

Emission-reduction programmes can be likened to cost-reduction efforts. Both are characterised by rigorous programme governance - such as a steering committee, centralised support, clear targets and disciplined tracking and reporting. As with cost-cutting initiatives, emission-reduction programme managers have several management approaches available to them, depending on their level of ambition:

  • Full programme. Best suited for ambitious emission-reduction goals (such as reducing total emissions by 25% within a specific timeframe), full-fledged programmes are designed to tackle all structural levers, prioritised by efficiency. This is high effort, often requiring central programme coordination and local implementation resources.
  • Lighthouse project. For tackling a large emission source or project with complex technical changes, lighthouse projects guide and inspire future efforts. They should be reasonably scoped for medium effort by a designated project team.
  • Line efforts: For incremental emission reduction in a company with an established low-carbon mindset, low-effort projects at the level of individual business lines can be launched - such as improving carbon budgeting and control.

Regardless of approach, miners must answer four crucial questions:

  • Baseline: What is our current GHG footprint, and how will it affect our business in the future?
  • Targets: What is the right ambition level and target-setting approach for us?
  • Reduction measures: Which abatement technologies are most feasible and cost-efficient for us?
  • Implementation: How can we execute our emission-reduction programme successfully? Do we need a central coordination team or local project team?

Because targets set the ambition level, they ultimately drive the scale and recommended approach of an emission-reduction programme. For this critical step, miners can use either a benchmark lens, establishing targets in line with competitors, or a leadership lens, selecting science-based targets. Science-based targets are certified as appropriately ambitious by the Science Based Targets initiative (SBTi) only if they represent an emission reduction well below the 2C or 1.5C pathways for Scope 1 and 2 emissions. In the future, SBTi will only approve emissions-reduction targets at or below the 1.5C path.

Understanding emissions sources and abatement levers

Every mining company has a unique GHG emissions footprint, depending on factors including geography, technologies used and commodities mined. Scope 1 emissions are often driven by fugitive emissions (for example, when trapped methane and CO2 are released during coal mining) and by use of fossil fuels at the mine site (such as diesel use in trucks). Scope 2 emissions can often prove as great as Scope 1, owing to the large energy requirement for processing or smelting.

To mitigate Scope 1 and 2 emissions, miners can select initiatives from five key abatement levers (see figure 2, below). Some initiatives (such as operational-efficiency improvements) are already in common practice today and can generate immediate cost savings, often with minimal capital expenditures.  Other initiatives (namely, installing renewable energy on site) will require significant capex and capability strengthening. In the case of carbon capture or synthetic fuels, they'll deliver more benefits as the relevant technologies mature.  

 

Spotlight on Scope 3 emissions

 

Miners must increasingly manage Scope 3 emissions--those generated by suppliers, third-party transportation services and the processing and use of their products. These are often more difficult to address because they lie further outside a miner's control. The SBTi already requires that targets include Scope 3 when such emissions are 40% or more of total emissions, which is the case for many miners. Miners that put this imperative on their priority lists now will be ahead of the game later, as we discussed in ‘Bigger role for miners in carbon fight.'

 

Prioritising abatement levers

Abatement levers differ in cost to implement, magnitude of emission-reduction potential, maturity of the relevant technologies and degree of regulatory or social support. To determine which levers to pull, miners must weigh trade-offs related to each lever's feasibility and attractiveness within the context of their own operations. Miners can then categorize abatement levers into different levels of priority, including:

  • Wait. Hold off deploying a particular lever until the required technology is sufficiently mature.
  • Score ‘quick wins.' For levers that are highly feasible in terms of technology maturity and regulatory support and that have a positive business case (reducing both emissions and costs), aim to score ‘quick wins.' Examples include improving electricity efficiency in crushers and smelters or boosting metals recycling and reuse.
  • Put on the ‘radar screen.' For high-cost but high-feasibility levers, designate these as ‘on the radar screen.' Examples include use of surface boreholes and methane for power and heat generation.
  • Designate for selective development and R&D. For high-cost, low-feasibility levers, selectively invest in development. Cases in point include synthetic fuel production and green H2.

By applying this approach to prioritising abatement levers, some mining companies have defined emissions-reduction programmes tailored to their unique circumstances. To illustrate, earlier this year, Anglo American announced advancing plans to convert its fleet of diesel-fuelled mine-haul trucks to hydrogen power, in a programme aimed at reducing Scope 1 emissions. It intends to pilot this project at its openpit Mogalakwena operation in South Africa, including using an electrolyser to produce hydrogen on site and fitting the trucks with a combination fuel cell and battery system.

Meanwhile, to mitigate Scope 2 emissions, BHP announced plans to supply its Escondida and Spence copper operations in Chile with 100% renewable energy sources by the mid-2020s. BHP has already signed contracts with green-energy providers, which are expected to displace 3 million tonnes of CO2 per year while reducing energy prices by an estimated 20%.

A ‘quick win' case in point

 

BCG partnered with a mid-size coal miner to craft an emissions-reduction strategy, focusing on initiatives that could be implemented within a year. The initial concentration on Scope 1 and 2 abatement levers would generate early results while also building momentum for future reduction projects. Examples included switching to biodiesel as a fuel, optimising truck routing and automating control of air-conditioning equipment at the company's operations.

These efforts, while relatively simple and short term, enabled the company to reduce total mining-operations emissions by 14% between 2018 and 2019, even as it boosted product volumes, due to a decrease in emissions intensity (kg of CO2-equivalent emissions per unit volume of product) by 25% (see figure 3, below).

Mining companies can't afford to ignore the emissions-reduction imperative. Those that invest time and effort now in setting up abatement programmes will stand the best chance of emerging as leaders in the fight to defeat the worst effects of climate change. Adopting a structured approach can help them take the first steps along this worthwhile path.

*Marc Schmidt (Schmidt.Marc@bcg.com) is a managing director and partner at BCG. Martin Feth (Feth.Martin@bcg.com) is a partner and associate director at BCG. Patrick Herhold (Herhold.Patrick@bcg.com) is a managing director and partner at BCG. Caitlin Baker (Baker.Caitlin@bcg.com) is a project leader at BCG.