Metals out, a little CO2 in
There are many factors throughout the mining process that contribute to carbon emissions. The commodity being mined heavily 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 smelting. Mining copper ore, on the other hand, generates most of its emissions in the earlier stages during the crushing, grinding and hauling of ore.
One way to look at the impacts of carbon taxation in mining is to compare the commodity’s carbon footprint 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 each tonne 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, like animal agriculture, where a tonne of carbon emissions corresponds to about US$125 of wholesale beef (using equivalent 2019 pricing).
How would a carbon tax affect mining?
The basics of a carbon tax are that more carbon-intensive industries will be taxed more. Our study tested three levels of carbon taxation: US$30, US$70 and US$150 per tonne of carbon dioxide, and compared them against commodity prices in 2019. These levels closely follow the Pan-Canadian approach to carbon pollution pricing, which are currently set to $50 per tonne and increase $15 per year to $170 in 2030.
We modelled the impact of a carbon tax on a range of commodities. 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-intense than others, which affects the impact of the carbon price.
In some cases, the carbon tax can be greater than the product’s value. When the price of carbon is US$150, coal is taxed at 144 per cent of its value. Copper, on the other hand, is taxed at 10 per cent of its value.
Two metals are outliers to the industry: aluminum and steel. The mining of the raw materials are 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 in 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 one. This is because the carbon tax would increase the price of fossil fuels relative to renewable energy and the materials required for renewable energy technology.
For example, the costs of coal used for energy production will more than double, making electricity from coal increasingly uncompetitive. The rising demand for solar and wind power will drive further increases in the consumption of base metals for wind turbines and solar panels.
If implemented on a global scale, a carbon tax would not change the underlying cost of the base metal business, but it does have vast financial benefits for the mining sector. These benefits come from the increased demand for metals from the energy transition, paired with a relatively lighter percentage of global carbon taxes, in comparison to other industries.
Rather than opposing carbon taxes, the mining sector should become a global advocate for aggressive carbon targets, the harmonization of international carbon taxes and pursue further reductions to emissions such as the electrification of fleets or carbon offsets.