By Robert Milbourne, Partner, Registered Foreign Lawyer at K&L Gates
After months of lead-up and two weeks of negotiations, the COP21 talks resulted in the ‘Paris Agreement’, which is being proclaimed as an historic deal and one that could herald a massive shift to a low carbon future.
CLIMATE sceptics still abound but there now seems near universal agreement that mitigation and abatement are appropriate insurance policies for future generations, regardless of the current science. With that in mind 190 countries and 40,000 delegates gathered from November 30 to December 11 in Paris to reach agreement on the most far reaching emissions abatement targets ever set.
Scientists may still question whether the proposed targets will protect the planet from the 2 degree threshold that may signal no return, but they cannot question that the world is now firmly focused on practical and pragmatic steps to achieve a lower carbon economy. Here are some takeaways for mining and resources firms:
1. Will global policies move toward abatement of supply or demand?
If supply, then resources firms will have to prepare for a new thicket of regulations that will make new production more challenging; if demand, then subsidies and other consumer driven policies will likely be abandoned. As the issue is not settled, the global resources community has an opportunity to make its views heard. One might think that there would be greater benefit if consumer subsidies were reallocated into climate mitigation mechanisms, rather than leaving subsidies for consumption in place while placing hurdles on new supply.
2. Funding the poor to minimize economic consequences of lower carbon intensity
One of the greatest questions of COP21 was whether a mooted US$100bb per year (until 2020) grant funding mechanism will be mandatory or voluntary. In the end, the target was placed in the non-binding pre-amble but not in any binding aspect of the accord.
This is more than a charity exercise. India and China are among the world’s largest carbon emitters, and are set to expand emissions significantly. If they are expected to reduce emissions on a proportionate basis greater than later stage service sector economies in Europe for example, then a question of fairness, equity, and more importantly probable success are brought into question.
Resources firms have a stake in this outcome. US$500bb over the next five years can go to cleaner fuel, carbon capture and storage, and delivery of clean gas fired cooking units for the tens of millions around the world who still combust firewood for heat and cooking. Moving from ‘dirty’ to ‘clean’ energy, in part supported by the COP21 financing mandate for poor countries, can provide an opportunity for the resources sector to add value through what it does best - extract quality resources and transport them efficiently to where they are needed most.
In Australia, innovation has become the word of the moment. The mining industry may have an enormous growth opportunity concerning the interaction of carbon dioxide and minerals such as magnesium silicates (to form solid carbonates). Mineralization can occur naturally between the atmosphere and rocks and can remain stable for long periods of time. The trick is to accelerate this process.
It appears, for example, that processing ammonium salts and magnesium silicate serpentine rocks can capture significant amounts of carbon. Further, it appears that some of the by-products of these reactions can produce useable iron oxide for steel. The extractives industry could have a monumental new industry to extract minerals that can interact and solidify atmospheric carbon. This research should be among the highest priorities of struggling resource firms.
One clear lesson from COP21 is that the extractives sector has an enormous political relations problem. This is no longer a question of corporate social responsibility reputation - it now comes to the very essence of the core of the extractives sector. If the world community begins to see mining in the same light as, for example, the tobacco industry, then the challenges for continuing in business and making positive contributions to society will be severely threatened.
By many accounts COP21 showed that extractives firms rapidly lost ground in Paris and it will help no-one if extractives sectors are essentially silenced. The fossil fuel divestment movement has already gained speed but the counter argument that climate friendly investors need to be at the table in the extractives industries to drive the change they see as positive, may ultimately prove counterproductive (from the perspective of the divestiture movement). If clean coal, for example, remains in the ground while brown coal and peat is burnt instead then there will be a very material deterioration in climate abatement achievement. This story does not seem to be told clearly, and the extractives firms have an opportunity and arguably a responsibility, to clarify the value options the community is presented with.
COP21 is not the end and it confirmed that the current targets may not be enough to stop irreversible change. Accordingly, further and regular meetings with increasingly stringent obligations will be required.
How can the extractives industry respond? It must make clear the trade-offs between where fossil fuels come from and which are most cost efficient. For example, cheap thermal coal may leave ‘excess funds’ available for more valuable environmental protection efforts of global rainforest environments that could have a greater impact than eliminating fossil fuel consumption altogether. One does not preclude the other.
In addition, extractives firms must make clear that everything on earth comes from mining/petroleum or agriculture. If we want a cleaner world, we cannot achieve it by stopping the industry that feeds our cars, wind turbines, homes and solar panels. We must integrate the industry into the solution as a valuable, respected and integral participant.