This article is a transcript from our Assay Live webinar series. It was recorded live in January 2022 and features Joseph Jacobelli, Founder & Managing Partner, Asia Clean Tech Energy Investments; Sophie Lu, Principal – Carbon Management, Scope 3, BHP; and Nick Smith, Executive Director, Growth & Low Carbon Division, Department for Energy & Mining, South Australia.
Last year’s meetings for COP26 saw a lot of countries committing to further accelerating their decarbonization plans and strengthening emissions reduction targets ahead of the timeline set out in the Paris agreement. What were some of your main takeaways from the COP26 meetings? Do you think these goals are necessarily achievable, and what are some of the requisites to get us there?
Joseph Jacobelli: Australia came up with the 2050 target, although there’s a lot of debate around what the target means. Really, government commitment is important for investors because it gives some clarity and transparency in terms of long-term investments. Energy is long-term.
We’ve seen a massive amount of money is available now for renewable energy. My personal takeaways are the renewed government commitments, which are really important for investment clarity. Secondly is the additional and enhanced financing channels and sources.
Nick Smith: I think for me the big takeaway from COP26 was really the increased ambitions from most countries around the world. There’s been a lot of stimuli more broadly coming from governments into clean tech. The impressive thing is that now you’ve got the finance industry and shareholders asking, “What are we doing to help decarbonize and how are we going to stay relevant in the future?”
Sophie Lu: Specifically, for the global diversified miners, the major lessons from COP26 would be three things. The first one is this acceleration of ambition, which is aligned with the acceleration of the problem. The mining sector is very aware of this need for an acceleration of all ambitions and is very focused on looking at our operations and what we can realistically achieve.
A second major thing is the increasing focus away from decarbonizing just the operations and mining itself, to the emissions of our customers. While we can work with our customers and partners to try to promote the development of technology or provide the products that would feed into lower emissions intensive processes, at the end of the day, it is outside of our direct operational control.
And then a third major theme is adaptation the physical adaptation to climate, and ensuring that our operations continue to operate smoothly and safely going into the future is going to be a major concern as well.
It’s interesting you bring up the scope three challenges that large miners, such as BHP, are facing. Do you see any concrete examples of how those are being addressed right now?
Sophie Lu: A challenge that we face, particularly for the downstream sector in steel production, is that the conversations currently dominating technology pathways for the decarbonization of steel are more focused on the European or American markets. A very large portion of our customer base in Asia and developing Asia for that matter are on a different technology trajectory. They’re on a different timeline to decarbonization and face different constraints in terms of the systematic structural ability to shift.
Nick Smith: I can give a concrete example of BHP being fantastic, they’ve signed a PPA for the MEGT Olympic Dam to supply most of the power up there from renewables. And I think that a power purchase agreement that looks to decarbonize most of their electricity suppliers is a fantastic step forward. And I think that those are the sorts of things that we’re seeing. Wind and solar now at a very cost-competitive environment.
There’s a lot of interest around how you decarbonize and move away from diesel, which is not easy. But I think that’s where technology having a slightly higher risk appetite becomes really important and governments need to play a role in terms of helping to create the policies to de-risk those settings even further.
Sophie Lu: The decarbonization trajectory for the Scope 1 and 2 emissions of mining does mean launching interesting opportunities for innovation and investment in the Australian market. A smaller portion of Scope 3 which doesn’t get talked about as much, is the emissions related to procurement. BHP works closely with its supply partners in Australia and other countries to address its supply chain emissions. Very similar to the way that our customers, such as Tesla, works with us to reduce their supply chain emissions.
Whose role and responsibility is it to manage these emissions? Who’s pushing these agendas forward? And how do government regulations, and everything associated with them, play into this?
Joseph Jacobelli: In my view, it’s really an ecosystem. But the starting point is government policy. If you don’t have government facilitation towards the energy transformation then it’s going to be very difficult for it to happen. Australia should be a template for what all countries should be doing. But I don’t think it’s publicized in terms of all the efforts that have been made. Overall, I think government policy is the starting point.
Nick Smith: Having the ambition and setting the aim is really critical to informing stakeholders. It’s not government’s role to fund all of this side of things, but I think there’s a role for government to play in funding the gap between commerciality and technology development in part. I think industry also needs to bear some of that as well.
So, as you say, Joseph, it’s an ecosystem. In South Australia, we transitioned. Our last coal fired power station shut down in 2016. And we’ve gone from 1% renewables in 15 years to 62.5% in the last financial year. There’s an enormous amount of work and knowledge that’s been gained in integrating clean energy into an economy. How do you then take knowledge and encourage industry, how do you actually help other countries and other organizations to achieve that zero 2050 ambitions?
Joseph Jacobelli: I don’t think we expect governments to go out and just fund everything. Its more about whether the policy is clear and transparent. It’s great that you get this kind of push from the individual states in Australia. But again, if you don’t have the federal government coming through and then saying, “Yeah, we’re good with this. We endorse this,” then it’s difficult.
Sophie Lu: I don’t think decarbonization is the responsibility of the mining sector. It’s a question of opportunity. It’s about streamlining our operations so we are not only reducing our carbon intensity, but also reducing the future costs of our operations, potentially improving the health and safety of the working environment for our employees, and also the environment for our community. There’s a lot of knock-on benefits for decarbonization.
And then within Scope 3, it’s about how we shift the portfolio and the product mix to meet the evolving needs of our customers. How many sectors can say that their customers have given them a 30-year lead notice on what it is that they wish to buy one day?
Governments need to be constantly looking at how we engage with stakeholders
A part of this energy transition requires an incredible amount of new metal supply to help with the build out of renewables and batteries. What role or responsibility does the mining industry have to ensure the supply? How do the financial institutions and government play into the growth of the mining industry and help to spur more exploration to ensure that we have the supply that we need to meet future demand?
Nick Smith: Solid demand will automatically push explorers into finding new areas. But I think some of the stuff that we’ve done in South Australia over the last few years has really been to co-invest with the industry around exploration, through accelerating the discovery of those areas and new resources that are competitive. And then I think the question is, how does government reduce the red and green tape to go from discovery to operation at a much faster rate?
As we electrify more, we’re going to need more metals. Governments need to be constantly looking at how we engage with stakeholders. Also, how we use automation of some processes to make it easier for customers to engage with us. It’s about learning those sorts of things and defining the pathways more clearly.
Joseph Jacobelli: Public-private collaboration is essential. Australia’s done a good job on that front at the state level. Even in China, the government sits down with the public and private companies, to collaborate so that they’re aligned. And I think going forward, getting the levelized cost of energy of those newer technologies, like energy storage, is key to having that collaboration corporation, because it reduces risks.
Sophie Lu: I would say that in the decarbonization narrative there needs to be a recognition that besides supporting new clean energy technologies, there’s more support for clean material supply chains. The next challenge in the journey to decarbonization for climate tech, is really having enough materials to make everything that we need in order to generate the energy that we need.
So, there needs to be a transition in the green investment community, and a recognition that green financing should be for the mining and the metals production sector as well. There needs to be this balance between the needs and the requirements of mining, in order to support the development of critical minerals for decarbonization.
Absolutely. Do you see ESG expectations from the financial community helping or hindering the future growth of supply that’s needed to grow new energy systems?
Sophie Lu: I think there’s more of a challenge balancing out the different requirements of ESG needs because there’s also societal, non-carbon related environments, health and safety, and governance issues. In the search for enough critical minerals in the world, does that drive us into harder-to-operate markets? Do our investors and shareholders have this appetite in the new guide as well? Decarbonization benchmarks also often only focus on modelling trajectories, but not on what’s happening in the near-term and on rewarding physical actions.
Joseph Jacobelli: I think one of the things that has happened roughly around COP26 is corporates coming up with the net zero strategies. You can really tell which one of the more realistic corporates coming up with the shorter-term targets, like digging one amongst millions of examples is a very small US$1B market cap.
If there’s a lot of people coming up with new solutions, new energy to storage technologies, how efficient will they be? What’s the cost curve?
Nick Smith: In Australia, we have trillions of dollars in superannuation funds that are looking for investment criteria. Increasingly their shareholders are saying, “Well, we want it focused on something environmentally sustainable and clean, because this is our future.” So finding the economic opportunities and looking at the mining sector more broadly and saying, “We’re going to need lots of this stuff. We might as well tip some money into this to try and help them achieve their goals of decarbonizing,” is important.
Joseph Jacobelli: There’s a lot of misunderstanding about the whole clean energy concept, about mining in general. When it comes to banks, there’s not an enormous amount of green expertise, especially as we speak today. However, it is improving. But there’s still an enormous amount of education that needs to be done.
Sophie Lu: Yeah. There’s a decent amount of education about what the decarbonization trajectory would look like in material supply chains, but for diversified mining, there’s a lack of understanding, there’s no two miners alike. It’s very unlike oil and gas companies in that sense. And a lot of the frameworks in which investors and lenders, and others major stakeholders try to understand the mining sector from is through the same lens as the oil and gas sector. But unfortunately, it’s a little bit of trying to fit a circle into a square.
Nick Smith: There’s also going to be some technologies that are going to be very difficult to decarbonize. The reality is that oil and gas is not going anywhere for the next 20, 30 years, so, we need to be smart in terms of how we deal with these more challenging issues.
My next question was looking at the role of emissions reductions in mining operations themselves. At the mining level, looking at how we can decarbonize and bring more renewables onsite. What’s the cost difference? I’m not sure if that’s easily measured between renewables in terms of storage, but really looking at how can we get more miners on board with adopting renewable power and renewable storage into their operations.
Sophie Lu: It’s very much site dependent, depending on the degree of operational energy intensity that you have at specific sites. It’s not always related to the scale as much as it’s related to how much activity you have at a specific site and your balancing solutions.
There’s always going to be certain percentages of our operations that electrification won’t be the solution to. And in that sense, we’ll have to be looking at other options.
Looking at the role of nuclear and uranium. Do we see further investment or interest in this sector?
Nick Smith: From my perspective, there’s some discussion globally around the move away from coal and nuclear as an alternative. In South Australia, we’ve got a quarter of the world’s uranium resources. So, we’re quite open to the nuclear industry. But I think from a regulator’s perspective, the proof is in the smaller modular reactors entering the marketplace.
Joseph Jacobelli: I look at it more from the demand side of electric power generators and what countries are doing. You still have China, which is going very, very aggressively towards more nuclear. They had about 50 gigawatts at the end of 2020. They’re looking at 75 gigawatts by 2025. The next step up is really to do with whether they feel that the newer generation of reactors are safe enough so that they can start putting some nuclear power plants inland. Because right now, they’re all in coastal provinces.
You see some countries completely changing in their view, like South Korea, which was aggressive on nuclear, but then decided to not build as much nuclear as they were planning to. So, on the demand side, there’s still uncertainty. But China alone could be a massive user of uranium. On the cost side, you could find some kind of market mechanisms so you pay for your baseload in some way, in a capacity charge or something like that.
Do you foresee any interesting policies, any significant shifts, or actions as we progress throughout the year?
Sophie Lu: There’s some interesting energy politics playing out in Europe right now. And Europe tends to be a bit of a bellwether for where the conversation’s going to go with climate and what’s recognized as viable climate technology pathways. I think a lot of mining companies around the world, particularly Australian mining companies, are very keen to see how the European taxonomy is going to develop around the green materials and the recognition of the critical minerals that go into that, as well as how we go into benchmark intensity for more traditional industrial metals like aluminium and steel.
Nick Smith: I think one of the key things is to get some implementation and some at scale developments that can start to inform global economies around what’s the price point of decarbonization, what’s the learnings, how do you share that information and give financiers confidence, give regulators confidence, give communities confidence. Because I think there’s a lot of interest.
