Carbon markets and ESG
By Joshua Kilani
Access to, and the cost of, capital is becoming more and more dependent on sustainability metrics as a growing number of investors demand projects that achieve multiple sustainable objectives.
The regulatory noose is also tightening, as evidenced by the sharp increase in the nascent South African carbon tax rate, which is a forewarning that the carbon tax regime will increase in its severity.
On the client side we are already seeing an increased demand by Original Equipment Manufacturers (OEMs) for less carbon intensive inputs. It is not unthinkable therefore that in future offtake-agreements the carbon intensity levels of mining output will be a contractual obligation, like grade and contaminants.
In extreme cases we are already seeing pressure applied, from the supplier side, with some service companies insisting on only partnering with aligned organisations.
Carbon markets aim to provide the financial incentive for businesses to reduce their carbon footprints, providing a pragmatic impetus towards improving ESG performance.
The first voluntary carbon markets were established in the 1990s, reaching an all-time market value of USD6.7-billion in 2021.
Companies within the mining industry can create additional revenue streams by leveraging the power of these markets and generating measurable atmospheric carbon removals from their operations which equate to tradeable carbon offset credits.
Credits for carbon markets
From an ESG perspective it is important to note however, that credits generated for carbon markets are only temporary solutions designed to smooth the corporate low-carbon transition, while inspiring innovation towards creating new ways of doing business as usual.
Currently, the voluntary carbon markets are supported by over 500 different global governance instruments, called standards, which ensure the quality of specific reduction metrics and create a platform for communication and co-ordination amongst market participants.
These markets are complex, presenting a wall of jargon, definitions and an overwhelming assemblage of carbon standards, methodologies, and certifications.
Carbon credit potential varies between different companies and there exists no one ready solution that can be applied for all types of mining operations, furthermore in some cases credit generation may even prove not to be economical. To properly value and validate decarbonisation potential therefore, a number of factors need to be considered, such as:
- geographic location,
- the license area,
- commodity type,
- processing requirements and
- power sources used.
Notwithstanding these considerations, the mining industry offers some very exciting and unique crediting opportunities, especially around novel processing technologies, carbon capture and storage potential and large agricultural holdings within the license area.
In addition, the application of green energy alternatives such as solar panels, wind turbines, hydrogen fuel cells, electric vehicles, battery storage, metal recycling, biofuels and synfuels all offer substantial opportunities.
Companies in this space can further enhance their credit generating potential through a general decarbonisation strategy and improved operational efficiency.
Furthermore, any company embarking on infrastructural projects should seriously consider the adopting and incorporating of innovative design-led thinking, prior to their capital investment, in order to ensure that new developments are suitably structured for credit generation from the onset.
To realise the full value of these markets and avoid the inherent market risks requires the help of knowledgeable professionals who understand sustainability concepts and operations within the mining industry whilst also having the capacity to market and commercialise generated credits.
At XMS we understand that financial sustainability is a pre-requisite of true and holistic sustainability. We specialise in unlocking ESG value through innovation and the adoption of novel integrated solutions. Our tailor made, flexible path to decarbonisation is designed to integrate into existing operations and provide measurable economic value, assisting you in your transition from being carbon powered to being empowered through carbon.
Joshua Kilani is Managing Director at Xpotential Mining Services (XMS)
Carbon markets and ESG
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Carbon markets and ESG