Introduction

As we move towards the middle of the second decade of the twenty-first century the mining industry is facing a range of novel challenges, as never before. For various reasons, traditional approaches to mining are being re-assessed and measured against criteria that have not, until quite recently, been relevant to the industry’s actions and business expectations. Such criteria include responsibility for the industry’s long-term environmental impacts, e.g., legislated requirements to provide for rehabilitation costs after the life-of-mine and the court’s attitude to responsibility for historical Acid Mine Drainage (recently exemplified in the Harmony Gold court judgment).

One can confidently trace the origin of such re-assessments to an evolving environmental consciousness which seeks to impose higher standards of behaviour on industries that impact on the environment, including mining. This philosophy of heightened custodianship of the environment is not exclusive to South Africa but it has certainly informed the plethora of environmental statutes which delimit national environmental governance and actions taken by government agencies in terms of this legislation.

Other challenges that the mining industry has to face arise not from operation of law but from the practical realities of the changing environmental context within which the industry operates. While the notion which best conveys the breadth of the issues at hand is “international environmental change”, the shorthand for this dynamic is “climate change”. This article considers the relevance of climate change/international environmental change for the mining industry and operates from the premise that while much of the information on this topic focusses on the risks/negative consequences for mining, it is essential to bear in the mind that these risks/negative consequences are counter-balanced by a concomitant set of opportunities. Future resilience of the mining industry will lie in its ability to adapt to the risks/negative consequences and to take advantage of the opportunities arising from climate change.

Climate change – the politics of science

The non-specialist observer might have come to the conclusion, in recent months, that climate change has lessened as a priority on the world stage. Perceptions can be deceiving. While it is certainly true that the political resonance of the climate change debate has receded since its peak in 2009, the volume around the scientific basis for the phenomenon has actually recently increased. Given that the science speaks to the anticipated consequences of a changing climate, the science has direct implications for business including the business of mining.

The reason for the apparent disjuncture between the political and scientific messages around climate change relate to the perceived political failure of the international climate negotiations and the consequent lessening of press and other interest in this (international) aspect of the problem. Given the track-record of the world’s climate negotiators, disillusionment with the political process is both understandable and justified. The most recent foundation for such disillusion (bear in mind that the negotiations have been continuing since 1992) is the idea that the outcome of the Fifteenth Conference of the Parties (COP15) which occurred in Copenhagen, Denmark, in November and December 2009, was a complete and utter failure and that the negotiations are no longer of any real consequence. This perception is both erroneous and dangerous. In fact, the Copenhagen result provided the political impetus for the current path of the negotiations which is scheduled to culminate, in December 2015, at COP21 (Paris, France) in a deal that will delimit the international climate change legal regime that will apply from 2020. If the exact shape of the deal is currently unclear, it will certainly include elevated obligations upon all countries to take actions that respond to climate change, and such actions are likely to be passed onto national industries by the national governments which conclude the agreement. This is because the lion’s share of the human activities promoting climate change is that of business and industry and not government. The best current example of this pass-on of responsibility is the establishment of the European Union Emissions Trading Scheme which imposes the emissions reducing obligations undertaken by European national governments upon in excess of twelve thousand emitting in industries across that continent.

Achieving a positive result in the negotiations is easier said than done and the next two years of negotiations are likely to be fraught with the political deviations, mis-directions and machinations that underpin a process that is still to graduate from one focussed almost exclusively on national interest to taking account of global imperatives.

However, none of this background assists with understanding how climate change will impact particular industries and locales, or gives insight to this article’s opening comment relating to the increase in volume around the scientific basis for the phenomenon and its anticipated consequences, particularly the business consequences. To contextualise: in 2007 the Intergovernmental Panel on Climate Change (IPCC / www.ipcc.ch), in its Fourth Assessment Report (AR4), reported that signs of climate change are unequivocal and indicated a nine-out-of-ten probability that human actions are a key influence the changes. In late 2013, the IPCC launched its Fifth Assessment Report (AR5) which not only confirms the conclusions of AR4, but indicates that such conclusions may well have been too conservative.
Ironically one does not need to accept the second element of the IPCC’s reporting, i.e., that relating to whether human actions are influencing the climate. If one merely acknowledges that the signs of a changing climate are everywhere to be seen, then it is a fairly easy step to understanding that, for many industries, business-as-usual will not be a viable direction for the future.

Mining and climate change

Seasoned observers of the mining industry will not have missed the wide range of information available on potential climate impacts on the industry and the imperative for the industry to adapt to such impacts and suggestions for how such adaptation can be achieved.

The International Council on Mining and Minerals, in a useful 2013 report entitled Adapting to a changing climate: implications for the mining and metals industry analysed a range of anticipated impacts on mining and summarises the broader business risks as follows:

• Risks to business continuity from both extreme events, e.g., floods, droughts and storms, and availability of climate-sensitive energy and water inputs, with concomitant consequences for the ability to meet customer demand and competition within the local community for goods and services.
• Health and safety risks to employees and the local communities on which businesses depend.
• Reputational risks, and risks to a company’s ability to gain and maintain social licence to operate, if mining and metals operations exacerbate the climate change impacts that a local community is facing.
• Risks of liability and litigation, if foreseeable impacts are not avoided and have a negative impact on others.
• Financial risks, including reduced access to project financing, higher insurance and operating costs, the need for unplanned capital expenditure and pressure from shareholders to disclose climate risks.
• Market risk, e.g., a changing climate may affect customer demand for goods and products. For example, a carbon-constrained economy may result in a different demand profile for metals and minerals.

The reality of the abovementioned risks is acknowledged. However, by way of illustration of how potential risks can also include implicit opportunities, two of the abovementioned risks will be considered for their possible silver-lining.

• Financial risk: while the mining industry will not be directly impacted by the carbon tax which Treasury intends to implement from the beginning of 2015, it is very likely that the industry will feel the indirect impact of the tax as elements of the supply chain seek to pass-on their own exposure to the tax. A simple coal mining example is that of a company which both mines and sells coal to Eskom and which purchases Eskom electricity. Eskom has clearly indicated that it will pass-on its own liability for the carbon tax to its customers which would result in an increase in the cost of electricity purchased for coal mining activities. This situation offers the coal mine some leverage to re-negotiate its coal supply agreement in order to increase the price of coal sold to Eskom. This is especially the case if the existing coal supply agreement permits renegotiation in the face of a change-in-law event. In this case the change-in-law event is the imposition of new (carbon) tax in South Africa.
• Market risk: it is very likely that demand for coal will, over time, curtail as greater emphasis is placed on renewable energies. In this instance, a coal supplier might consider allying itself with the rapid development of Carbon Capture and Storage (CCS) technologies which anticipate the capture of greenhouse gas emissions from the burning of fossil fuels and their sequestration in appropriate formed geological formations. The South African Centre for Climate Capture and Storage is at the centre of national efforts to achieve industrial scale implementation of these technologies. It is also worth noting that future Eskom coal-fired power stations are required to be built CCS-ready. Successful implementation of CCS has the potential to protect fossil-fuel resources from becoming “stranded”, i.e., sterilised for use, as we approach an increasingly carbon-constrained future.

Written by Lloyd Christie - Director in the Mining and Environmental Law practice area at ENSafrica
and Andrew Gilder – Senior Associate in the Environmental Law practice area at ENSafrica