The local mining industry, while dealing with challenges stemming from production decline over the past few years, is witnessing an evolving regulatory landscape, particularly with the development of an integrated carbon and air-quality regulatory framework.
According to the Intergovernmental Panel on Climate Change, we have until 2030 to reduce carbon dioxide (CO2) emissions to limit temperature increases to below 2 ºC above preindustrial levels, in line with the Paris Agreement. In order to meet the ambitions of the Paris Agreement, CO2 emissions will need to fall to net zero by 2050.
Multinational professional services provider Deloitte Risk Advisory partner Mark Victor stresses that in addition to civil, shareholder and financier pressure, evolving regulations and government policy will play an essential role in enabling decarbonisation in the short- and long term.
These policies include the implementation of the Carbon Tax Act, National Greenhouse Gas Emission Reporting Regulations, carbon offset initiatives to reduce emissions, the National Environmental Management: Air Quality Act, the draft Climate Change Bill, as well as Mining Charter III (gazetted in 2018).
“The increasingly complex regulatory landscape places pressure on the mining sector to achieve minimum levels of compliance to retain mining rights, particularly in key areas such as ownership, employment equity and human resources development, while complying with existing legislation pertaining to health and safety, environmental impact and social sustainability,” he elaborates.
There is also increased pressure regarding input costs, as a result of the Carbon Tax Act, implemented in June 2019. It is commonly accepted that market forces alone are insufficient to reduce harmful emissions, as CO2 emitters do not bear the full costs of emissions, adds Victor.
Various global mining companies are leading the way in their efforts to reduce emissions, and the local industry is starting to prioritise environmental impacts and business sustainability based on their emissions profiles. Local companies are also bound to commitments made by global parent companies, and need to apply these commitments locally, Victor notes.
“That being said, the local industry is relatively mature in this regard, owing to regulatory and reporting requirements that provide transparency over social licence to operate, community and environmental impacts, as well as sustainability performance.”
He argues that despite this renewed interest from local miners, the industry faces significant challenges to reduce emissions given associated financial implications, including the impact on capital and operational efficiency.
“Reducing emissions will require changes throughout the mining value chain in terms of solutions used, the workforce and skills required, as well as changes to business models. Many of these changes are not immediate and require investment in research and development, as well as the leveraging of newer technologies to be implemented over the medium- to long-term.”
Another significant challenge facing the local industry in terms of legislation is the delay in approving independent renewable power for mines. State-owned power utility Eskom has implemented load-shedding on an intermittent basis over the past few months, resulting in power shortages that threaten operations and business profitability.
Rising electricity prices and legacy infrastructure have led to operational inefficiencies and have exacerbated electricity woes, which, in turn, further impacted on profitability.
Mineral Resources and Energy Minister Gwede Mantashe announced at this year’s Mining Indaba in February that mining companies would be allowed to generate energy for self-use, without applying for a licence.
This will lead to greater operational efficiencies, improved profitability, as well as various societal and environmental benefits once this has been formalised, says Victor. In addition, the guaranteed energy supply for operations will also increase capital market attractiveness and boost private-sector investment, he notes.
A shift from a reliance on coal to renewable-energy sources could also result in greenhouse-gas (GHG) emission reductions, consequently contributing to commitments made under the 2015 Paris Agreement and to company-specific sustainability targets.
Deloitte South Africa Sustainability Strategy and Advisory manager Renata Lawton-Misra notes that local communities are often also directly impacted by the environmental impacts of mining operations, and are increasingly demanding corporate adherence to higher standards of social responsibility.
“Broader societal benefits include improving the impact on air quality from GHG emission reductions, job creation, skills development and the provision of energy for these communities. “The design and construction of renewable technologies will also require specialist skills, contributing to the growth of the renewable-energy sector,” emphasises Lawton-Misra.
Transitioning to renewable solutions will also lead to increased economic sustainability, helping mines maintain their social licence to operate. Lower demand for electricity from Eskom will also free up energy supplies for use in other industries.
“The mounting pressure on the industry shows no sign of abating and the shift towards a low-carbon economy means mining companies need to start taking decisive steps to include sustainability as a more strategic pillar in their corporate strategies. “This includes emphasis on the renewable-energy outlook and decarbonisation, technological innovation and more stringent environmental standards,” adds Lawton-Misra.
Victor says that, while the path will not be easy, miners can act to reduce emissions. Beyond creating value for customers, investors, governments and communities, committing to decarbonisation can make mining companies more attractive to employees, empower them to make a greater societal impact in the countries where they operate, and contribute to global sustainability.
“It is critical for mining companies to adopt a systematic approach to decarbonisation, including developing credible emissions reduction targets, understanding the gap between emission reduction targets and their plausible decarbonisation pathways, and analysing the abatement impact to inform strategic choices that will impact the medium- to long-term strategy of the organisation,” concludes Lawton-Misra.