Mining for green opportunities in carbon markets

Miners love to talk about “the markets,” but increasingly at industry conferences it is the carbon markets, and not just the stock markets, that has everyone’s attention. Pressure is mounting on mining industry participants to make their operations “carbon neutral” or “net-zero.” But what does this mean, and what are the strategic and legal considerations that companies Bshould be evaluating?

The race to net-zero

In response to the 2015 United Nations Paris Agreement, which formalized targets for lowering greenhouse gas (GHG) emissions, countries and businesses alike have increased their public commitments to reduce global emissions, with many countries announcing aggressive GHG emission reduction goals and pledging to be carbon-neutral or net-zero by 2050.

In Canada, building off regimes put in place by early adopting provinces like Alberta, the federal government has finalized the Canadian Greenhouse Gas Offset Credit System Regulations facilitating a national compliance carbon market. In the United Kingdom, the government has launched a comprehensive review of net-zero delivery by 2050 to ensure legally binding climate goals are pro-growth and pro-business, and that investment continues to boost economic growth. Similarly, securities regulators in Canada and the United States are actively examining expansive new disclosure regimes that will require detailed climate change related disclosures.

Carbon credits and carbon credit markets

Carbon credits act as a complementary tool that can be used alongside broader decarbonization efforts. For example, carbon credits can compensate for unabated GHG emissions while a company pursues an emissions mitigation strategy in order to reach a balance between GHG emissions and removals (net-zero).

The terms “carbon credit,” “carbon offset” or “carbon allowance” are often used interchangeably but can mean different things depending on the particular carbon market in which they are deployed. Generally though, they refer to a transferable instrument that represents one tonne of carbon dioxide (tCO₂) or the carbon dioxide equivalent (tCO₂e) of another GHG. Carbon credits are derived from activities that either avoid or reduce the release of GHGs into the atmosphere (such as the creation of biodiversity reserves), or that remove and use and/or sequester GHGs from the atmosphere (such as carbon capture use and storage (CCUS) projects).

Carbon credits trade within carbon markets, of which there are generally two types: compliance and voluntary.

Compliance markets are created where governments prescribe GHG emission reduction requirements within their jurisdictions. Regulated entities within compliance markets either create or acquire compliance carbon credits as a means of complying with legislatively prescribed GHG emissions reduction requirements.

Voluntary markets function outside of the compliance markets and allow participants to acquire carbon credits that may not satisfy the requirements of legislatively prescribed compliance markets, but which demonstrate a participant’s efforts to satisfy GHG reduction required by an array of stakeholders. This includes customers, shareholders, and financing entities.

Opportunities

There are significant opportunities presented by the growth in the carbon markets where mining companies can take proactive steps and demonstrate leadership. These actions could include:

> creating market differentiation through voluntary enhanced corporate disclosure (for example, including discussion of Scope 1, 2 and 3 emissions) and preparation of focused sustainability reports outlining corporate climate change vision;

> engaging consultants to determine the “carbon footprint” of business and associated activities;

> evaluating the purchase of voluntary carbon credits as a means of publicly positioning the company as “carbon neutral;”

> evaluating the possibility for adoption of “green” power sources, technology and equipment as part of exploration, development and mining planning and operations for both existing and future projects (and including detailed analysis as part of any NI 43-101 technical reports);

> setting sustainability targets or requirements for project partners and third-party service providers or suppliers; or

> evaluating the potential feasibility of any carbon credit generating projects on existing mineral lands or properties as an additional revenue source.

Green expectations

Investors are increasingly focusing investment decision-making on a company’s carbon neutral or net-zero commitments. Unsurprisingly, the world’s largest mining companies already devote extensive disclosure to their voluntary climate change commitments, and even exploration and junior mining companies are now seeking to differentiate themselves from their peers through public commitment to net-zero. 

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THOMAS W. MCINERNEY co-head of Climate Change, Power and Renewable Energy Practices and STEVEN D. BENNETT is a partner at Bennett Jones LLP.

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