Caledon, Western Cape, South Africa
Caledon, Western Cape, South Africa. (Image: Charl Folscher via Unsplash)

The case for a climate-smart update of the African mining vision

The localization of mineral-based global value chains and clean energy presents an opportunity for Africa to industrialize.

By Perrine Toledano, Martin Dietrich Brauch, Karan Bhuwalka and Kojo Busia

Mining sector investments in Africa should be structured in such a way so the continent can benefit from the carbon pricing policies in developed countries. Current supply chains rely on specialized networks where different parts of the production process are spread out globally. This system of global value chains (GVCs) leads to greenhouse gas emissions from transportation and waste generation. Carbon border taxes, coupled with a trend towards environment, social, and governance (ESG) investments, could incentivize multinational companies to avoid excess emissions and waste by moving intermediate stages of production closer to the source of mineral extraction. This, in turn, would provide a boost to foreign investment across Africa. The incentive for companies to shrink these value chains is even higher in the aftermath of the COVID-19 pandemic, which has exposed some of the risks of relying on extensive global supply networks.

The 2009 Africa Mining Vision (AMV) provides guidance for the industrialization of African countries by leveraging their mining sector. It does not, however, include recommendations on how governments should embrace the recent climate change agenda as an opportunity for industrialization and sustainable development. The AMV’s neglect of climate change does not make it irrelevant, however. On the contrary, its focus on skills and technology development is more important than ever to seize the opportunity of the localization of GVCs. Moreover, the AMV’s focus on harmonizing mineral policies across sub-regional blocs and the continent is crucial to coordinate the regional dynamics of technology, skills and governance systems across resource-rich countries.  

International climate change policy has many implications for Africa, including increased extraction of minerals needed in clean energy applications1 and the greening of mines.2 The localization of GVCs—induced by a rising carbon cost and by the desire to build resilience in supply chains—provides another set of opportunities. Seizing this momentum requires policy guidance to ensure that the relocation of industries in GVCs occurs upstream (closer to mineral sources) rather than downstream (closer to final consumers). An open acknowledgement of the impact of climate change on shifting GVCs for critical minerals and the emerging role of sustainability and ESG requirements should form the foundation of a revised and consolidated AMV.

Evidence for rising carbon prices and its effect on value chain localization

There are currently 64 carbon pricing initiatives, covering over 22 per cent of global emissions, up from 16 initiatives covering less than 5 per cent of emissions since the AMV was adopted in 2009. The largest scheme in terms of revenue is the European Union’s (EU) internal cap-and-trade system, the Emissions Trading System (ETS).3 Such carbon pricing schemes are on the rise everywhere, particularly in Asia. China, for example, has been developing draft carbon pricing regulations, conducting regional pilots, and implemented a national cap-and-trade system starting this year.

However, some policymakers continue to object to carbon pricing due to its effects on domestic competitiveness. To address this aspect, one key component of the EU Commission’s new agenda is a Carbon Border Adjustment Mechanism (CBAM); the Commission has submitted this idea to public consultation and plans to adopt a proposal for an EU directive in the second quarter of 2021.4 The CBAM would impose a tariff on any product imported from a country without a carbon pricing plan.

Share of global emissions covered by carbon pricing initiatives (ETS and carbon tax)

Note: Only the introduction or abolishment of an ETS or carbon tax is shown. The coverage of each carbon pricing initiative is presented as a share of annual global GHG emissions for 1990-2015 based on data from the Emission Database for Global Atmospheric Research (EDGAR) version 5.0 including biofuels emissions. From 2015 onwards, the share of global GHG emissions is based on 2015 emissions from EDGAR. In 2020, the Technology Innovation and Emissions Reduction Regulation (TIER) replaced the Alberta Carbon Competitiveness Incentive Regulation, which in 2018 had replaced the Alberta Specified Gas Emitters Regulation. The information on the China national ETS represents early unofficial estimates based on the announcement of China’s National Development and Reform Commission on the launch of the national ETS of December 2017.

Source: World Bank Carbon Pricing Dashboard

Total CO2 emissions from freight transportation account for 7 per cent of global CO2 emissions and are estimated to quadruple by 2050. Because of this sizeable contribution, regulators will likely include the carbon cost of transportation, packaging and waste in the product carbon footprint that is subject to tax. While the complexity of carbon accounting complicates the implementation of such taxes,5 research on harmonizing carbon accounting methods is already underway. Furthermore, game theory research suggests that the threat alone of border taxes could lead to a waterfall effect, with other nations applying domestic carbon taxes to capture the revenue domestically.6

Even without such border taxes, companies are already getting serious about reducing their own emissions.7 Some companies, including Apple, Microsoft, Shell and Volvo, have decided to reduce both direct and indirect emissions from their entire supply chains (including mineral supply chains8). As of February 2021, more than 1,200 companies worldwide are either pursuing internal carbon pricing or preparing to do so, and nearly 80 global companies have pledged to reach carbon neutrality by 20509Notably, BP recently revised its internal carbon prices to US$ 100/tCO2e in 2030. These trends are driven by self-interest: climate change constitutes an ESG risk to investors in these large companies. In January 2020, Larry Fink, the CEO of BlackRock, the largest asset manager in the world, declared that "climate risk is investment risk". Climate Action 100+, a non-profit group of over 300 large investors, helped persuade three of the world’s largest mining and steel companies, ArcelorMittal, Thyssenkrupp and BHP, to commit to becoming carbon neutral by 2050. Global capital markets’ significantly increased focus on ESG-related issues will likely induce structural changes in many productive sectors, particularly in Africa’s mining and energy industry.10

Moreover, research11 refutes the argument that carbon costs lead companies to exploit carbon havens by moving operations to less regulated countries. In fact, there is evidence that border tariffs harm vertical specialization12, so companies should adapt their production process by reducing the carbon costs associated with the transportation of intermediate products between sites. The localization of mineral value chains provides a pathway for companies to achieve substantial emissions reductions, as evidenced in Chile’s copper industry.13 Multinationals are therefore likely to consider supply chain localization in response to the pressure to reduce their upstream emissions and to build resilience to supply chain disruption.

How can Africa make the most of this trend?

Africa is a major source of many minerals that are likely to experience large demand growth in the future, especially in the clean energy sector. The World Bank’s Climate-Smart Mining report claims that the green transition will be mineral intensive and that demand for graphite, cobalt and lithium may increase by 500 per cent by 2050. A large proportion of these minerals are found in many African countries such as the Democratic Republic of Congo (cobalt), Gabon (manganese), Madagascar (graphite), Zambia (copper) and Zimbabwe (lithium).14 The localization of mineral-based global value chains presents an opportunity for Africa to industrialize. There is even some preliminary evidence supporting a high localization potential in Africa for solar photovoltaic and wind energy value chains, given the right conditions.15

Despite these assumptions that increases in carbon prices might open opportunities for growth in Africa, there is limited knowledge about how carbon costs would impact supply chain localization. There are also gaps in knowledge about how Africa can benefit from such a shift and which industries have high localization potential in Africa. Filling these knowledge gaps is crucial for developing an updated industrialization plan for Africa.

Moreover, there is a need to understand the roles stakeholders can play, an aspect the AMV does not address. For the longest time, mineral resource governance in Africa has played out in the arena of public sector institutions, with private companies negotiating concessions for resource extraction. Little attention has been paid to the role of company boards, shareholders and private sector regulators (such as stock market regulators), whose interests are often wrongfully considered as being opposed to attaining sustainable mining. Impact investing capital allocated to resolving sustainability challenges is on the rise.16 Climate change, the COVID-19 pandemic and the ESG wave have catalysed a new set of investor actions (to which boards of directors are accountable) that can have a positive impact on people and the planet. 

To inform the update of the AMV or Africa’s industrialization policies in general, extensive consultations must be conducted with the boards of directors of mining companies, operation managers in Africa, institutional investors, business development experts, as well as with international institutions accompanying policy developments in Africa, such as UNECA, UNIDO, AfDB and AU. Our view is that research on four fronts should serve as the basis for a climate-smart update of the AMV. First, understanding how the increase in carbon costs, the COVID-19 crisis and rising investor pressure has reshaped and may further shape global value chains. Second, identifying how well-positioned Africa is to take advantage of any trends towards the regionalization of minerals-based GVCs. Third, providing policy recommendations to governments, the mining industry, company boards and institutional investors in Africa to maximize the benefits from trends resulting from climate policy by supporting the participation of African countries in the GVCs of critical minerals. And lastly fourth, fostering a new governance framework that engages all stakeholders—including governments, mining companies, shareholders, investors and affected communities—in a constructive dialogue to create sustainable supply chains adaptable to shifting ESG-related demands. 

  • Perrine Toledano is Head of the Mining and Energy at the Columbia Center on Sustainable Investment (CCSI) at Columbia University.
  • Martin Dietrich Brauch is Senior Legal and Economic Research at the Columbia Center on Sustainable Investment (CCSI) at Columbia University.
  • Karan Bhuwalka is PhD Student at Massachusetts Institute of Technology.
  • Kojo Busia is Non-Executive Director of the Board of AngloGold Ashanti Group and Chair of the Board’s Social, Ethics and Sustainability Committee. He is writing in a personal capacity.

Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).

References

  1. Perrine Toledano, Martin Dietrich Brauch, Solina Kennedy, and Howard Mann. (2020) Don’t Throw Caution to the Wind: In the Green Energy Transition, Not All Critical Minerals Will Be Goldmines. Columbia Center on Sustainable Investment. 
  2. Nicolas Maennling and Perrine Toledano. (2018) The Renewable Power of the Mine: Accelerating Renewable Energy Integration. New York: Columbia Center on Sustainable Investment.  
  3. World Bank. (2020) State and Trends of Carbon Pricing. Washington, DC: World Bank; Patrick Bayer and Michaël Aklin. (2020) The European Union Emissions Trading System Reduced CO2 Emissions Despite Low Prices. Proceedings of the National Academy of Sciences 117, no. 16: 8804-8812. doi:10.1073/pnas.1918128117.
  4. Bentley B. Allan. (2019) The E.U.’s Looking at a ‘Carbon Border Tax.’ What’s A Carbon Border Tax? The Washington Post, October 23, 2019; European Commission. EU Green Deal (Carbon Border Adjustment Mechanism). 
  5. Samuel Kortum and David Weisbach. (2017) The Design of Border Adjustments for Carbon Prices. National Tax Journal 70, no. 2: 421–446; Oliver Schenker, Simon Koesler, and Andreas Löschel, (2012) Taxing Carbon along the Value Chain. A WIOD CGE Application; Tomasz Koźluk and Christina Timiliotis. (2016) Do Environmental Policies Affect Global Value Chains? OECD Economics Department Working Papers, No. 1282. Paris: OECD Publishing, 2016. 
  6. Dieter Helm, Cameron Hepburn, and Giovanni Ruta. (2012) Trade, Climate Change, and The Political Game Theory of Border Carbon Adjustments. Oxford Review of Economic Policy 28, no. 2 (Summer 2012): 368–394, doi:10.1093/oxrep/grs013.
  7. Rebecca Henderson. (2020) The Unlikely Environmentalists: How the Private Sector Can Combat Climate Change. Foreign Affairs 999, no. 3.
  8. Apple’s carbon neutral pledge puts spotlight on metals. Ellie Saklatvala (2020) Apple’s Carbon Neutral Pledge Puts Spotlight on Metals. Argus;  Apple. (2020) Environmental Progress Report: Covering Fiscal Year 2019.
  9. See Center for Climate and Energy Solutions' Internal Carbon Pricing; Grace Melville. (2021) Following the UK Government’s Announcement to Be Net Zero by 2050 Many Businesses Have Set Their own Ambitious Targets to Tackle Climate Change. Carbon Intelligence, Carbon Credentials Energy Services Limited.
  10. Lindsay Delevingne, Will Glazener, Liesbet Grégoir, and Kimberly Henderson. (2020) Climate Risk and Decarbonization: What Every Mining CEO Needs to Know. McKinsey and Co. Sustainability.
  11. World Bank. Carbon Pricing Leadership Coalition (2020) Report of the High-Level Commission on Carbon Pricing and Competitiveness. Washington, DC: World Bank.;  Ben McWilliams and Georg Zachmann. (2020) A European Carbon Border Tax: Much Pain, Little Gain. Bruegel, 2020.; Warwick J. Mckibbin, Adele C. Morris, Peter J. Wilcoxen, and Weifeng Liu. (2018) The Role Of Border Carbon Adjustments In A U.S. Carbon Tax. Climate Change Ecomonics 9, no. 1 (2018), doi:10.1142/S2010007818400110; Helene Naegele and Aleksandar Zaklan. (2019) Does the EU ETS Cause Carbon Leakage in European Manufacturing? Journal of Environmental Economics and Management 93: 125-147, doi:10.1016/j.jeem.2018.11.004; Antoine Dechezleprêtre and Misato Sato. (2017) The Impacts of Environmental Regulations on Competitiveness. Review of Environmental Economics and Policy 11, no. 2, doi:10.1093/reep/rex013.
  12. Kei‐Mu Yi. (2003) Can Vertical Specialization Explain the Growth of World Trade? Journal of Political Economy 111, no. 1: 52-102, doi:10.1086/344805.
  13. Gino Sturla-Zerene, Eugenio Figueroa B., Massimiliano Sturla. (2020) Reducing GHG Global Emissions from Copper Refining and Sea Shipping of Chile’s Mining Exports: A World Win-Win Policy.  Resources Policy 65. doi:10.1016/j.resourpol.2019.101565.
  14. Kirsten Hund, Daniele La Porta, Thao P. Fabregas, Tim Laing, and John Drexhage (2020) Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition. World Bank.
  15. Department of Energy of the Republic of South Africa. (2016) Integrated Energy Plan. Staatskoerant; Zaid S. AlOtaibi, Hussam I. Khonkar, Ahmed O. AlAmoudi, and Saad H. Alqahtani. (2020) Current Status and Future Perspectives for Localizing The Solar Photovoltaic Industry in The Kingdom Of Saudi Arabia. Energy Transitions 4, no. 1, 1-9, doi:10.1007/s41825-019-00020-y; Thomas Hebo Larsen and Ulrich Elmer Hansen. (2020) Sustainable Industrialization in Africa: The Localization of Wind-Turbine Component Production in South Africa” Innovation and Development. doi:10.1080/2157930x.2020.1720937.
  16. Yasemin Saltuk Lamy, Christina Leijonhufvud, and Nick O’Donohoe. (2021) The Next 10 Years of Impact Investment. Stanford Social Innovation Review. 

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