What’s the Net-Cost of Net-Zero?

Environmental activists have been raising the alarm about the state of the planet for decades now. The latest Intergovernmental Panel on Climate Change report, titled Climate Change 2021: The Physical Science Basis, found that, unless there are immediate, rapid, and large-scale reductions in greenhouse gas emissions, the ability to limit warming to close to 1.5°C or even 2°C will be beyond reach, a state that UN Secretary-General António Guterres in a statement called a, “code red for humanity.”

Clean Tech Needs Mining Too

One of the causes of concern is mining, worries which are not about to diminish when you consider the huge uptake in mining some key minerals needed to fight climate change will require. “We need all these new mines for the green revolution, while copper and lithium production are concentrated in water stressed regions,” notes Angelo Katsoras, geopolitical analyst at National Bank. For example, 38% of the world’s copper exploitation happens in Chile and Peru, Katsoras adds, where “miners consume enough water annually to provide for 75% of the needs of Chile’s 19 million citizens”.

Considering a scenario with a 50% chance of limiting temperature increases to 2⁰C by 2100, “production of graphite, lithium and cobalt will need to be significantly ramped up by more than 450% by 2050 – from 2018 levels” in order to deploy wind, solar and geothermal power, as well as energy storage writes a recent World Bank report.

A conventional car requires 30 kilograms of two “clean energy” minerals: copper and manganese, notes an International Energy Agency report. An electric car, for its part, requires six such minerals for a total seven times greater of 210 kg, Natural gas requires about 1,500 kg of copper for each megawatt of electricity produced. Offshore wind turbines require ten times more, integrating seven “clean energy” minerals; onshore wind turbines, six times more.

What’s Needed to get to Net Zero?

Reaching net-zero by 2050, according to the IEA, will mean building the equivalent of the world’s largest solar park every single day for the next three decades and fitting ten industrial plants every month with carbon capture technology starting in 2030. “To put this challenge in perspective, as of December 2020, there were only 26 carbon capture facilities in operation worldwide,” Katsoras wrote recently.

Governments that try to meet too quickly the challenge of net-zero can find that their rhetoric paints them in a corner, as European parliaments are finding out. “Europe has reduced its capacity to store gas and has shut down nuclear plants, counting on wind and solar energy to fill in, says Katsoras. But when the wind didn’t blow and the sun didn’t shine, they were caught short. Now they have to rely on Russian natural gas. In the U.S., President Biden is pressuring the oil industry not to invest in new production, but then turns around and calls on OPEC to increase production.”

How Much Will It Cost?

Characterizing the challenges as “colossal”, Katsoras cites two studies to put a number to the issue. First, the International Renewable Energy Agency calculates that US$131 trillion will need to flow into an energy system over the period to 2050 that prioritises technology avenues compatible with a 1.5°C Pathway. And Wood Mackenzie estimates that mining companies will need to invest nearly $1.7 trillion in the next 15 years to supply enough copper, cobalt, nickel and other metals required for the shift to a low-carbon world.

Even if we proceed to mine the earth beyond anything carried out to this day, considerable obstacles lie in the way. On the one hand, “the mining sector will need to implement more sustainable practices,” notes Seth Goldstein, Senior equity analyst, energy and resources, at Morningstar. Indeed, but with what money? “Capital expenditures among the world’s 45 largest miners rose 30% to $75 billion in 2020, comments Katsoras. This was a third lower than in 2012, the end of the last commodity bull market.”

Immense legal and regulatory hurdles lie on the path of net-zero. The U.S. claims to reach net-zero by 2050, but for 35 major mining projects in the last 10 years, it took 16 years to move them from discovery to exploitation, and obtaining a mining permit takes from 7 to 10 years, explains Katsoras.

But the whole gigantic effort of countering emissions and warming is misdirected and will lead to crowding out and inflation, warn Joshua Rauh and Mels de Zeeuw, of the Hoover Institution in a Wall Street Journal op-ed. “The $130 trillion in private capital pledged to support the energy transition is $130 trillion that can no longer be invested in other productive activities. (...) The opportunity costs will be the investments that aren’t made, the products and services not invented or scaled up, the jobs not created in other industries, and the productivity gains and prosperity that don’t materialize.”

Can’t Ignore the ‘Social’ Aspect of ESG

Social aspects of this will continue to be a key issue. For example, the U.S. has only a single lithium mine producing 5,000 tons of the 35,000 tons it needs annually, a need that is set to explode for this strategic metal. But presently, a project for a second mine is being blocked by local Indigenous groups, and the U.S. Fish and Wildlife Service opposes it because a wildflower species that grows locally is protected by the Endangered Species Act.

Opposition by citizens is bound to multiply when you consider, Katsoras points out, “that a  200-megawatt wind farm requires installing turbines over 49 square kilometres, whereas a natural gas power plant with the same generating capacity fits on a single city block”.

Geopolitical obstacles are just as formidable, considering that China processes 50% of the world’s copper, 60% of its cobalt and lithium and 85% of its rare earths. If the U.S. succeeds in its green energy transition, in practice it will mean “that they must renounce their oil and gas independence and become dependent of China for essential commodities,” Katsoras says.

Adapting More Than Fighting

A key dimension of climate change hinges not on greenhouse gas emissions reductions, but on increasing human adaptation to it, our response to it “needing to become a way of life, like South East Asia is used to hurricanes, says Goldstein. To resist dryness, we will need to be better water stewards.” And that will cost.