Bennet
McInerney

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

The net zero race

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

In Canada, based on the plans put in place by the first provinces such as Alberta, the federal government finalized the Canada’s Greenhouse Gas Offset Regime Regulations facilitate a compliant national carbon market. In the UK, the government has launched a comprehensive review of net zero delivery by 2050 to ensure legally binding climate targets are good for growth and business, and that investment continues to drive growth economic. Similarly, securities regulators in Canada and the United States are actively considering new, expansive disclosure regimes that will require detailed climate change 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 offset unreduced GHG emissions while a company pursues an emissions mitigation strategy to achieve 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 carbon dioxide equivalent (tCO2e) another GES. Carbon credits are derived from activities that 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).

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

Compliance markets are created where governments prescribe GHG emission reduction requirements in their jurisdiction. Regulated entities within compliance markets create or acquire compliance carbon credits as a means of complying with legislative requirements to reduce GHG emissions.

Voluntary markets operate outside of compliance markets and allow participants to acquire carbon credits that may not meet the requirements of legally mandated compliance markets, but which demonstrate a participant’s efforts to meet carbon reduction. GHG required by a range of stakeholders. This includes customers, shareholders and financing entities.

Opportunities

The growth of carbon markets presents significant opportunities where mining companies can take proactive action and show leadership. These actions could include:

> create market differentiation through enhanced voluntary corporate disclosure (for example, including discussion of Scope 1, 2 and 3 emissions) and the preparation of targeted sustainability reports outlining the company’s vision for climate change;

> use consultants to determine the “carbon footprint” of the company and associated activities;

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

> assess the possibility of adopting “green” energy sources, technologies and equipment in the planning and operation of exploration, development and mining for existing projects and future (and include a detailed analysis as part of any NI 43-101 technical report);

> the definition of sustainability objectives or requirements for project partners and service providers or third-party suppliers; Where

> Assess the potential feasibility of any project generating carbon credits on existing land or mining properties as a source of additional revenue.

Green expectations

Investors are increasingly focusing their investment decisions on a company’s carbon neutral or net zero commitments. Unsurprisingly, the world’s largest mining companies are already devoting a lot of information to their voluntary climate change commitments, and even exploration companies and junior mining companies are now looking to differentiate themselves from their peers by publicly committing. to reach net zero.


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