More mining? More due diligence. Dealing with the clean energy paradox

On the occasion of world Earth Day and in the run-up to the 2022 Global Forum on Responsible Mineral Supply Chains, OECD’s Luca Maiotti and Benjamin Katz take a look at what the clean energy transition will mean in the world of mining mineral resources.

One of the paradoxes of the clean energy transition is that this will require much more mining of mineral resources. According to a recent International Energy Agency report, low-carbon technologies use far more metal than their fossil fuel-based counterparts, with a typical electric car requiring six times the mineral input of a conventional car, and an offshore wind farm thirteen times more mineral resources than a gas plant of similar size.    

Besides being an industrial necessity for the transition, this demand could contribute to improving the lives of millions of people in resource-rich countries if managed responsibly, with public revenue from taxes and royalties being used to improve infrastructure and provide economic livelihoods. Current production of some of the most critical minerals, though, comes in large part from countries with low governance performance or high emissions intensity, which could undermine this potential upside. With a significant share of low-emissions copper, nickel and cobalt coming from Russia, the ESG calculus for energy transition metals will now be further tested.

Source: IEA (2021): The Role of Critical World Energy Outlook Special Report Minerals in Clean Energy Transitions

While reports of child labour in cobalt mining in the Democratic Republic of the Congo (DRC) have generated more headlines – leading in some cases to the counterproductive blanket exclusion by major multinationals of informally produced minerals – other risks have not received nearly the same scrutiny, including in industrial mining:

  • Corruption depletes public budgets: Investigative NGOs have repeatedly highlighted related risks in the awarding of copper, cobalt and lithium concessions around the world.
  • Dire labour conditions are not exclusive to the informal mining sector. A recent NGO report alleged widespread discrimination and compensation below the living wage at some of the world’s largest industrial cobalt mines operated by multinational mining companies in the DRC.
  • This is not only about Central Africa. Lithium and copper mining areas in Latin America – which hosts some of the world’s largest reserves – have seen protests by residents over lack of consent, environmental impacts and the overall governance of mineral projects.

To address these challenges and secure a reliable supply of critical raw materials, policy makers are proposing stepped up domestic production, stockpiling and recycling, but also recognise the need for diversifying supply chains. Indeed, only by engaging high-risk and informal sources of supply can the world tap into the volume of critical minerals needed for the transition. OECD responsible business conduct standards, such as the OECD Due Diligence Guidance for Responsible Mineral Supply Chains, can help do this.

How are companies in the electric vehicles (EV) sector doing on supply chain due diligence? A report just published by the OECD based on corporate self-reporting found that not only do EV companies perform better than the average company in the study sample, but they also improved significantly more than their peers between 2014 and 2018. Nonetheless, and consistent with other sectors, the EV supply chain scored poorly on identifying and responding to risks, which represent the main opportunities for addressing upstream challenges and realising a just transition.

The pressure on companies to do better is likely to grow with the responsible sourcing requirements of the London Metal Exchange covering many battery metals in addition to the draft European Battery Regulation. But to be successful, companies cannot simply rely on having a policy—they need to immerse themselves in the hard work of following through, helping improve the conditions in distressed supply chains instead of papering over or avoiding tough questions. To support companies in also addressing the environmental risks that stem from expanded mining and mineral processing, the OECD is currently developing a handbook on environmental due diligence in mineral supply chains.

Photo credit: © Luca Maiotti

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s