Rising carbon costs in Canada could divert investment from mining sector, industry says


Fossil fuel trucks in Canadian mines will become more expensive to run on a new clean fuel standard.
Source: Suncor Energy Inc.

A new Canadian Clean Fuel Standard coming into effect in December 2022 could hurt Canada’s mining competitiveness and divert investment in the sector.

A key industry concern is that, unlike Canada’s carbon tax system, the clean fuel standard does not include protections for industries that sell products abroad at prices they do not control. For carbon taxes in Canada, which are a mix of provincial and federal policies, there are usually provisions to ease the burden on energy-intensive trade-exposed industries, or EITEs.

“We’re going to lose production, which will be absorbed elsewhere, almost inevitably at higher carbon intensity,” Brendan Marshall, vice president of economic and northern affairs for the Mining Association of Canada, said in an interview.

New fuel regulations are expected to reduce the carbon intensity of gasoline and diesel in Canada by about 13% by 2030 from 2016 levels, according to the Canadian government. It requires major fuel suppliers, including producers and importers, to reduce carbon intensity by blending biofuels, buying emission credits or other innovations in oil production and refining.

Partly because of the provisions of the EITE, the Mining Association of Canada has largely supported the country’s carbon tax system, which is one of the strictest in the world. The minimum federal carbon tax is set to drop from $40 per tonne to $50/t of carbon dioxide equivalent on April 1 and increase by $15/t per year until it reaches $170/t in 2030.

EITE industry protections ease the carbon tax pain for miners in many Canadian provinces and territories by establishing a baseline for an industry’s carbon intensity and waiving tax payment on part of the emissions to help stem so-called carbon leakage from the Canadian mining sector. Without them, the industry could close mines or avoid building new ones and instead invest in jurisdictions where weaker carbon rules lead to lower production costs.

The clean fuel standard will add about $50/t in carbon equivalent costs, on top of the $170/t carbon tax by the start of the next decade, said Marshall, who hopes the Federal government will make changes to the new rules before they are released. The final settlement is expected in the spring.

A spokesperson for Canada’s Environment and Climate Change Minister Steven Guilbeault did not respond to emailed questions about the clean fuel standard’s potential impact on the mining sector.

SNL picture

Dilution is not a solution

But watering down the clean fuel standard to assuage industry concerns about competitiveness would unduly weaken the regulatory impact on carbon emissions and Canada’s energy transition, said Bora Plumptre, senior analyst at the Pembina Institute, a clean energy think tank.

“There have been numerous exemptions and flexibilities already introduced into the policy, which have significantly undermined its original intent,” Plumptre said in an interview. “If they dilute the policy further…they will push the country even further away from the type of economic growth that we need to see in clean energy in the post-2030 era.”

Overall, Plumptre doubted that the added cost of regulation would put Canada at a disadvantage. Canada is in the middle of the pack in terms of global fuel costs, and the impact of policy on prices is relatively small compared to oil price volatility, Plumptre said, noting that by 2030, the fuel standard is expected to add 4 to 11 cents Canadian to gasoline prices. and 4 to 13 cents Canadian to the price of diesel.

“The high end, there really is an upper bound representing a pretty unlikely scenario in terms of how compliance costs should play out,” the analyst said.

Higher Canadian carbon costs will be particularly difficult for remote mines and projects where there is no economic alternative to fossil fuels because the sites are far from the power grid, presenting a political conundrum for Canada. . The federal government has touted the country as well positioned to develop energy transition industries, such as electric vehicle manufacturing, in part given its mineral wealth. However, its new decarbonization policy, without addressing international competition in the mining sector, could increase costs and potentially jeopardize mining development in the country targeting battery metals that support the national electric vehicle supply chain.

In 2018, about 52% of Canada’s nickel production and 62% of its cobalt production came from off-grid mines, Marshall said, noting how exposed Canada’s battery metals are to fossil fuel costs. Additionally, many Canadian mining projects are too far from the power grid for building extensions to justify the capital cost.

“Until we achieve some kind of technological revolution that allows for the significant or total displacement of reliance on liquid fuels to a remote setting, these prices are increasingly going to be absorbed as a cost of doing business,” he said. said Marshall. Small modular nuclear reactors could one day be a solution for remote mines, Marshall noted, but there are still years to go before they are realistically deployed in Canadian projects.

Provincial disadvantage

Beyond the upcoming federal fuel standard, the issue of EITE industry policies is also emerging at the provincial level. Provinces in Canada can have their own carbon pricing regimes, including cap-and-trade systems, as long as they largely agree with federal rules. Most provinces have EITE industry protections, but one exception is British Columbia, a major Canadian producer of base and precious metals and metallurgical coal.

The western province sets its own carbon prices, but without specific EITE industry protections, putting it at a competitive disadvantage, said Michael Goehring, president and CEO of the Mining Association of British-Columbia. Goehring “hopes” the provincial government will address the issue, which was raised through the province’s Climate Solutions Council.

“If the status quo prevails, our industry is unanimous that the opportunity will pass us by as investment shifts to jurisdictions with weaker environmental and carbon protections and higher emissions,” Goehring said. . This includes investments destined for other countries and regions of Canada where EITE industry regulations apply.

A provincial spokesperson did not respond to emailed questions about the impact of carbon policies on the EITE industry.

As things stand, the cost difference can be significant for miners. For example, a mine emitting 100,000 tonnes of carbon dioxide per year would pay about C$300,000 in carbon taxes in 2022 in metal-rich Ontario, Goehring said. But in British Columbia, the same hypothetical mine would pay between 3 and 4 million Canadian dollars. And at carbon prices projected to reach $170/tonne in 2030, mining would pay between C$15 million and C$17 million more than emissions in British Columbia, Goehring said.


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