Climate Change and Extractives


4. The potential impacts on demand for extractive sector products

The changes described are likely to impact on demand for extractives sector products.

Oil

Climate policies targeting the transport sector will have the biggest impact on oil demand, since that is where the majority of oil is being being used as fuel. This includes more stringent fuel efficiency standards for vehicles, alternative mass transport systems, phasing out of subsidies and switching to electric vehicles.

Overview of transport sector climate policies in India

  • Removed petrol subsidies in 2010, and aligned diesel prices with international prices and imposed taxes that resulted in a reduction of 11 million tonnes of CO2 per year

  • India’s INDC includes better fuel efficiency standards for new vehicles from 2020 that is estimated to reduce CO2 emissions by 50 million tonnes per year.

  • There is an aspirational target for 20% of transport fuels to contain biofuels, starting with 5% in diesel

  • Numerous other initiatives in new mass transport systems, using solar power for transport, reducing waste in cities etc.

  • A recently convened government panel is investigating whether India could switch the whole transportation system to electric vehicles by 2030

Prepared with information from: Chatham House (2016b)

Natural gas 

Gas is mainly used in power generation. Policy-makers in many countries envisage a greater use of natural gas for electricity production due to its lower greenhouse gas intensity when compared with coal. However gas is also competing for the ‘clean power’ market share against renewables such as wind and solar. This adds a layer of uncertainty with regards to future demand and resource-rich developing countries might experience challenges in raising capital to finance costly large scale gas infrastructure (e.g. pipelines or LNG facilities).

Coal 

Perhaps the starkest conclusion from recent analysis (for example Carbon Tracker, 2015), is that no new coal might be needed, and prolonged production from existing coal mines could be sufficient to meet the volume of coal required if the world is to honour the Paris agreement and limit GHG emissions to safe levels.

What is the future of South Africa’s coal exports in a carbon-constrained world?

South Africa currently exports 30% of its coal, with an increasing share destined for Asian markets as demand in other markets weakens in part due to emissions constraints. Further expanding exports requires significant investment in infrastructure and assumes that coal demand would remain unchecked in Asia. However, China’s thirst for coal is set to decrease, due to structural economic changes, air pollution controls, water stress issues and new carbon policies, especially after the signature of the Paris Agreement. 

Exports of thermal coal from South Africa

Analysis by Carbon Tracker (2012) has found that the development of new coal reserves in South Africa through to 2050 is precluded, assuming that the country remains within its carbon budget. This has profound implications for the nation’s economic development, and effective responses will require efforts by all stakeholders – government, industry, communities and investors – to design a credible plan for coal as part of the transition to a prosperous, low-carbon South Africa.

Source: Carbon Tracker (2012)

Minerals

Moving to a low carbon economy means that demand for certain metals that support this transition could also increase. For example, base metals such as copper, zinc, and nickel form a key component for the production of electric vehicles and energy storage. Aluminium, being lightweight, can reduce energy consumption in transportation. Also, some renewable energy and other technologies depend on rare earth minerals. 

The widespread adoption of technologies needed to move to a low carbon economy – such as those illustrated below – has the potential to increase future global metal demand. The exact nature of the impact of the low carbon transition on fossil fuels, minerals and metals demand will differ depending on how swift the transition is and which technologies continue to be supported.