Decarbonizing Latin America's mining industry: Challenges and pathways to a sustainable future

By Inés Gabaldón and Pamela Florian | Wednesday, April 3, 2024

In an era where environmental stewardship is not just a choice but a necessity, Latin America's mining sector stands on the forefront of a monumental shift. Embracing the imperatives of the International Council on Mining and Metals (ICMM), the industry is gearing up to sharply curtail greenhouse gas (GHG) emissions by 30% within this decade and to march towards a net-zero horizon by 2050. This is not merely a compliance trajectory, but a bold stride towards harmonizing industrial progress with the planet's health.

Why adhering to ICMM standards is essential

Adhering to the ICMM standards transcends mere compliance; it’s a strategic decision of today’s environmentally conscious markets. These standards are pivotal benchmarks that align mining companies with global sustainability goals, creating a roadmap for reducing greenhouse gas (GHG) emissions and mitigating the impacts of climate change.

  • Reputational impact. Failure to adhere to decarbonization targets can lead to reputational damage, diminishing consumer and investor trust. This erosion of trust can have cascading effects: non-compliance can lead to strained community relations, a tarnished industry image, and loss of consumer trust. Additionally, it can deter investors who prioritize environmental, social, and governance (ESG) criteria and attract negative media attention. The cumulative effect of these factors can significantly impact a mining company's ability to operate effectively, form partnerships, attract investment, and maintain a favourable public image.
  • Access to financial markets. Financial markets are increasingly pivoting towards sustainable investments, and companies that fall short of ICMM standards may find themselves facing limited access to capital. Investors and financial institutions are more inclined to support businesses demonstrating a commitment to environmental responsibility, aligning with the global shift towards green financing.
  • Increased regulatory scrutiny. As international focus on environmental preservation intensifies, so does regulatory scrutiny. Companies that are non-compliant with ICMM standards may encounter barriers in selling their metals in certain markets, where regulations are stringent regarding environmental impact. This increased oversight can lead to costly compliance measures, delays in project approvals, and potential fines.
  • Global market access. Adherence to these standards is also crucial for maintaining access to global markets. As countries and regions enforce stricter environmental regulations, mining companies must demonstrate their commitment to sustainable practices to continue operating internationally. Compliance with ICMM standards is often seen as a mark of a company's dedication to global environmental goals.

Challenges in achieving decarbonization goals in Latin America

Undertaking decarbonization in Latin America presents unique challenges that reflect the region's diverse geography, varied regulatory landscapes, and distinct operational environments. These challenges are multifaceted, ranging from infrastructural constraints in remote mining sites, to navigating regulatory frameworks and volatile markets that vary significantly across countries. And like nearly all other regions, Latin American mines often grapple with the legacy of older, less efficient technologies and the need for substantial capital investment to modernize and reduce emissions.

The complexity is further heightened by varying levels of government support and public perception of mining activities. Understanding and addressing these region-specific hurdles is vital for the successful implementation of decarbonization strategies in Latin America's mining industry.

In the quest for decarbonization in Latin America's mining sector, beginning with efficiency opportunities serves a dual purpose.

Firstly, it's about unlocking immediate cash flow benefits. By optimizing current operations and leveraging more efficient technologies and processes, mining companies can realize cost savings and enhanced profitability. These financial gains are essential, not only for their immediate benefits but also as they provide the necessary capital to fund more ambitious, capital-intensive decarbonization projects in the future.

Secondly, focusing on efficiency lays the groundwork for a fundamental shift in mindset. It's about re-envisioning traditional mining practices, moving towards more sustainable methods. This shift is crucial for the long-term viability of the industry and involves rethinking everything from energy use to resource management.

By starting with operational efficiency, mining companies in Latin America can set the stage for broader changes, gradually embedding sustainability into the core of their operations. It’s a strategic approach that combines immediate financial benefits with the longer-term goal of transforming the way mining is conducted, aligning it with global environmental objectives.

Transitioning to clean energy

One of the most immediate and impactful ways for the mining industry in Latin America to achieve its 2030 decarbonization targets is by addressing Scope 2 emissions: indirect greenhouse gas emissions from the consumption of purchased electricity, heat, or steam. This is a critical area of focus for mining companies, as electricity consumption forms a significant part of their carbon footprint.

Transitioning to clean energy sources is central to tackling these emissions. This often involves the strategic use of Power Purchase Agreements (PPAs), with Renewable Energy Certificates (RECs).

For mining companies, negotiating PPAs with renewable energy providers is a strategic way to ensure a steady supply of clean energy while also locking in energy costs. This is particularly important in Latin America, where energy costs can be volatile and have a significant impact on operational expenses.

The role of government and industry leadership

Decarbonization is not a journey that the mining industry can undertake alone. Governments play a critical role in creating a supportive environment for decarbonization through policy and regulation. This includes:

  • Implementing financial incentives for green investments, such as tax breaks or subsidies for renewable energy projects.
  • Carbon pricing initiatives, where a carbon tax is established aimed at reducing GHG emissions by making carbon-intensive activities more expensive and encouraging cleaner alternatives. Mexico, Chile, Colombia, and Argentina have introduced different prices, ranging from $4 to $10 USD per ton of CO2.
  • Regulations are starting to be directed to heavy-haul vehicles. The 2023 World Energy Outlook provided by the IEA describes typical policies in this area include fuel economy and pollutant standards; zero-emission vehicle mandates; economic and budgetary regulation for fuels and vehicles, such as through fiscal regimes and taxation; purchase incentives; and subsidies with focus on the heavy-duty vehicle (HDV) segment.

In Latin America, the diversity in the level of development and policy frameworks among countries necessitates tailored approaches. Some countries may need foundational policies to encourage the initial steps towards decarbonization, while others might be ready for more advanced strategies. For example, Brazil is leading in biofuel adoption, while Chile, Colombia, Costa Rica, and Mexico are prioritising the rapid uptake of EVs (IEA).

On the other hand, the mining industry must take proactive steps to embrace sustainable practices and technologies. This includes investing in renewable energy sources, improving energy efficiency, and adopting cleaner mining processes. Industry leaders can set an example by committing to and achieving stringent environmental targets, thereby influencing the entire sector.

Innovation plays a key role. Mining companies need to invest in research and development to discover new methods and technologies that reduce their environmental impact. Collaborations with tech companies and startups can bring fresh perspectives and solutions to longstanding challenges.

Furthermore, industry leaders have a responsibility to engage with local communities and stakeholders. Transparent communication and responsible operations can build trust and support for decarbonization initiatives.

Collaborative efforts for a sustainable future

The combined efforts of government and industry are essential in navigating the path towards a sustainable mining industry in Latin America. By working together, these sectors can ensure that environmental goals are met while also supporting economic growth and community wellbeing.

The path to decarbonizing the mining industry in Latin America is fraught with challenges, but it is a path we must courageously take. The commitment of mining companies, the support of service providers like Hatch, and the conducive policies from governments can collectively drive the change needed. Contact us to find out more about how we can partner with you to forge a sustainable future for the mining industry and our planet.