The Elkview mine is an open pit coal mine located in the Elk Valley in southeastern British Columbia.
Eugene Ellmen is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association). He writes about sustainable business and finance.
With Glencore PLC’s GLNCY offer for the coal business of Teck Resources Ltd. TECK-B-T now formally on the table, all eyes are on the federal government. Will Ottawa approve the US$8.9-billion deal and, if so, under what conditions?
Teck chief executive officer Jonathan Price says the deal is good for his company and good for Canada. He says Glencore is promising to maintain jobs, invest billions in capital expenditures, and increase spending on research and development.
But there’s a huge elephant in the room.
Teck’s coal assets are beset with pollution problems, indirectly emitting tens of millions of tonnes of carbon dioxide annually and implicitly at odds with Canada’s own steel decarbonization efforts. Teck’s coal assets have long stood against Ottawa’s policy objectives, and that does not change with the ownership.
Even if the federal government approves the deal without any significant conditions, the coal assets exist in a regulatory environment that is increasingly hostile to them. Glencore might just find that it will have to simultaneously invest in its newly acquired asset, while also planning for its possible phase out in coming years.
If approved, the deal will divide Teck, Canada’s largest diversified mining company, in two, with the B.C. coal operation flowing to Switzerland-based Glencore and partners Nippon Steel of Japan and POSCO steel of South Korea. The remaining assets – primarily copper and zinc – will remain with Teck.
The strategy is rooted in the imperatives of climate change. Coal-based steel is responsible for about 7 per cent of global greenhouse gas emissions. The International Energy Agency estimates that to meet global energy and climate goals, steel industry emissions must fall by at least 50 per cent by 2050.
Teck’s valuation has suffered as a result, as investors over the years increasingly prioritize environmental factors. So the company wants to cleave off coal and says it will use a portion of the proceeds from the sale to bolster its critical minerals business, especially copper, which will be in high demand because of the climate transition.
In contrast, Glencore is pinning its hopes that traditional steel making will continue among Teck’s customers in China, India and other Pacific countries. In 2022, Teck sold 22 million tonnes of coal to its Asian customers.
The company has benefited from a major expansion in Asian steel making in the past 20 years as these countries added blast furnaces, contributing to a flood of cheap, high-CO2 steel on world markets. The Canadian Steel Producers Association estimates offshore steel imports into Canada have grown from 19 per cent of the market in 2014 to 41 per cent in 2022.
Yet, these high-CO2 imports come as Canadian governments back decarbonization efforts by their own steel industry, especially at ArcelorMittal Dofasco in Hamilton and Algoma Steel in Sault Ste. Marie, Ont. With close to $3-billion in total funding (including $1.3-billion from Ottawa and Ontario), the projects will reduce CO2 emissions by three million tonnes each.
Canada now finds itself in the awkward position of putting up billions in public and private dollars for these decarbonization efforts at the same time it is selling millions of tonnes of steel-making coal to producers in competitor countries.
According to Teck’s sustainability report, the company’s Scope 1 and 2 emissions (direct and energy-based emissions) in 2022 were 2.9 million tonnes of CO2. But Scope 3 or end-use emissions were far higher at 65 million tonnes.
In information released about the deal, it’s evident the company has no clear plan to deal with its CO2 releases, saying only that it will pledge broadly to become net-zero in all three scopes by 2050. Given that it doesn’t control how its coal is consumed by its customers, there’s no clear net-zero path to Scope 3 emissions. This also doesn’t address the trade challenges that Canada’s own steel industry faces from Asian countries, which will continue to be the company’s main market.
Greenhouse gas emissions aren’t the only environmental problem facing the new owner. The Elk Valley mines are under provincial orders to manage the tough environmental problem of selenium leaching into local waterways, which has damaged local fish populations. Despite spending $1.2-billion to fix the problem, heavy levels remain in the region’s waterways.
The pollution problem may be solvable, and the company is pledging to set a goal to become “nature positive” by conserving at least three hectares of land for every hectare affected by its mining activities.
But in terms of climate change, the company has a fundamental problem on its hands. As the federal government conducts its review of the takeover in coming months, it will be important for Glencore to move beyond aspirational targets to real plans, even if those plans involve a phase-out of its Elk Valley operations. This will be the fate of many companies in coming years as policies geared toward the climate transition transform our economies.