As the lithium ion battery industry scales at an unprecedented speed to meet global energy transition goals, the sector is grappling with how to define the scope of upstream ‘sustainability’ and embed it within critical mineral pricing.
Discussions too often have focused primarily upon the carbon footprint of various operations and processing routes, with little consideration for the broader spectrum of sustainability metrics.
This issue has been particularly pertinent to the nickel market in recent months.Embattled miners have pressed for new pricing mechanismsthat differentiate nickel dependent on environmental, social and governance standards. Western operations have come under pressure from a glut of low-cost, but often carbon intensive nickel supply originating from Indonesia.
The London Metal Exchange (LME) has rejected calls to establish a “green” or “low-carbon” nickel contract in recent weeks, stating it believed there would be insufficient liquidity to support such a contract. The exchange noted that there was no “global industry consensus” on what constituted “green” nickel.
How does the industry measure carbon emissions?
There is no standardised, industry-approved methodology to quantify what constitutes “low-carbon” nickel, making a true comparison on an asset-by-asset basis near-impossible.
“Even when mining companies do disclose carbon emissions of their nickel products, full details about the system boundaries [the set of criteria used to calculate the greenhouse gas emissions] are not always available,” said Marine Hautsch, ESG nickel analyst at Benchmark. “This makes it extremely challenging to compare and cross check the data at present.”
Moreover, while many operators do make carbon emissions data publicly available, not all are obligated to do so. Chinese mining companies operating in Indonesia tend to have more opaque governance structures than their Western counterparts and are often not as forthcoming with their carbon emissions data.
Comparative analysis, such asBenchmark’s Carbon Intensity Curves, therefore rely predominantly on high-level assumptions for emissions associated with an individual processing route and the energy mix of different jurisdictions.
For institutions such as the LME, which requires standardisation to underpin confidence in its nickel contract, the lack of consensus on the parameters as to what constitutes a “low-carbon” product makes it difficult to build a contract on this basis.
Is sustainability more than carbon?
Alongside carbon emissions, environmental and social factors such as deforestation, biodiversity loss, tailing management, water pollution, and labour rights must also be considered.
The Benchmark Nickel ESG Reportindicates that deforestation in Indonesia is the foremost environmental concern linked with the nickel supply chain. The extraction of Indonesia’s laterite nickel ore deposits necessitates land clearing, which leads to the depletion of valuable carbon sinks.
Moreover, while Benchmark’s Global Nickel LCA’s demonstrate that High Pressure Acid Leach (HPAL) plant’s have a lower carbon intensity than other processing routes utilised in Indonesia, this tells only part of the story.
“It is important to realise there are other impacts that a carbon focus would not account for in HPAL,” said Hautsch. “Notably, sulphuric acid is one of the environmental hotspots in all impact categories, and HPAL has the worst performance in terms of water consumption of all six routes modelled in Benchmark’s Nickel Global LCAs.”
“Some operations could therefore be mislabelled ‘green’ or ‘sustainable’ if carbon emissions are the only factor taken into consideration,” she added.
Benchmark launches sustainable nickel prices
To provide the industry with clarity, Benchmark has launched anEXW Europe Sustainable Nickel Metal and CIF Asia Sustainable Nickel Sulphate price; price points that only consider transactions for material that originates from ‘Industry Leading’ producers according to theBenchmark Nickel Sustainability Index.
Benchmark’s Nickel Sustainability Indexmeasures 79 indicators categorised under environmental, social and governance components to form a composite score. Producers who score above 70 are deemed “Industry Leading” by Benchmark.
It is paramount for the industry to consider more than carbon emissions when determining whether material is or isn’t ‘sustainable.’ Benchmark’s in-house sustainability metrics provide a comprehensive approach to quantifying risks and measuring compliance.
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