Nick Evans
Despite all the talk there is no green premium for raw materials, and nobody seems to know how to create one
Is anyone prepared to pay more for “clean green” raw materials produced in Australia? And what would it take to get a green premium?
Those are questions I have asked almost every mining boss I have spoken to over the last four years, from those running the biggest mining companies in the world, to those building new projects, and to those who are still exploring for new deposits.
The answer has always been the same – no, there isn’t a “green premium” but one will probably arrive, eventually. It has to. But it hasn’t.
Executives and politicians can talk about green premiums and critical minerals, but the old mining adage applies: if you can’t get someone to pay you more than it costs to dig it up, it ain’t a mineral. It’s just dirt.
Manufacturing is a cut-throat business, and margins among a distributed supply chain for electric vehicles – or any other renewable energy infrastructure – are likely to be wafer thin.
The US and European majors might make a public showing of caring about the “clean green” reputation enjoyed by the Australian mining sector. But at the end of the day they probably won’t be buying the nickel or lithium themselves, no matter what name is on the first offtake deal trumpeted to the market.
And whatever margins are made by Tesla, BMW, Great Wall or BYD from selling cars will be supported by squeezing the supply chain below them.
While cost matters to the end consumer, the cheapest supplier usually wins.
It took decades to get conflict diamonds out of the supply chain. Sweat shops still abound in the fashion industry. For all of the hand-wringing about cobalt, the DRC is still the biggest supplier.
That is not to say those campaigns are wrong, and Australia’s environmental rules should not be rewarded.
But merely hoping for the arrival of a green premium is not a business strategy.
Punishing dirty production – as the EU and others plan to do with a carbon border adjustment mechanism, or equivalent scheme – may eventually have the same effect, but that will depend on tracking mechanisms, and whether governments will hold the line on the principle, or simply allow the export of their own carbon emissions.
Australia’s resources sector has been so successful because our miners have made the best use of the country’s resources endowment. In sectors where we dominate, such as iron ore, it is because we have gotten commodities to the market faster and cheaper than anyone else. It is what lithium companies did when shortages loomed for the battery making material a decade ago, beating African and South American projects into the market.
That is what we still need to do. If there’s something governments can do to help, it is meeting their promises to reform regulatory approvals – without compromising Australia’s environment, and while holding companies accountable for meeting their environmental promises.
Regulate once, regulate properly, and provide the resources to get it done fast.
That way, when the price turns back, Australia will be in the best position to take advantage of it. Again.
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