Sustainable energy transition on track for mining industry

The energy transition and the global move towards net zero by 2050 require coordinated action by mining companies, governments, unions and communities to ensure just transitions for coal mines and communities, according to a recent press release authored by Webber Wentzel partners Bruce Dickinson and Garyn Rapson, and ESG knowledge lawyer Dalit Anstey.

The move away from fossil fuels towards clean energy sources was described by the International Energy Agency as “unstoppable” in its latest edition of the World Energy Outlook.

At the twenty-eighth Congress of the Parties to the United Nations’ Framework Convention on Climate Change in December last year, numerous governments called for the tripling of renewable-energy capacity globally, as well as a transition away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this “critical decade, to achieve net zero by 2050, in keeping with the science”. These statements send a clear message regarding the world’s energy trajectory, say the authors.

Regulators, policymakers and investors are ramping up measures to achieve net zero by 2050. For instance, regulators in the European Union and the UK have indicated their intention, in future, to require that companies develop and publish credible climate transition plans that align with the recommendations of the Task Force on Climate-Related Financial Disclosures and the International Sustainability Standards Board’s Sustainability Standards. In the fourth quarter of 2023, the UK Transition Plan Taskforce published a best practice “Disclosure Framework” for climate transition plans, which aims to assist listed companies across several sectors, including mining, asset owners and others, to prepare transition plans.

South Africa is in the process of charting the course for its own energy transition. Dominated by coal, South Africa’s entire energy value chain – including mining, infrastructure, transport, products, and their associated livelihoods – is at risk.

Understandably, there is a call by some developing countries, including South Africa, for the energy transition to be underpinned by considerations of justice, including procedural, distributive and restorative justice, hence the emergence of the term ‘just energy transition’ (JET), the team notes.

Lessons from previous experiences where commodities were abandoned for environmental, social and health reasons should be learnt. For example, when asbestos was declared an undesirable commodity and banned in many parts of the world, host countries whose economies depended on asbestos mining were the ones who carried the costs, they comment.

The context and commercial realities of the mining industry in South Africa cannot be ignored. The mining industry has faced significant challenges over the past 20 years, including regulatory inconsistencies and an increasingly complex social landscape. This is exacerbated by failing energy, infrastructure, logistics and weakened local government. The result has seen limited investment into the industry and large-scale divestment by the majors of operations to mid-tier and smaller miners.

The press release notes that there is currently misalignment and mistrust regarding the JET among some of the key stakeholders, namely mining companies, government, labour unions, host communities and Stateowned power utility Eskom.

The lack of precedent exacerbates the misalignment. A November 2023 report by the Presidential Climate Commission (PCC) regarding Komati power station’s decommissioning and repurposing project provides some important lessons and recommendations for the JET, especially concerning procedural justice and community engagement. Komati was closed for economic reasons associated with its age and the JET aspects were an afterthought.

To avoid these risks materialising for the broader JET, key stakeholders, including mining companies, unions, host communities and government must collaborate, and play their respective parts in building effective and constructive partnerships for post-mine closure.

Mining companies are legally required to plan for sustainable mine closure. Proposed amendments to the regulations relating to financial provisioning for mine closure, which have not yet been finalised, clarify that the objective of mine closure is to achieve an “agreed sustainable end state”, which must be informed by regular consultation with government and other stakeholders.

JET planning will now also need to feature in decommissioning and post-mine closure consultations. To avoid a scenario where junior miners “bite off more than they can chew”, it is important for mine closure considerations to feature prominently in transaction negotiations and terms. This is also in the interests of the seller, who remains liable for historic environmental pollution or degradation after disposing of the asset. Failing to do so may have fatal consequences in future for all parties, especially given current trends, says the Webber Wentzel team.

An “agreed sustainable end state” will differ from project to project, as this depends on stakeholders’ expectations and feasibility, but could conceivably include community-owned climate change mitigation and adaptation projects, nature- or biodiversity- positive projects, circular economy projects, or social development projects. The rise in sustainable finance may mean that new sources of finance could be made available for post-mine closure projects, especially from development finance institutions and the private sector.

Informed by practical considerations, stakeholder experiences, science and scenario analysis, the government’s role is to provide decisive leadership through policy and action. Policies and regulations relating to energy, mining, JET, climate change, the environment, tax and sustainable finance must be “reconcilable and cohesive”, they emphasise.

The government can also play an instrumental role in de-risking post-mine closure projects.

While mine closure is inevitable, the JET and the global move towards net zero will affect the pace of coal mine closure in South Africa. To avoid unjust consequences, including job losses, stranded assets, community underdevelopment and environmental disasters, all stakeholders must collaborate to build effective partnerships for post-mine closure.

JET planning will now also need to feature in decommissioning and post-mine closure consultations . . . Failing to do so may have fatal consequences in future for all parties, especially given current trends Webber Wentzel Team