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Mining giants’ profits are booming

How can we redirect wealth to the frontline of extraction?

By Khem Rogaly

Since the Covid-19 pandemic companies in the mining sector have had the highest profit increases of any listed in the UK. Rio Tinto increased its profits by £12.9bn in the last quarter of 2021, BHP by £11.2bn and Anglo American by £8bn, according to Common Wealth analysis using the Refinitiv database. These short-term surges in profit, due to supply shocks and high commodity prices, have been a boon for shareholders. With demand rising for “transition minerals” – raw materials needed to produce zero-carbon modes of transport – this boom is set to continue. Through the taxation of excess profits in the industry, wealth that leaves the countries where the materials are mined could be redirected to ensure that the decarbonisation of transport is equitable and global in scope.

As mining profits have soared money has flowed to shareholders rather than into productive investment. Companies in the basic materials sector (which includes mining, energy, utilities and other firms that sell essential goods to consumers) have barely increased capital expenditure since the pandemic; instead, dividends and share buybacks that transfer wealth to shareholders have doubled. These profits accrue disproportionately to the wealthy rather than propping up pension funds, which are also significant investors. In the UK the richest 1 percent of households owns 39 percent of individually held shares. Shareholders in mining firms can now expect further dividends because there is a demand crunch on the horizon for transition minerals.

Electric buses, bikes, scooters and cars are powered by lithium-ion batteries instead of internal combustion engines. Manufacturing these batteries requires lithium and cobalt – key examples of transition minerals. Based on present trajectories, global demand for lithium could have increased to more than 40 times its 2020 level in 2040 and cobalt demand is set to rise to between 20 and 25 times its 2020 level. If the UK replaced all its cars with electric vehicles it would require twice as much cobalt as is presently produced each year worldwide and three quarters the supply of lithium, according to a study in Nature Reviews Materials. The scale of future demand for transition minerals presents a profitable opportunity for mining companies. Taxing these profits could instead help to ensure a just transition for British workers and communities in the low-income countries where lithium and cobalt is mined.

Transition minerals pose a challenge beyond limited supply, however. The mode in which they are currently extracted – in many cases to the benefit of private companies – produces social and ecological risks. Nearly three quarters of the world’s cobalt is sourced from the Democratic Republic of Congo, where child labour in mining is commonplace. Most of the world’s lithium reserves sit on the high Andean salt flats that traverse the Chilean, Bolivian and Argentine borders. In Chile, the salt flats are part of a fragile desert ecosystem – the driest on earth – yet lithium extraction requires more than two million tonnes of water per day, endangering the water supply of indigenous communities.

Many countries home to the extraction of transition minerals have contributed relatively little to climate crisis. Most of the world’s lithium and cobalt reserves are in Global South countries in sub-Saharan Africa and Latin America, although there are significant deposits in Australia and smaller European economies such as Portugal and Serbia. Between 1850 and 2002, the Global North produced at least three times the greenhouse gas emissions of the Global South countries in which 85 percent of the world’s people live. Given its vast historical contributions to emissions, the UK has a particular responsibility to act in solidarity with and make reparations to lower-income countries, many of which are now confronted with the sharpest effects of climate crisis. Moreover, with low and middle-income countries facing financial and legal challenges when trying to decarbonise, wealth transfers can help to accelerate the global pace of decarbonisation to the benefit of all of us.

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There is broad support for an approach to transport decarbonisation grounded in solidarity. In interviews as part of a Common Wealth project exploring what a just decarbonisation of UK automotive manufacturing could look like, trade union reps in the industry emphasised the importance of good working conditions in the supply chains for transition minerals. One rep told us: “I’d never ask a [union] member to do anything I wouldn’t be willing to do myself… I wouldn’t be willing to send myself or a family member into those working conditions.”

Improving working conditions in transition mineral supply chains requires ambitious reforms. One short-term solution to help keep mining wealth in countries least responsible for climate crisis would be to use taxation of the excess profits of mining multinationals to provide grant transfers to governments in the Global South seeking to develop publicly owned mining projects. In Chile and Bolivia for instance, the governments are expanding the role of the public sector in lithium extraction to retain a greater share of mining surpluses for the public good. Redirecting the profits of mining giants from their shareholders towards investment in public sector mining – alongside public investment in and ownership of UK battery production as explored in a Common Wealth report – can be a first step in making the supply chain more beneficial to countries extracting raw materials.

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Making use of excess profits is one thing to do to ensure more just lithium and cobalt supply chains. However, enabling the global decarbonisation of transport requires a more holistic set of measures from the UK government. With the UK set to exceed its fair share of lithium and cobalt, based on the relative size of its population, planning a transition based on the expansion of public transport (which is less resource intensive than private modes of travel) alongside investment in battery recycling is essential to keep demand within global resource limits.

Supporting the mandatory implementation of global supply chain standards would mitigate risks posed by private companies ignoring voluntary measures. Collaboration with trade unions and proactive public procurement policies are also necessary to encourage both union recognition and better labour standards across the supply chain. Perhaps most importantly, to ensure that the transition is not limited to higher-income countries reform to trade regulations is essential. It would protect lower-income countries trying to decarbonise transport from legal battles with private companies.

As competition heats up over transition minerals – with the UK government’s current strategy guided by the principle of protecting its own supply – coordination, cooperation and planning will be essential. Shifting towards ecologically responsible and socially productive investment can help to ensure that decarbonisation is not based on fragile labour conditions or restricted to certain countries, jeopardising a global response to climate crisis.

[See also: Cop27: When is it and what is on the agenda in Egypt?]

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