2019 GGSD Forum Summary Report

2019 #GGSD Forum

Greening heavy and extractive industries

26 & 27 November OECD, Paris

Summary Report

2019 #GGSD Forum

2019 Green Growth and Sustainable Development Forum

Greening heavy and extractive industires:

innovation and fiscal implications

Summary Report

Why greening heavy and extractive industries matters Material consumption is projected to double between now and 2060.

Primary sectors such as heavy and extractive industries face the joint challenge of increasing output while simultaneously decreasing their environmental impact. The 2019 GGSD Forum explored a greener low-carbon future for extractive and heavy industries and discussed its innovation and fiscal implications. Efforts to shift to a low-carbon economy and meet the Sustainable Development Goals will require far-reaching transformations of the heavy and extractive industries.

Ending poverty (SDG 1), ensuring quality education (SDG 4) or providing access to clean water for all (SDG 6), will require large investments in infrastructure, driving the growth of several heavy industries such as steel and cement making. At the same time, limiting global temperature increase to 1.5 degrees (SDG 13) will require emission reduction in these carbon-intensive sectors. Providing clean energy for all (SDG 7, SDG 9 and 13) could lead to a progressive reduction of fossil fuels consumption and drive the demand of minerals that underpin several low-carbon technologies, such as lithium for batteries or rare earths for renewable power generation. Reducing waste (SDG 12) will call for higher rates of materials recycling and re-utilisation.

Beyond the heavy and extractive industries, the shift towards a low-carbon economy will create challenges and opportunities for governments as well. For countries that rely heavily on extractive sectors for fiscal revenues, the green transition highlights the need for economic diversification and the risk of stranded assets. Countries that are not resource-rich could also face fiscal challenges as the lowcarbon transition erodes the traditional tax base represented by the use of fossil energy. Coordinated national and regional policies are crucial to manage the possible structural adjustments due to the lower demand of fossil fuels in hydrocarbon-rich regions, and to ensure the environment and social sustainability of the mining needed for several low-carbon technologies.

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Session 1 explored the fiscal implications, including the need to identify new sources of revenues and reconsider spending priorities.

Session 2 and Session A focused on the business and technological innovations required to support the shift of these sectors towards a low-carbon and circular production. Session B focused on the role of international trade in ensuring that materials stay in the economy as long as possible (circular economy). Session C discussed the challenges and opportunities that the green low-carbon transition creates for regions rich in hydrocarbons and minerals. Finally, the Special Panel debated the possible new geopolitical implications of natural resource endowment and the low-carbon transition.

The Forum gathered nearly 40 speakers and over 200 participants.

Disucssions drew on the work of the OECD Steel Committee, Joint Meeting on Tax and Environment Experts, Policy Dialogue on Natural Resource-based Development, Working Party on Resource Productivity and Waste, Joint Working Party on Trade and Environment, Working Party on Rural Policy, Working Party on Integrating Environmental and Economic Policies, Working Party on Responsible Business Conduct.

The International Energy Agency, the Business and Industry Advisory Committee also contributed.

The Forum participants identified best practices as well as key knowledge gaps that may help establish future work priorities for the OECD and others.

Established in 2012, the Green Growth and Sustainable Development (GGSD) Forum is the main annual green growth event at the OECD. The GGSD Forum provides a space for multidisciplinary dialogue on key cross-cutting issues on the green growth agenda for which coordination across different government ministries, OECD committees, business and civil society is needed.

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Opening Session Ángel Gurría, the OECD Secretary-General, opened the 2019 Green Growth and Sustainable Development (GGSD) Forum by highlighting that the OECD Global Material Resources Outlook projects materials use to nearly double by 2060. The challenge is to support sustainable and inclusive growth while promoting resource efficiency and environmental protection.

The OECD is addressing this through the Policy Dialogue on Natural Resource-based Development, where countries share best practices and solutions to ensure that natural resources are a driver of sustainable development. Despite their negative environmental and health impacts, governments are still supporting fossil fuels. The latest OECDIEA estimates of government support to fossil fuels suggest that the downward trend was reversed in 2017: subsidises increased by 5% in 2017, reaching USD 340 billion. Also, Taxing Energy Use 2019: Using Taxes for Climate Action reveals that average effective tax rates on carbon emissions from non-road sectors are far below EUR 30/tonne CO2, (a low-end estimate of the climate damage by a tonne of CO2 emitted) in most OECD and G20 countries. Stronger carbon pricing will be necessary to contain fossil fuels’ negative impacts and unleash green innovation.

“Governments must work to reform Fossil Fuel Subsidies while also taxing energy use. Otherwise, you are undoing with one hand what you are working so hard to do with the other.” Ángel Gurría

The low-carbon transition will have fiscal implications for countries with significant fiscal revenues from oil, gas and coal as well as for importers. In 2016, gasoline and diesel use in road transport accounted for 5% of fiscal revenues on average in OECD countries. With the rapid penetration of electric vehicles, governments will need alternative tax bases. Ministries of finance, environment, energy, infrastructure, transport and innovation need to work together to redesign tax systems. Regions dependent on mining and extractive 4

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industries often face the challenges of economic diversification, pressures on infrastructure, and land-use conflicts. To help with their the green transition, the OECD project on Mining Regions and Cities provides a platform for sharing lessons and leading practices on how to respond to these challenges and opportunities. The green transition requires massive structural transformations that can only be achieved if we think and act organically and systemically.

What can be done?

Adair Turner, Chairman of Energy Transitions Commission and Senior Fellow at INET, highlighted the latest report of the Energy Transitions Commission, which brings together fossil fuels, power, steel and cement companies. The Commission analysis shows that it is technically and economically feasible for the global economy to meet the Paris objectives without relying on offsets from land use. China could achieve netzero emissions by 2050 while achieving per capita GDP levels similar to those in Western Europe, due to the declining cost of renewables and batteries.

Yet, emissions of the heavy industries, shipping and aviation, which represent 30% of total emissions today, are particularly hard to abate. Their share in total global emissions will grow significantly due to greater urbanisation. The Commission envisages three routes to net-zero carbon for these sectors: circular production and consumption, higher energy efficiency and deployment of decarbonisation technologies (electricity, biomass, carbon capture, hydrogen). With the right policies, the emissions of these industries could be cut by some 40% by 2050. However, such a transformation in steel, cement and plastic production will entail costs, with different shares borne by producers and consumers. While increases in end-consumer prices might be small (e.g. decarbonised steel would add only 1% to the cost of a new car), they can represent substantial increase (e.g. USD 2560 per tonne of CO2 saved) in the cost for steel producers. Echoing Mr. Gurría, he underlined that carbon pricing is key to the decarbonisation of these sectors, but one key issue is whether it is introduced universally or imposed as carbon tariffs

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at the border to ensure level playing field. While the decarbonisation of heavy industry may look complex, the analysis shows that is possible and, ultimately, not that expensive.

Keeyong Chung, Director-General for Climate Change, Energy and Environment at the Ministry of Foreign Affairs of Republic of Korea, stressed that the manufacturing sector, which has acted both as growth engine and buffer against external financial instabilities in some countries, will need to play its part as countries deliver on the Paris Agreement and the SDGs. He highlighted the historical importance of the export-led industrialisation strategy in Korea where steel and shipbuilding sectors played crucial roles.

Korea’s manufacturing sector has already attained the highest levels of energy efficiency, posing a challenge in achieving further efficiency improvements in light of the 37% reduction target from business-as-usual announced as Korea’s commitments under the Paris Agreement. Against this backdrop, President Moon Jae-in announced the country’s Manufacturing Renaissance Vision in June 2019, akin to Germany’s Industry 4.0, the US’s Report on Ensuring American Leadership in Advanced Manufacturing, and Japan’s New Industrial Structure Vision. Korea is currently updating its NDC, preparing a 2050 low-emissions development strategy, and will double its contribution to the Green Climate Fund. In addition, the country will strengthen public-private partnerships for green growth by hosting the P4G Summit in Seoul in June 2020. The P4G brings together 12 member countries and partners such as C40, WRI and GGGI. The 2020 P4G Summit will hopefully provide important inputs to the UNFCCC COP 26 in Glasgow.

Rodolfo Lacy, the OECD Environment Director, highlighted three key trends that are likely to affect materials use: economic growth, technological change and structural change. Global GDP is expected to grow by 250% to 2060, driving up materials demand, while innovation should lead to higher efficiency in production process, reducing material consumption.

The projected structural change implies a shift in global consumption away from materials and towards services for both households and firms. These trends together imply a doubling of materials use, reaching 167 Gt by 2060. Growth in material use would differ across countries and material groups. Materials consumption is projected to increase both in OECD and non-OECD countries but most of the growth will come from emerging and developing countries. This growth will exacerbate environmental impacts. For instance, 12% of global GHG emissions will be associated with the extraction and production of 7 key metals (iron, aluminium, copper, lead, manganese, nickel and zinc) in 2060. We need to accelerate the green transition in the material-intensive industries. Greater coherence is needed among resource management, climate, and trade and innovation policies.

Masamichi Kono the OECD Deputy SecretaryGeneral, kicked-off the panel discussion, underling that steel and cement firms still face a lack of global and national policy clarity, creating a paradox: carbon-intensive choices are incompatible with the Paris Agreement and risk more stringent climate policy, while climate-friendly technologies still lack a clear investment case. Jenny Svärd, Director of Environmental Policies at the Confederation of Swedish Enterprise, underlined that Sweden aims to be carbon-neutral by 2045 and that the industry is actively participating in shaping such a future.

For instance, the Swedish business community is working on climate and circular economy issues that many firms see as an opportunity, with a number of sectors drawing up climate roadmaps.

The need for a more circular economy was also highlighted by Jerome Schmitt, Chairman of the Oil and Gas Climate Initiative Executive Committee and Senior Vice President of Innovation & Energy Efficiency of Total. Economies need to be netzero carbon by 2050. However, there is no single silver bullet for reaching this goal, and numerous technologies will be needed. Extractive and energy industries need to shift their business models from “produce, transform and distribute” to a more circular model where they help customers (countries, cities, industries or individuals) to reduce their carbon footprint and energy intensity.

The panellists noted that presently the effects of carbon pricing are limited due to the numerous exemptions granted to heavy industries to compensate for competitiveness concerns. At the same time, very low or inexistent prices have resulted in little incentives for action and innovation. A holistic view developed in cooperation with businesses to find solutions is critical as well as support for innovation. Hardto-abate industries are low-margin industries and hence low risk-takers. It will therefore be necessary to incentivise them to be early adopters of lowcarbon technologies. For example, the Gas Climate Initiative has allocated $1 million to finance startups developing climate mitigation technologies.

From left to right: Adair Turner and Keeyong Chung.

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Session 1 Fiscal implications of the low-carbon transition Background issue paper “Fiscal implications of the low-carbon transition” was prepared as an input to this session.

Grace Perez-Navarro, Deputy Director of the OECD Centre for Tax Policy and Administration, opened the session underlining that the Forum was held back-to-back with the 10th anniversary of the Global Forum on Transparency and Exchange of Information for Tax Purposes that had succeeded in eliminating bank secrecy for tax purposes. Fiscal reforms are possible and do happen.

Rick van der Ploeg, Professor of Economics and Research Director of Oxford University Centre for the Analysis of Resource-Rich Economies, discussed potentially complementary strategies to manage the revenues from non-renewable natural resources in his scene-setting presentation. First, intergenerational funds can be used to smooth welfare across generations. Second, liquidity funds can act as a precautionary buffer against unhedged volatility of oil and other commodity prices. Third, parking funds can be used to guard funds until the economy has sufficient capacity to absorb the windfall. It is important that funds of oil & gas rich countries invest in stocks whose fortunes are inversely related to those of the fossil fuels market. Yet, the so-called “green paradox” exists: in the face of climate policy actions, we see a race to burn the last ton of carbon.

Beyond a wise use of oil & gas revenues, resource rich countries should reform their economies to increase the flexibility of production and labour markets, improve competition, and pursue economic diversification. Many resource-rich countries are also highly exposed to impacts of climate change (e.g. extreme weather events), so they should to use part of their revenues for adaptation. At the same time, several resource rich countries also have abundant sources of solar, hydro or wind power.

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Dastan Umirbayev, Director, Department of Macroeconomic Analysis and Forecasting, Ministry of National Economy of the Republic of Kazakhstan, provided the perspective of resourcerich countries on how extractive revenues can support the low-carbon transition. He reported back from the 13th Plenary of the Policy Dialogue on Natural Resource-Based Development (PDNR), held the day before. A key challenge for policy-makers is reconciling long-term development and intergenerational equity with the management of the volatility and uncertainty of resource revenues.

Sound fiscal policy framework and stabilisation funds can help to insulate the economy from external shocks. The PDNR is working on the role of institutional investors, such as Sovereign Wealth Funds (SWFs) and Strategic Investment Funds, in mobilising resources to support lowcarbon development. SWFs currently play a limited role in climate finance, allocating less than 1% of their capital to low-carbon solutions, and few disclose their climate policies or assess climate risks in their portfolios. Climate-alignment of an SWF is as much a political decision as a technical one: for SWFs to become climate-aligned investors, governments need to give them the necessary mandates. Kazakhstan has adopted several national development strategies focused on sustainable development and embarked on programs to modernise and green its economy in cooperation with the OECD.

From left to right: Rick van der Ploeg, Dastan Umirbayev, Grace Perez-Navarro, Øystein Bieltvedt Skeie, Isabel Blanco and Bady Baldé

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Isabel Blanco, Lead Economist, Economics and Policy Group, the European Bank for Reconstruction and Development (EBRD), introduced an approach for evaluating the fiscal consequences of the lower fossil fuel demand for resource-rich countries by analysing public budget under different oil, gas and coal demand scenarios up to 2040. The results for Kazakhstan suggest that the impacts of the transition would be significant but not catastrophic since most of the country’s assets are unlikely to be stranded before 2040. However, the government would need either to reformulate its fiscal policy or contain public expenditure growth. The EBRD made recommendations on fiscal consolidation, diversification of the tax base, elimination of fossil fuels subsidies, and long-term budget planning. When discussing climate implications with such countries, emphasis should be on innovation, growth and new job opportunities. Energy independence can also be a key issue for promoting reforms to level the playing field between fossil fuels and renewables. It is also important to provide relevant country examples, e.g. for Kazakhstan, Russian experience is more pertinent than Canadian or Norwegian experience.

Øystein Bieltvedt Skeie, Economist/Chief Specialist, Norwegian Ministry of Finance and Delegate to the OECD Joint Meetings of Tax and Environment Experts, focused on the taxation of gasoline and diesel. Around 75% of carbon emissions are priced below EUR30 per ton CO2e, a conservative estimate of the climate damage from one tonne of CO2 emissions. Aligning carbon taxes to their estimated cost can be politically challenging due to the possible regressive effects, as we saw in the Gilets Jaunes (yellow jackets) movement in France.

He also discussed the fiscal implication of electrification of transport. Norway is progressing fast towards the goal of having all new passenger cars electric by 2025 (45% are electric vehicles today). This quick uptake was driven by incentives such as exemption from VAT, registration, and annual ownership taxes. However, tax revenues on gasoline and diesel taxes are decreasing, and Norway could lose about 40% of its car tax revenues by 2020. Going forward, a key issue will be how to tax the use of electric vehicles, which emit zero emissions but have many other externalities.

These can be effectively captured by GPS distancebased taxes but many issues remain before such charges can be introduced.

Economic significance of extractive resources Extractive revenue as % of government revenue

Source: EITI, presentation by Bady Baladé

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Bady Baldé, Africa Regional Director at the Extractive Industries Transparency Initiative (EITI), highlighted that some of the populations most vulnerable to climate change live in countries that are dependent on extractive industries. In some cases, up to 80% of government revenues of these countries come from the extractive sectors. In the Lake Chad area, people suffer from climate change, with the lake having lost some 90% of its size between 1960 and 2010, while the government generates 80% of its revenues from oil exports. How can we square the circle? The EITI is developing governance standards including on environmental safeguards. Transparency and independently verified data are crucial for evidencebased policies for the extractives. Also, national oil companies will have to re-invent themselves and update business models.

The panel discussion focused on the challenges of economic diversification, which would be more challenging for some countries, especially land-locked ones. Some hydrocarbon-rich countries also have key materials for low-carbon energy technologies such as lithium and cobalt that could support economic diversification. The international community can play a role in helping these countries with such transitions.

Technological innovation can help countries to “leapfrog” from agriculture directly to services. The 2014 oil & gas price shock, when some countries saw their oil & gas revenues halve in a few months, was a wake-up call: finance ministries and central banks are increasingly participating in discussion on the climate crisis.

It is also important to see the transition as an opportunity rather than a risk. Demand for some key strategic materials is expected to rise significantly in the coming years, opening important markets for several resource-rich countries (e.g. DRC with some 60% of the world’s cobalt reserves), but it is difficult to predict future demands. If deep-sea mining can be sustainable and profitable, revenues could be allocated to the losers in the energy transition. Finally, governments need revenues, which they can obtain through distortive taxes, neutral taxes, or taxes that provide incentives to industry and households to change their behaviour such as carbon tax.

Key takeaways, identified knowledge gaps and areas for further research

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Around half of the countries identified as resource-rich derive 50% or more of their government revenues from fossil-fuel resources. Economic diversification is crucial to prepare for the low-carbon transition but for some countries, it can be challenging. Further research is needed to understand realistic options for such countries.

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In a carbon-constrained world, economies heavily reliant on fossil fuels will struggle to maintain their competitiveness. Low-carbon transition for these countries will need transformational development strategies with a new policy toolbox, the deployment of innovative technologies and huge financial resources.

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There is a need to have a further look at a potential “rare minerals curse” replacing the “fossil fuel reserves curse”.

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Sovereign Wealth Funds and Strategic Investment funds could play a greater role in mobilising resources to support the low-carbon transition. There is an important potential in increasing the collaboration among these funds and other institutional investors.

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Tax systems can drive the low-carbon transition but further research is needed on how to address the political economy barriers and communicate policy evidence to governments and citizens.

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Consider shifting taxes to other ‘bads’ (e.g. congestion) in the context of the possible tax base erosion due to electrification of transport and decrease gasoline consumption. Further research is needed on whether such taxes have distributional implications and how to tackle them.

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Lack of detailed fossil-fuel resource revenue data makes it difficult to estimate how reliant jurisdictions are on the fossil-fuel industry and thus their exposure to climate policy risk.

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Session 2 Driving innovation for greening heavy industries The issue paper “Low and zero emmissions in the steel and cement industries: Barriers, technologies and policies” was prepared as an input to this session.

Lieven Top, Senior Climate & Industry Advisor at the Flemish Ministry of Economy, Science & Innovation and Vice Chair of the OECD Steel Committee, opened this session, which focused on the technological, business and regulatory challenges and solutions for the decarbonisation of heavy industries.

Mechthild Wörsdörfer, Director Sustainability, Technology and Outlooks Division, International Energy Agency (IEA), highlighted that energyrelated CO2 emissions hit a record high in 2018. As other sectors make progress in reducing their CO2 emissions, the share of industry in total emissions will increase and reach - under the IEA sustainable development scenario - 30% in 2050. Key technologies for decarbonising several industrial sectors, such as carbon capture, use and storage (CCUS) and hydrogen, are not on track to be scaled-up commercially on time to meet the Paris objective.

Some positive signs includes growth in public RD&D spending in IEA member countries to US$19.6 billion in 2018, with 94% of this accounting for low-carbon Mechthild Wörsdörfer technologies.

The IEA will continue to support countries’ effort to deploy climate change mitigation technologies and revamp the Energy Technology Perspectives to help decision-makers to better understand future technology needs and opportunities. There is a growing disconnect between political ambitions and real-world energy trends. We are not on track to meet the objectives of the Paris Agreement. There are no silver bullets: a range of new technologies is needed, jointly with strategies targeting material and energy efficiency. Coordinated effort between government, industry, and other stakeholders will be crucial to this end.

Åsa Ekdahl, Head of Environment and Climate Change, World Steel Association, argued that decarbonising steel production is an enormous challenge, especially because most of CO2 emissions are related to production processes and not fossil energy use. The challenge is aggravated by the nature of the industry that is low margin, internationally traded and highly capital intensive, thus very risk-adverse. Nevertheless, several promising technologies are being developed and piloted, including hydrogen, CC(U)S, and biomass.

Their deployment requires a real shift in – and even scrapping of – the current production model.

We may have a phase where plants equipped with carbon intensive technologies will operate alongside those employing new low-carbon technologies. Will there be a market for the lowcarbon steel that is likely to be more expensive? It may be possible to imagine buyers’ alliances that decide to purchase only low-carbon steel. BMW, for example, has committed to producing carbon-free cars and carbon-free steel would need to be part of this process. Public procurement policies could be an important tool to create market for low-carbon steel.

Rob van der Meer, Director of Public Affairs at HeidelbergCement, underlined that the European cement industry is relatively small: global cement production is equal to 4.5 gigatons per year and half of it is produced in China. As such, actions on climate change needs to be global to be fruitful.

HeidelbergCement sees climate change as the key topic for the future and has set the objective to produce carbon neutral concrete by 2050.

This will likely require a portfolio of emission reduction technologies (biomass, energy efficiency, substitution of clinker materials), the use of CCUS, and recycling of concrete from demolished buildings.

Long-term and predictable legislations and CCUS infrastructure for the storage and transport of captured CO2 would be key enablers for firms to invest in carbon-neutral production processes.

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Greening materials is about both production and use: the built environment account for around 20% of emissions after construction, thus the development of passive housing and buildings would be crucial. A roadmap for the built environment and the concrete industries would be needed for greening both materials use and production, but the fragmentation of these industries is a key challenge.

Fourth, public procurement can be effectively used to both reward front-runner in green technologies and to stimulate the “rest of the pack”. Two main challenges are to direct funding to the right actors in the value chain, and to mainstream an innovation, which is more complex than carrying out a demonstration project.

The panel discussion focused on the key barriers to technological innovation and deployment.

William Garcia, Executive Director De-risking key investments and having the and Head of HSE Policies and “We need a right infrastructure in place is crucial. In Responsible Care, European Chemical business case for all Europe, if a pipeline network to transport Industry Council (CEFIC), highlighted players to contribute CO produced by the German steel industry the importance of considering the 2 to a clean industry. to the Dutch chemical firms is in place, it geopolitical and global economic contexts when assessing challenges will make the investment case stronger. A The process has and opportunities for the European predictable and stable policy environment to be profitable chemical industry. This is because EU and collaboration between industry and for big and small Chemicals firms are multinational, governments are key. Some good examples companies.” and the industry is a net exporter to of these collaborations can be found for the rest of the world (US$155 billion CCUS projects both in the US and in Europe in net exports).The CEFIC report – Rob van der Meer (e.g. Norway). Border adjustment measures Molecules Managers sets the industry (BAMs) would be necessary to level the vision to 2050 where circularity, innovation, and playing field for all companies globally, but their low-carbon economy are key pillars. There is a impacts would need to be carefully evaluated, sense of urgency since we are only two investment especially for global industries like chemicals due cycles away from 2050, so the decisions taken in to the risk of retaliation from other countries. the next decade will be decisive. There is no silver bullet to decarbonising the heavy industries and that predictable and stable policy will be crucial for ensuring a shift to sustainable production. The industry will rely increasingly on digitalisation, Key takeaways, identified knowledge gaps both for efficiency and for managing the massive and areas for further research amounts of data required by European regulations.

Developments in China need to be monitored closely as the country has the ambition to become the leading • There is no silver bullet to green heavy industries. A innovator in chemicals solutions in the next 5 years. variety of technologies will be necessary, including material and energy efficiency, renewables, and CCUS. Maarten Neelis, Principal Advisor on Sustainability, • Governments need to create the required long-term Ministry of Infrastructure and Water Management, policy certainty for firms to invest in breakthrough the Netherlands, shared how public procurement is technologies. This would include stable carbon pricing supporting the Dutch ambition to be climate neutral and regulatory frameworks, public procurement geared and a circular economy by 2050. Rijkswaterstaat, towards driving green innovation, and building the which is responsible for the construction, renovation infrastructure required for the industry to shift towards and maintenance of the country’s road and waterway more circular and low-carbon modes of operation. networks, has been developing a strategy to this Equal attention should be paid on exploring how to end. First, the climate and circular transition must unlock demand for green steel and cement either become an explicit part of the scopes of public works. through public procurement geared towards driving This helps to mainstream green issues throughout the green innovation or by encouraging initiatives from the institution and ensure that these are considered even private sector. The buyers’ alliances operating in other when there are budget constraints. Second, institutions sectors could be an interesting example in this regard. need to update procurement processes (e.g. developing new contractual forms). Third, governments can • Further research needs to address the competitiveness be important first customers for technologies that impacts for industries, including on how and whether to are ready but not yet market-tested. For example, a level the playing field with different policies, standards modular viaduct, which can be dismantled and reused and carbon pricing across jurisdictions. elsewhere, was recently procured in the Netherlands.

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Session A Greening the extractive sectors: mission possible?

The issue paper “Reducing the health risks of the copper, rare earth and cobalt industries: Transition to a circular low-carbon economy” was prepared as an input to this session.

Ligia Noronha, Director, Economy Division, UN Environment Programme (UNEP), opened the session by underlining that global resource use has increased 3-fold since 1970. At the same time, material productivity has stagnated since 2000, with important environmental and health impacts. It is therefore crucial that we ensure the greening of the extractive sectors.

Perrine Toledano, Head, Extractive Industries of Columbia Center on Sustainable Investment (CCSI) at Columbia University, discussed key drivers shaping the mining sector: the need to mine in increasingly difficult and remote areas, demand for higher transparency by stakeholders, growing need to renew the social contract for mining (e.g. fewer jobs due to automation), and the geopolitics of mining (e.g. the rise in protectionism). Low-carbon technologies, especially batteries, are mineral intensive. Battery production is estimated to increase demand for lithium 11-fold, for cobalt 7-fold, and for graphite 5-fold by 2050. The expected doubling of resource demand by 2060 would lead to a 43% increase in greenhouse gas emissions, a 10% reduction in forests, and a 20% reduction in natural habitats. Renewables still represent under 10% of total energy consumption of the mining sector, so they have the potential to further decarbonise the sector. Barriers to their greater uptake include the conservative attitudes of mining companies, the lack of corporate incentives to transition, a mismatch of financial models and vested interest. The resistance to adoption is strengthened by the lack of a standard CO2 accounting framework covering cradle-to-grave emissions. Therefore, disclosure by mining companies of their CO2 emissions is missing, inaccurate, or not comparable. The CCSI and its partners have set up the Collaborating on Materials Emissions Transparency (COMET) initiative to develop a methodology for carbon accounting and reporting tailored to the mining sector. The ultimate objective is to develop a differentiated market for green minerals that sell at a premium, as a way of shifting capital markets toward true green finance for minerals.

Hans-Jörn Weddige, Group Coordinator, Energy, Climate and Environment Policies, ThyssenKrupp AG and Chair of Energy and Environment Group of Business at the OECD, underlined that ThyssenKrupp, as a supplier of mining equipment, is upstream to the mining sector in the supply chain. The rising demand for metals and decreasing ore content have led to an increase in the amount of material being transported. Currently, 99% of what is transported from the mine is waste.

Mining companies need to take a holistic approach to reducing the environmental footprint and overall ore processing costs. For instance, trucks transporting mined material are cheap to buy but have higher operating cost; in contrast, conveyor systems are expensive but cheaper to operate and have lower environmental impacts.

Given the growing environmental consciousness and protectionism, mining companies may be increasingly forced to work also in ‘alternative mines’ such as urban mines, or mining residues. A portfolio of new technologies will be required but innovation in mining suffers from specific barriers: each mine is unique, and mines are too large for testing or prototyping. Mines could become 100% electric from pit to port, and process efficiency could be achieved through digitalisation.

Malwina Nowakowska, Deputy Head, Resource Efficiency and Raw Materials Unit, the European Commission (EC, DG GROW), stressed that the participation of all the actors across the value chain would be needed to reconcile higher material demand with sustainability objectives.

The EU President-elect issued her political guidelines, including the objective to make Europe the first climate-neutral continent by 2050. The Green Deal and the Climate Law, along with the ensuing industrial policy, will be key legislative instruments. They will focus on strategic value chains connected to raw materials extraction, such as low-carbon industry, batteries and automated connected vehicles.

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The Master Plan for the Industrial Transformation of Energy-Intensive Industries is about to be issued by the EC. An integrated approach is required to address the challenges of the green low-carbon transition: this is not a sectoral issue but an issue for the whole society.

Kakha Kuchava, Chair of the Parliamentary Committee on Environmental Protection and Natural Resources of Georgia, underscored that mining is one of the biggest contributors to the national budget and employment. At the same time, environmental footprint of mining dramatically increased after the 2006 government decision to abandon environmental standards to attract investments. The consequences of this decision affected health and agricultural production in neighbouring communities, and led to the establishment of the Environmental Protection and Natural Resources Committee. It launched a 3-year environmental programme for the most affected regions and ensured monitoring of compliance by mining companies. Collaboration with NGOs and online streaming of meetings with the firms helped to create momentum and gain public trust. This led to positive results, e.g. a heavily polluted river since the Soviet times is now clean enough to fish. Georgia will soon pass new laws on environmental responsibility including a special fund dedicated to mine closures, and on industrial pollution. Environmental protection is among the priorities for its Presidency of the Committee of Ministers of the Council of Europe.

Håvard Halland, Senior Economist, Natural Resources for Development Unit, OECD Development Centre, underlined that institutional investors are increasingly concerned about the long-term resilience of their investments to climate risks, which are classified as physical (e.g. extreme weather events) and policy risks (e.g. sudden policy changes affecting demand).

The mining sector is highly exposed to physical risk due to its capital intensive nature, long-lived fixed assets, very long supply chains and significant water needs. For the same reasons, the sector is also exposed to climate policy risk. With a growing number of investors committing to the Paris climate goals, there is evidence that as much as 20% of valuation of mining companies is affected by their sustainability footprint.

The Institutional Investors Group on Climate Change (IIGCG) has issued recommendations for investors to articulate their expectations for mining companies, including investment decisions to take account of climate-driven shifts in mineral demand, or setting emissions reduction targets and reporting. These are early but encouraging signs from investors.

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The panel discussion focused on the role of insurance and mineral user demand in greening the extractive sector. Some insurance companies have already stopped, or question, insuring coal mining. Insurers’ long-term perspectives could play an important role in pushing mining companies properly capture the opportunities and risks of climate change. Materials customers also increasingly demand green products, and producers must have transparent and robust manners of demonstrating compliance with green standards. The European Battery Alliance is pushing manufacturers to comply with strict sustainability standards throughout the battery production value chain in Europe. Recent mining disasters show the consequences of not being proactive with environmental risks. While some firms are trying to improve their environmental footprint, many others are lobbying against ambitious climate actions. Economic, social and environmental considerations all need to be taken into account, depending on country contexts, as we move ahead in the green transition.

Key takeaways, identified knowledge gaps and areas for further research •

Key trends shaping the future of the mining industries, include new technologies (e.g. automation), increased transparency, decreasing ore content, and the need to identify new “social contracts”.

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Efforts are underway to make mining climate-smart via the use of renewable energy and consideration for a circular economy and resource efficiency. However, there is currently no broadly adopted methodology to accurately quantify cradle-to-grave environmental impacts of mineral supply chains.

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The push to green mining is coming from investors which are increasingly concerned about physical and policy risks related to climate change.

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The participation of all value-chain actors, including firms, NGOs and governments, is needed to green the industry, and ensure that mineral resources can contribute to sustainable development. Examples from the European Union and Georgia were shared, highlighting the role of transparency, civic engagement and demand-side policies.

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There is a need to move from “tinkering at the edges” to real constructive changes in the extractive industries.

Further research needs to address embedding climate, environmental and social risks in the industry’s business case.

From left to right: Perrine Toledo, Hans Jörn Weddige, Malwina Nowakowska, Håvard Halland, Kakha Kuchava and Ligia Noronha.

Summary Report

Session B International trade and the circular economy Julia Nielson, Deputy Director, OECD Trade and Agriculture Directorate, moderated this session which focused on linkages between the shift to a more circular economy and international trade. Thanks to global value chains, products cross national borders several times before reaching their final customers and, once they reach their end-of-life, are often reexported. Efforts to decouple economic growth and material use need to also consider international material flows.

Shardul Agrawala, Head, Environment and Economy Integration Division, OECD Environmental Directorate, underlined the links between trade and circular economy (CE). Trade is extremely important to correctly estimate material use: total material consumption is almost double domestic material consumption for OECD countries. Trade in waste has been growing over the last decade (48% in weight and 183% in value in 2003-2016). Waste import restrictions can lead to increased domestic incineration and landfilling or diversion of waste exports to countries with weaker treatment standards. There are interesting examples of re-manufacturing practises in selected industries such as heavy-duty equipment.

Circular economy initiatives are commonly implemented at the national level, often not fully taking into account the opportunities that trade offers. Early results of an OECD research underlines these benefits: if a uniform circular economy package is implemented across the world, global use of aluminium products could decline by 12% compared to baseline and much of the gains are enabled by trade. A number of challenges exist in increasing the trade of waste and secondary materials (e.g. definition and classification challenges or regulation on transboundary movement of waste) and trade of second-hand goods for reuse or remanufacturing (e.g. risk of “leakage” from established extended producer responsibility schemes). He called for a number of areas for future work, such as further research on harmonisation and mutual recognition of domestics standards (e.g. on material content or recyclability) and the role of new technologies (e.g. block chain) to improve the traceability of dangerous substances.

Scott Vaughan, Distinguished Fellow, the International Institute for Sustainable Development (IISD), highlighted that one of the key links between trade and the circular economy is that circular economy policies may affect trade flows of primary materials with important implications for resource-rich economies. While the demand of certain primary materials should decrease due to the adoption of CE policy packages, consumption of others (e.g. rare earth) may increase due to their role in key digital and low-carbon technologies.

Costumers are increasingly aware of the CE issues, as shown the fact that “repair cafés” are spreading.

At the same time, some leading companies are making pledges to develop a completely circular supply chain, including in the electronics industry where only 3% of waste is currently recycled. ISO has launched a technical working group on circular economy. This can be an important step forward in solving the issues connected to harmonisation or mutual acceptance of standards since ISO standards enjoy a preferential role in WTO negotiations. Labelling will also be needed to allow customers to distinguish CE products. Yet, there is a need to avoid a proliferation of redundant labels that may actually decrease market transparency and hinder trade. Finally, carbon adjustment policies are likely to enter the CE discussion given the strong link between circular economy and the low-carbon transition.

Jenny Svärd, Director for Environmental Policies at the Confederation of Swedish Enterprise (or CSE), argued that the business community sees the CE as an opportunity, and that the whole Swedish industry is very active in this field. However, this is not devoid of challenges. First, consumers (e.g. households, governments or firms) need to be willing to buy circular products and to handle them in a circular way (e.g. bringing it for repair). Second, taxation and regulations need to be adapted.

Standards play a key role in efficient trade in both refurbished products and waste is important for businesses. Given that standard harmonisation is difficult, mutual recognition of domestic standards

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Left to right: Keli Yu, Adina Renee Adler, Shardul Agrawala, Julia Nielson, Jenny Svärd and Scott Vaughan

could be a starting point. In addition, there is a need to start reflecting on standards on the type of product information to be shared (e.g. how products are made, how they can be recycled), specially for the chemical content of products. If waste is a resource, it needs to be handled and framed as such, but currently this is not the case and regulations for transport of waste is very complex even within Europe: one CSE member took one month to ship waste goods from Sweden to Denmark. There is a need to simplify regulations and procedure, and clarify how to deal with transit countries. A possible inspiration could come from how transport of dangerous goods is regulated: these are dangerous but precious goods, like some types of waste.

Keli Yu, Secretary General, China National Resources Recycling Association (CNRSA), described the impacts of the changes to Chinese waste import policy introduced in 2017: a 45% decrease in scrap import and 99% decrease in plastic import in 2018. When the policy was amended, 67 types of waste imports were allowed, now 18 and the target is almost zero by 2020.

When the waste ban was introduced, the industry had been consulted. As a consequence of the ban, some small businesses are shutting down but this is part of the “industrial upgrading”. When China became the “world’s factory”, ships were returning to China often empty. Importing waste emerged as good trade also given the demand for secondary materials from Chinese manufacturers. China still strongly supports the CE agenda and in 2017 introduced an extended producer responsibility (EPR) plan with a target of recycled material content of 20% for certain products (e.g. vehicles, electronics, batteries, packaging) by 2025.

Chinese companies need to improve their technologies to meet the demand of high quality recycled material.

Adina Renee Adler, Assistant Vice President, Institute of Scrap Recycling Industries (ISRI), argued that recyclers are often not included in the preparation of CE plans, thus sometime governments and firms make commitments that are not possible to achieve. Waste is a commodity. Already 40% of production inputs have been recycled to some extent. She echoed the importance of harmonisation or mutual recognition of standards, especially on quality of material, but these need to be developed with the cooperation of both product manufactures and recyclers. There is often a misalignment in the notion of waste among different government entities and policies. Ministries in charge of economic development should recognise that waste is a resource and be involved in development CE policies. Governments should promote waste collection and recycling as well as demand of recycled products.

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Legitimate trade in waste is demand driven: firms ship waste abroad because there is demand for it.

A consequence of the Chinese ban is that some of the importing companies moved to other countries to continue their operations. Government actions is needed to counter irresponsible practises (e.g. contaminated waste) but it is important that it does not disrupt all trade. IRSI supports harmonisation of standards. There have also been discussion of pre-consent or certification/permitting in trade in several countries: this could also be an important angle to explore further.

Key takeaways, identified knowledge gaps and areas for further research •

International trade can contribute to the transition to a global circular economy via trade in second-hand goods, end-of-life products, secondary materials and waste. However, measures need to be in place to avoid illegal or irresponsible trade (e.g. shipment of waste to countries that are unable to process it safely).

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Data availability, definition and classification of waste, scrap, and secondary materials need to be improved for trade to play its role as an enabler of the circular economy.

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How do we approach the question of the legitimate differences in standards among countries and the desire to allow for mutual benefits on a global scale? Further research could examine the need and feasibility of harmonising or ensuring mutual recognition of standards on e.g. the quality of materials for recycling and repairing.

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Innovation in block chain technologies that allow to track material flows and material content could help to ensure that trade becomes a key enabler of the circular economy.

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Further research may consider who is best positioned to address irresponsible trade; role of market (buyers and sellers across borders), government or exporting countries.

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Further research could examine the impacts of different standards for CE and review waste transport regulations.

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Given the fast-moving policy landscape, a mapping of what it is currently underway in different sectors and policy areas would be useful. Further analysis on the implications of CE on economic growth, especially for mineral exporter developing countries, could be possible area of future work.

Summary Report

Session C Regions and extractive industries:

Maximising local benefits for sustainable development Alain Dupeyras, Head, Regional Development and Tourism Division, OECD, moderated this session that focused on the links between the extractive industries and regional, urban and rural development, and how public and private sectors can cooperate to promote sustainable and inclusive exploitation of resources.

Gavin Bridge, Professor at the Durham University (UK), underlined that different stakeholders have own viewpoints on the possible contribution of extractive industries towards regional development.

These different views add to the challenge of turning natural resource wealth into sustainable and inclusive regional development outcomes. He described three main trends affecting inclusive development and extraction: shifts in global demand, climate change and increased public scrutiny. First, the decreasing importance of OECD countries in raw material demand is changing the way that regional assets are plugged into global supply chains and markets.

Governments are adopting more assertive geopolitical strategies around raw material sourcing, for example, with respect to the availability of critical minerals.

From left to right: Gavin Bridge and Mika Riipi.

New corporate actors are emerging, including transnational state-owned firms, and new forms of private equity. These firms bring a different offer to mining regions, and a different responsiveness to traditional policy drivers. Second, the energy transition poses the challenge of identifying the right time for regions to diversify away from fossil fuels.

Carbon risk, both in its physical and policy forms, can affect regional development. The third trend relates to place-based social conflict over extractive

development. Combining investment promotion and inclusive development policies is key: attaching social and environmental goals to investments can reduce investment risk in the medium and long-term. He identified three knowledge gaps: the regional implications of new actors and business models, the consequences of decarbonisation and net-zero targets for raw material demand, and the links between place-based policies and cumulative impacts.

LeRoy Hollenbeck, Director, Social Responsibility & Community Development, Freeport-McMoRan, focused on the social implications of mining and underlined that that a number of the SDGs are relevant to the extractive industry, in particular in relation to indigenous populations. Decisions on social sustainability were previously made by engineers and geologists without involving experts on community development. This has changed drastically and a number of international agencies currently focus on social responsibility, including: the Business for Social Responsibility, the World Business Council for Sustainable Development, the Global Reporting Initiative, the UN Global Compact. Freeport is increasingly recruiting indigenous people in order to promote positive spillovers for local communities. Proactively seeking a social licence to operate, for instance through targeted and proper use of social investments, can have lasting positive impacts on indigenous populations.

Sébastien Storme, Senior Advisor, Just Transition Centre of the International Trade Union Confederation (ITUC), discussed the importance of planning and investment, skills, reskilling, and workers’ rights for a “just transition”. The Spanish plan to close the 10 last remaining coal mines in the country, which employed some 2,000 workers, included measures such as early retirement schemes for miners over 48 years of age, and re-skilling programmes for cutting-edge

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green industries. A EUR 250 million budget was allocated to this transition plan. In Germany, the Commission on Growth, Structural Change and Employment was set up in 2018 to govern the phase-out of the country’s 84 remaining coalfired plants by 2038. The coal power and coal mining sectors still employ 60,000 people, and the Commission brought together unions, local governments, business and NGOs to define the conditions needed before the plants could be closed. Some EUR 40 billion is allocated to this project over 20 years. Social dialogue is crucial in building effective strategies both in Spain and in Germany. The same type of social dialogue is also necessary.

Mika Riipi, County Governor of Lapland, Finland, shared the region’s approach to sustainable development. As a regional developer, the Regional Council of Lapland is not focusing on attracting major mining companies but rather on developing new sustainable value chains. Their initiatives are focused on clusters, notably the Arctic Circle Economic Cluster which includes all stakeholders involved in forestry, mining and metallurgic industry. This is particularly important for a region that is sparsely populated, is the home of Europe’s only indigenous population (the Sámis) and has a significant level of exploration underway in addition to the three mines already in operation.

The Council’s cluster development policy is based on three key dimensions: cross-sectoral focus, bottom-up approach, and significant efforts to generate trust. A decision was made for the Sámi homeland to be a “no-go area” for mining companies.

Jane Korinek, Trade Policy Analyst at the OECD Trade and Agricultural Directorate, focused on the value chain of the mining industry. Mining does not create many direct jobs and, traditionally, in many countries the idea was to develop the downstream sectors (e.g. processing). However, this strategy has not always been successful. As such, it could be useful to focus on the upstream sectors, especially considering that services make up 23% of the value added of mining exports (vs.

15% for Oil and Gas). These services tend to be sector-specific (e.g. technical, environmental and economic feasibility studies, laboratory testing), and are often provided where extraction takes place, with a potential to engage SMEs. However, governments support may be needed to facilitate such linkages. In Canada, firms are required to consult with local communities and use Impact and Benefit Agreements to report on the economic and environmental impacts of their extractive

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activities. This approach creates a framework for the interaction between SMEs and large firms. In Australia, “full, fair and reasonable access” for local communities and local firms is required in tender and employment opportunities. In other OECD countries, public-private initiatives are used to support local suppliers and employment.

Oliver Sartor, Senior Research Fellow for Climate and Energy at IDDRI, described the main findings of a project that analysed 10 case studies of past industrial transitions and 6 forward-looking analyses of major coal-using countries (i.e. China, India, South Africa, Australia, Poland and Germany).

He underlined that successful case studies point to the importance of highly individualised approach to re-training, as every worker has different skills and capacity to shift to other jobs. Power relations is another key issue that can raise questions of politics, political economy, and even corruption.

In some cases, the central government has to be involved in the process to help local actors negotiate those power relationships and find an agreement. While strategies need to be adapted to local situation, some general principles can be identified. Short-term measures include worker transfer programmes and investments in local infrastructures such as universities or training centres. Long-term measures include smart specialisation and related diversification policies.

The aim should be to explore activities that would make economic sense in the region, based on a bottom-up approach involving local knowledge and local ownership, and top-down funding.

The panel debate focused on how mining can become a driver of sustainable long-term growth.

Freeport is trying to anticipate mine closures by working closely with local communities, and training them to supply goods and services both to the company and the community. Mining firms could better target their tenders towards local firms by dividing lots into smaller batches, to which local SMEs would more easily respond. Water stress is increasingly seen as a major challenge. In India, for example, a 10GW of coal-fired power had to be closed down due to lack of cooling water. The link between climate change and water stress is well recognised, and insurance companies, rating agencies and activist shareholders are increasingly demanding companies to account for water risks in plans.

Summary Report

Key takeaways, identified knowledge gaps and areas for further research •

A strong social dialogue that engages all stakeholders, including local authorities, workers and communities is crucial to ensure a smooth low-carbon transition for extractive regions. Place-based policies need to consider both the short and long-term. Attaching social and environmental goals to investment policies can reduce investment risk in the medium to long-term.

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It is critical to develop a sustainable value chain at the local level, e.g. through cross-sector cooperation between mining and forestry. Bottom-up approaches from local entrepreneurs can be very effective.

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The major challenge of the green low-carbon transition for many regions and cities is to identify and promote new, sustainable, and cross-sector value chains. SMEs will need to play a key role.

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Previous restructuring experiences allow to draw lessons on how to smooth structural adjustment for resource-rich regions but these needed to be adapted to the regional contexts.

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Further research is needed on the consequences of decarbonisation and net-zero targets for raw material demand, and the implications for local stakeholders. Also, the impact on automation on indirect job creation, and its broader implication for the mining “social licence” could be a further area of work.

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Special Panel Discussion The new geopolitics of natural resources

Roger Dungan, New Zealand’s Deputy Permanent Representative to the OECD, moderated this session that focused on the new geopolitical implications of natural resource endowment and the low-carbon transition.

of collaboration and more “systemic” approaches.

More circularity in global governance and shared sovereignty are likely to be important tools, and underlined that the European Union can be a good example. Nature is based on the principles of circularity, and economic systems should embrace it.

Janez Potočnik, Co-Chair of the UNEP International Resource Panel and Former European Commissioner for the Environment, highlighted that recent reports of Molly Walton, Energy Analyst for World Energy a number of major UN-related scientific agencies (e.g.

Outlook, the International Energy Agency (IEA), IPCC, IPBES, GEO, IRP) deliver key common messages: described the demand and supply implications of the negative human impact the low-carbon transition under the IEA’s on the environment has “Circular Economy should ‘sustainable development scenario’. The been accelerating in recent IEA envisions that energy demand will be decades with extreme risks be seen as an instrument to slightly lower in 2040 due to stringent energy deliver decoupling, and as efficiency policies, and increasingly met for health and well-being; the causes and consequences a part of the bigger picture by low-carbon sources, although natural of environmental degradation of economic, societal and gas will still have a role to play. Global oil are unequally distributed demand would peak in this scenario in the cultural transformation around the world; climate next few years, natural gas use grows to 2030 needed to deliver SDGs” change, biodiversity loss, and then start to fall, and coal demand is hit and the unsustainable use of hard, declining at more than 4% per year. resources can still be mitigated – Janez Potočnik This means that the share of fossil fuels in but transformative change global primary energy demand will be 50% needs to start immediately, in 2040, compared to over 80% today. The and trends must be turned around before 2030. energy transition will imply a change in demand The UN Inclusive Wealth Index of 2018 suggests for some of materials. The energy transition opens that GDP growth has been achieved at the cost of up significant opportunities for several strategic depleting natural capital while privatising profits and mineral resources in Africa such as cobalt and socialising costs. We may close to seeing a unique platinum. If the DRC maintains its share of global change in the societal relation with natural resources: cobalt production, then the industry could generate if human development has traditionally been $6-8 billion in revenues or 3-6% of GDP by 2030. constrained by shortage of natural resources, in the However, there are major questions as to whether near future it may be constrained by environmental African countries can sustainably keep up with and health consequences of their excessive use. The the rising demand. There is a need for responsible adoption of a circular economy would be essential stewardship, robust oversight mechanisms, and to decouple growth from resource use. Trends such greater scrutiny on how minerals are sourced and as digitalisation or the increasing interest of new how supply chains are managed. generation on access rather than ownership (e.g. the sharing economy) will play a key role. The complexity and scale of these challenges require new forms

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Roman Vakulchuk, Senior Research Fellow, Norwegian Institute of Foreign Affairs, introduced the concept of “geopolitics assets” to discuss how countries could fare in a full-scale transition to renewable energy.

Fossil fuels have shaped relations among states and regional interdependencies in many ways. He presented the main insights from a recent study aiming at developing an index of geopolitical gains and losses of the low-carbon transition. This has been elaborated for 156 countries and it is based on data on fossil fuel production, fossil fuel reserves, renewable energy resources, governance, and conflict. The analysis suggests that geopolitical power will be more evenly distributed after the energy transition with positive implications for energy security. Furthermore, many countries are likely to see improved trade balance because imports of fossil fuels would decrease. Renewable energy also has a geopolitical angle, mostly related to the management of storage, intermittency and infrastructure.

Lisa Fischer, Senior Policy Advisor, E3G, focused on natural gas, which is the world’s fastest growing fossil fuel. Energy-related emissions from natural gas in Europe reached the same level as coal in 2018. The geopolitical dimension of gas and climate policies emerge if one considers the economic implications of lower European gas demand for both exporting and transit countries. These implications need to be considered when designing a just transition out of gas. She also questioned the extent to which policy makers and investors are really considering alternative development pathways for developing countries. For example, investors are rushing to develop Mozambique’s natural gas resources but the country will only start receiving revenues in 10 years. Such investment decision is based on the long-term gas demand forecasts, many of which (with the Paris objective into consideration) assume negative emission technologies to become available.

However, very few models consider what would need to happen if such technologies were not deployed at scale on time. There is limited understanding of how gas demand might be affected by stronger support for renewables or by unstable climate policy. The definition of energy security needs to be updated in many countries. Establishing clear objectives on what countries want to import in 2030, 2040, or 2050 could help exporting and transit countries to better prepare for the low-carbon transition. For instance, Japan set a target of importing zero-carbon hydrogen from 2030 onwards.

Andy Wyckoff, Director of the OECD Science, Technology and Innovation Directorate, underlined that the energy transition is taking place together with other megatrends such as digitalisation. The digital transition has been ongoing for 50 years but it accelerated in 2007 with the introduction of smartphones. There are 2 billion smartphones in use today, allowing a form of connectivity that could not have been imagined earlier. At the same time, the level of data use is increasing exponentially: global internet traffic tripled between 2014 and 2018, and is predicted to triple again by 2022. This interacts with the energy transition on several levels. It is a massive new source of energy use: mobile phones and data centres, even if energy efficiency has improved 50 times from 2G to 4G, represents some 1% of our energy use today.

Many of these technologies require rare earth metals that pose a huge recycling challenge and the geographic distribution of their reserves may have geopolitical implications. On the other hand, we are moving to a more immaterial and intangible world. The cloud is energy-intensive, but much less so than the system in operation 10 years ago. Machine-learning techniques can help to drastically reduce the cost of power in data centres, and digital technologies are likely to be key enabler of the low-carbon transition. However, the digitalisation creates concerns in relation to privacy and cybersecurity, which is likely to become more prominent since the ‘internet of things’ is a huge source of vulnerability. Finally, deep-sea mining could change the material balance and relative geopolitics: only 5% of the sea floor has been mapped today and we do not know what resources may be there.

The panel discussion focused innovation, knowledge sharing and the role of the financial sector in the transition. The capacity to govern and enforce regulations would be necessary for the diffusion of low-carbon technologies.

Countries that are leaders in the introduction of these technologies could facilitate the transition through knowledge transfer. Public and private institutions are often short-term minded and this is not consistent with the environmental challenges we face. The finance sector needs to be part of the solution because public money is limited. Available data suggest that the venture capital segment is investing limited amount of money in low-carbon technologies.

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Key takeaways, identified knowledge gaps and areas for further research

Top to bottom: Janez Potočnik, Lisa Fischer, Andy Wyckoff,

Molly Walton,Roman Vakulchuk and Roger Dungan.

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The negative environmental change has been worsening in recent decades, resulting in extreme risks for human health and well-being. The causes and impacts of that change are highly unequal around the world.

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Climate change, biodiversity loss, and the unsustainable use of resources can still be mitigated (trends must be turned around before 2030), and the cost of action is lower than the cost of inaction.

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Energy transitions imply a change in the supply and consumption of energy. Energy use will be increasingly electrified with important implications for energy security, data privacy, and cyber security. Renewable energy resources are more evenly distributed than fossil fuel reserves, thus relations among countries may become be less asymmetrical. The geopolitics of renewable energy are likely to be more concerned with the management of storage, intermittency and infrastructure.

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Other mega trends could interact with the energy transition, mitigating or exacerbating the challenges. Digital technologies can lead to an increase in material demand and it is a massive new source of energy use. At the same time, they can play a key role in enabling smart grids that enable energy efficiency and renewables.

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Further research is needed to understand how these trends interact. Additional research is also needed to investigate how climate change might affect political stability.

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Closing Session

Kumi Kitamori, Head of the Green Growth and Global Relations Division, the OECD, invited the moderators of the three parallel sessions to share their key takeaways, the identified knowledge gaps, and the implications for future work at the OECD. Then, representatives of relevant OECD Directorates — Rodolfo Lacy (Environment Directorate), Grace PerezNavarro (Centre for Tax Policy and Administration), Federico Bonaglia (Development Centre), Julia Nielson (Trade and Agriculture Directorate, and Alain Dupeyras (Centre for Entrepreneurship, SMEs, Regions and Cities)— responded how their possible future work might address some of the key issues that emerged from the previous sessions and knowledge gaps identified.

In his closing remarks, Masamichi Kono, OECD Deputy-Secretary General, highlighted that one overarching message that emerged throughout this year’s GGSD Forum is that all stakeholders need to be involved in the efforts to green heavy and extractive industries, including national and regional governments, industries, research community, and the civil society at large. He also underlined that the discussions have clearly highlighted that innovations in both technologies and business models are required to support the shift of these sectors towards a low-carbon and circular economy. The crucial role of governments emerged clearly from the debate: they need to set long-term policy certainty, including credible carbon pricing; establish sound regulatory frameworks; and create appropriate conditions for R&D in breakthrough technologies, including the required infrastructure. He concluded by announcing that the 2020 GGSD Forum (25- 26 November 2020) will focus on “Securing Natural Capital: Resilience and Risk Management”.

Left to right: Masamichi Kono, Rodolfo Lacy, Federico Bonaglia, Kumi Kitamori, Alain Dupeyras, Julia Nielson and Grace Perez-Navarro.

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Speakers Scene-setting Session Angel Gurría, Secretary-General, OECD Adair Turner, Chairman, Energy Transitions Commission; Senior Fellow, Institute for New Economic Thinking (INET) Keeyong Chung, Director-General, Climate Change, Energy, Environment, Ministry of Foreign Affairs, Republic of Korea Rodolfo Lacy, Director, Environment Directorate, OECD Masamichi Kono, Deputy-Secretary General, OECD Jerome Schmitt, Chairman of the Oil and Gas Climate Initiative Executive Committee, Senior Vice President Innovation & Energy Efficiency, Total Jenny Svärd, Director Environmental Policies, Confederation of Swedish Enterprise

Session 1

Fiscal implications of the low-carbon transition Grace Perez-Navarro, Deputy Director, Centre for Tax Policy and Administration, OECD Dastan Umirbayev, Director, Department of Macroeconomic Analysis and Forecasting Ministry of National Economy, Republic of Kazakhstan Rick van der Ploeg, Professor of Economics and Research Director, Oxford Centre for the Analysis of Resource-Rich Economies, University of Oxford Isabel Blanco, Lead Economist, Economics and Policy Group, European Bank for Reconstruction and Development (EBRD) Øystein Bieltvedt Skeie, Economist (Chief specialist), Norwegian Ministry of Finance; Delegate, Joint Meetings of Tax and Environment Experts (JMTEE) Bady Baldé, Regional Director for Africa, Extractive Industries Transparency Initiative (EITI)

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Session 2

Driving innovation for greening heavy industries Lieven Top, Delegate of OECD Steel Committee; Senior Advisor, Flemish Ministry of Economy, Science and Innovation, Belgium Mechthild Wörsdörfer, Director, Sustainability, Technology and Outlooks Division, IEA William Garcia, Executive Director, Head of HSE Policies and Responsible Care, European Chemical Industry Council (CEFIC) Ron van der Meer, Director Public Affairs, HeidelbergCement, Germany Åsa Ekdahl, Head, Environment and Climate Change, World Steel Association Maarten Neelis, Principal advisor Sustainability, Rijkswaterstaat, Ministry of Infrastructure and Water Management, The Netherlands

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Session A

Greening extractive sectors: mission possible?

Session B

International trade and circular economy

Ligia Noronha, Director, Economy Division, UN Environment Programme (UNEP)

Julia Nielson, Deputy Director, Trade and Agriculture Directorate, OECD

Perrine Toledano, Head of Extractive Industries, Columbia Center on Sustainable Investment (CCSI), Columbia University

Shardul Agrawala, Head of Environment and Economy Integration Division, Environment Directorate, OECD

Hans-Jörn Weddige, Group Coordinator Energy, Climate and Environment Policies, Thyssenkrupp AG Malwina Nowakowska, Deputy Head of Unit, Resource Efficiency and Raw Materials, European Commission (DG GROW) Kakha Kuchava, Member of Parliament, Georgia, Chair of the Environmental Protection and Natural Resources Committee

Scott Vaughan, Distinguished Fellow, International Institute for Sustainable Development (IISD) Jenny Svärd, Director Environmental Policies, Confederation of Swedish Enterprise Keli Yu, Secretary General of China National Resources Recycling Association Adina Renee Adler, Assistant Vice President, Institute of Scrap Recycling Industries

Håvard Halland, Senior Economist, Natural Resources for Development Unit, OECD Development Centre

Special Panel Discussion

Session C

Regions and extractive industries

The new geopolitics of natural resources

Alain Dupeyras, Head of Division for Regional Development and Tourism, OECD Gavin Bridge, Professor, Durham University, United Kingdom Mika Riipi, County Governor, Regional Council of Lapland, Finland Oliver Sartor, Senior Research Fellow, Climate and Energy, IDDRI, Paris, France LeRoy Hollenbeck, Director Social Responsibility & Community Development, Freeport-McMoRan Sébastien Storme, Senior Advisor, Just Transition Centre, International Trade Union Confederation Jane Korinek, Trade Policy Analyst, Trade and Agriculture Directorate, OECD

Roger Dungan, Deputy Permanent Representative to the OECD, New Zealand Janez Potočnik, Co-chair, UNEP International Resource Panel; former European Commissioner for the Environment Roman Vakulchuk, Senior Research Fellow, Norwegian Institute of Foreign Affairs Lisa Fischer, Senior Policy Advisor, E3G Molly Walton, Energy Analyst, World Energy Outlook, International Energy Agency (IEA) Andy Wyckoff, Director, Science, Technology and Innovation Directorate, OECD

Closing Session Kumi Kitamori, Head of Division, Green Growth and Global Relations, Environment Directorate, OECD Federico Bonaglia, Deputy Director, Development Centre, OECD Lamia Kamal-Chaoui, Director, Centre for Entrepreneurship, SMEs, Regions and Cities, OECD Julia Nielson, Deputy Director, Trade and Agriculture Directorate, OECD Grace Perez-Navarro, Deputy Director, Centre for Tax Policy and Administration, OECD Rodolfo Lacy, Director, Environment Directorate, OECD

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Publications

OECD and IEA Background Publications and Websites

Elgouacem, A., et al. (2020), “The fiscal implications of the low-carbon transition”, OECD Green Growth Papers, No. 2020/01, OECD Publishing, Paris, https://doi.org/10.1787/6cea13aa-en Bataille, C. (2020), “Low and zero emissions in the steel and cement industries: Barriers, technologies and policies”, OECD Green Growth Papers, No. 2020/02, OECD Publishing, Paris, https://doi.org/10.1787/5ccf8e33-en Holland, M. (2020), “Reducing the health risks of the copper, rare earth and cobalt industries: Transition to a circular low-carbon economy”, OECD Green Growth Papers, No. 2020/03, OECD Publishing, Paris, https://doi.org/10.1787/88ce1db4-en IEA (2019), Material efficiency in clean energy transitions, iEA Publishing, Paris, https://webstore.iea.org/material-efficiency-in-clean-energy-transitions IEA (2018), WEO-2018 Special Report: Outlook for Producer Economies, IEA Publisihing, Paris, https://webstore.iea.org/weo-2018-special-report-outlook-for-producer-economies IEA, (2018), Technology Roadmap - Low-Carbon Transition in the Cement Industry, IEA Publishing, Paris, https://webstore.iea.org/technology-roadmap-low-carbon-transition-in-the-cement-industry IEA, (2013), Technology Roadmap - Energy and GHG Reductions in the Chemical Industry via Catalytic Process, IEA Publishing, Paris, https://www.iea.org/publications/freepublications/publication/Chemical_Roadmap_2013_Final_WEB.pdf OECD (2019), Global Material Resources Outlook to 2060: Economic Drivers and Environmental Consequences, OECD Publishing, Paris, https://doi.org/10.1787/9789264307452-en.

OECD (2019), Mining and Green Growth in the EECCA Region, OECD Green Growth Studies, OECD Publishing, Paris, https://doi.org/10.1787/1926a45a-en.

OECD/ITF (2019), Tax Revenue Implications of Decarbonising Road Transport: Scenarios for Slovenia, OECD Publishing, Paris, https://doi.org/10.1787/87b39a2f-en.

OECD (2019), Using Extractive Revenues for Sustainable Development: Policy Guidance for Resource-rich Countries, OECD Development Policy Tools, OECD Publishing, Paris, https://doi.org/10.1787/a9332691-en.

Alova, G. (2018), “Integrating renewables in mining: Review of business models and policy implications”, OECD Development Policy Papers, No. 14, OECD Publishing, Paris, https://doi.org/10.1787/5bbcdeac-en.

McCarthy, A. and P. Börkey (2018), “Mapping support for primary and secondary metal production”, OECD Environment Working Papers, No. 135, OECD Publishing, Paris, https://doi.org/10.1787/4eaa61d4-en.

Yamaguchi, S. (2018), “International Trade and the Transition to a More Resource Efficient and Circular Economy: A Concept Paper”, OECD Trade and Environment Working Papers, No. 2018/03, OECD Publishing, Paris, https://doi.org/10.1787/847feb24-en.

• Policy Highlights www.oecd.org/environment/waste/policy-highlights-international-trade-and-thetransition-to-a-circular-economy.pdf OECD (2016), Collaborative Strategies for In-Country Shared Value Creation: Framework for Extractive Projects, OECD Development Policy Tools, OECD Publishing, Paris, https://doi.org/10.1787/9789264257702-en.

Websites • www.oecd.org/dev/policy-dialogue-on-natural-resource-compendium.htm • www.oecd.org/trade/topics/trade-in-raw-materials/ • www.iea.org/petrochemicals • www.iea.org/topics/hydrogen/

• www.iea.org/tcep/industry/

2019 #GGSD Forum

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2019 Green Growth and Sustainable Development Forum http://oe.cd/ggsd2019

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