An electric vehicle assembly line at a Volkswagen plant in Germany. The car company is one of many EV producers with a decarbonization goal and offtake agreements with miners for key battery metals. Source: Jens Schlueter/Getty Images News via Getty Images Europe.

S&P Global Commodity Insights examined the approaches by some of the largest companies in the world to achieve net-zero carbon emissions by the end of 2050 or sooner. This article is part of the Path to net-zero series examining the metals and mining, electric utility, oil and gas, chemicals and shipping sectors.

Battery metals miners, facing a looming supply deficit amid an electric vehicle boom, are beginning to heed growing calls for decarbonization from investors, automakers and regulators.

Many of the world's largest mining companies by market capitalization have set net-zero goals; 24 of 30 companies assessed by S&P Global Commodity Insights promise to get to net-zero by 2050. Five of the six companies without net-zero goals still have decarbonization objectives. The three largest global mining companies — BHP Group Ltd., Rio Tinto PLC and Glencore PLC — have net-zero targets that extend to Scope 3 emissions, referring to CO₂ emissions from their customers and their supply chains.

Battery metals producers such as Albemarle Corp., the only pure lithium producer in the list of companies analyzed, are under particular pressure. For example, global plug-in EV demand for lithium, used in most battery cathodes and anodes, is expected to surge 142.2% between 2023 and 2027 to hit 1.5 million tons of lithium carbonate equivalent, according to S&P Global Market Intelligence data. Yet, while producers must quickly scale up production, new regulations require them to trim or report CO₂ emissions, and investors are demanding reduced environmental, social and governance risk.

"Because we're building this [market] from scratch, we have an opportunity to do better," said E.J. Klock-McCook, principal for carbon-free transportation at environmental think tank RMI. "We don't need to take the past as the precedent for the future. ... And I think the early signs are encouraging, but we all have a lot of work to do to ensure that it comes to fruition."

BHP Group, Rio Tinto and Glencore declined to comment or did not respond to requests for comment.

Less carbon, less risk

Investors see reducing carbon emissions as reducing risk, making low-emission miners more attractive, experts told Commodity Insights.

"I think miners are doing a pretty good job about ... the easy wins at mine sites, especially with greenfield projects," said Rebecca Campbell, partner at White & Case LLP and head of the law firm's global mining and metals industry group, referring to early decarbonization efforts such as power purchase agreements. "It comes back to [the idea that companies] can't attract financing unless they're able to show that [the mines] are being built with the lowest possible carbon solution."

Those low-carbon solutions come with the benefit of insulation from potential increases in fuel prices that could drive up a mine's operating costs, particularly as pricing for renewable energy experiences a rapid cool-down.

The average global levelized cost of electricity (LCOE) for utility-scale photovoltaic solar was $50/MWh in 2020, representing a drop of over 50% compared to five years prior, according to a 2021 Commodity Insights report. In the same year, the global average LCOE for combined cycle gas turbines was $59/MWh. In most regions, the average LCOE of utility-scale solar is expected to drop with the LCOE of gas-fired power to increase through 2030 and beyond, according to Commodity Insights data.

EXPLORE FURTHER: See the top 30 mining companies' net-zero and related emissions reduction goals. Click here for the downloadable file.

Lessened dependence on fossil fuels, which have frequent price fluctuations, along with the integration of ESG standards at mine operations, can increase financiers' confidence in the long-term feasibility of a mine project.

"[A] joint venture agreement and an initial investment are also going to be paired with, most likely, financial institutions or climate finance institutions that are willing to take the risk in investing in these projects," said Leilani Gonzalez, policy director at EV advocacy group the Zero Emission Transportation Association. "If you are looking at a robust supply chain built out with ESG incorporated into it ... [this indicates to] financers that this is going to be a more sustainable and worthwhile investment."

Offtake agreements grow, but carbon takes a back seat

Several of the largest EV makers in the US and EU — including Tesla Inc., Ford Motor Co. and BMW Group — have outlined responsible sourcing policies or joined groups that seek to create ESG standards for mines, such as the Initiative for Responsible Mining Assurance.

Expected increases in demand for EV battery metals in the coming years, in response to a ramp-up of global EV adoption, have been pushing automakers to sign offtake agreements with battery metals miners. Worldwide passenger plug-in EV sales are expected to jump 129.1% between 2023 and 2027 to hit 31.8 million units, constituting a 38.8% market penetration rate, according to Market Intelligence data. This puts original equipment manufacturers (OEMs) — whose products are seen as a core tenet of the energy transition — in a unique position to demand that suppliers adhere to certain sourcing standards.

"There are many examples of OEMs putting sustainability requirements into contracts that go all the way back to the mines," said RMI's Klock-McCook. "Even the fact that they are going up that far up the supply chain in general, leaving aside sustainability, is pretty unprecedented as well, and that probably reflects the competitive dynamic in terms of securing those raw materials."

Some major miners including Rio Tinto, which produces lithium in addition to bulk commodities such as iron ore and aluminum, are aware of customer preferences for lower-carbon metals. The company's emissions are aligned with a global warming scenario of less than 1.5 degrees C, according to Market Intelligence and S&P Global Sustainable1 data.

"We need to tackle our Scope 3 emissions, as we fully appreciate that to thrive in the long term we need to be part of net-zero value chains," the company said in its 2022 climate change report. "The best way for Rio Tinto to contribute to the low-carbon transition is to partner with our customers and others in our value chain to develop innovative solutions and help shape demand for low-carbon metals and minerals."

However, where battery metals offtake agreements do involve sourcing benchmarks, they tend to focus on broader ESG provisions while omitting requirements to reduce emissions.

"Various [OEMs] have put in things like responsible sourcing covenants over time, and they are actually getting stronger," Campbell said. "We've seen those covenants coming through, but [with] less emphasis on the carbon attributes of the primary production and then as it moves through the chain."

The prevailing offtake contract language is not without exceptions, at least in the midstream. For example, a BMW Group spokesperson told Commodity Insights that the carmaker's battery cell suppliers are "contractually obliged to use 100% green energy," and that the company has CO₂ emissions target agreements for the production of cathode and anode materials to be used in its sixth generation of battery cells, which are scheduled to debut in 2025.

Tesla and Ford did not respond to requests for comment.

Regulations shape net-zero implementation

Another key pressure on miners is global regulatory environments, particularly in large EV markets such as the EU and US.

Recent policies such as the US Inflation Reduction Act and the EU's Critical Raw Materials Act incentivize or require major shifts in how miners and EV makers think about minerals supply chains. That change in the thought process is already manifesting in offtake agreements, according to Campbell.

"We see covenants coming through requiring things like cathode active material producers to relocate parts of their production to Europe in order to comply with the European sourcing regulations," Campbell said. "I've seen covenants around requirements for a minimum amount of recycled material, again, to deal with the EU regulations that are coming through on minimum recycled content."

Although these international rules may not lay out carbon emissions intensity requirements for mined products, their onshoring incentives for mining and processing may serve to cut emissions throughout the minerals supply chain through decreased transportation of metals and the use of comparatively cleaner electricity.

"The US has better environmental standards for emissions than most of the Eastern Hemisphere," Kevin Murphy, research and analysis director for Commodity Insights' Metals and Mining Research, said in an email interview. However, "it's going to be very difficult to onshore most of the supply chains related to battery metals," Murphy added.

Other regulations, such as a Scope 3 emissions disclosure rule in California and a pending climate-risk disclosure rule from the US SEC, could add to the pressure on miners to release and adhere to net-zero plans.

"There's a very significant public disclosure requirement to hit your targets and make sure that you are seeking to hit those targets, because there will be continuing community pressure and government pressure as well if you don't," said Allan Taylor, partner and co-head of the Europe, Middle East and Africa corporate practice at White & Case.

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