Europe, “Lithium and rare earths will soon be more important than oil and gas”

The Commission chief pronounced these words as Europe was reeling from an energy crisis accelerated by Russia’ war in Ukraine and which led to the bloc pledging to wean itself off fossil fuels — most of which it has traditionally supplied from Russia — and accelerate its transition towards “homegrown” renewables and other green tech.

These, however, rely on so-called rare earths which are needed to produce everything from the latest generation batteries to the materials needed to manufacture photovoltaic panels.

“The urgency now is securing lithium supplies, it’s really really urgent,” Dr Evi Petavratzi, a senior mineral commodity geologist at the British Geological Survey told Euronews.

The United States Geological Survey estimates that Europe is home to 7% of global lithium deposits, enough to cover 80% of European battery needs.

Why are new mines so hard to open?

New mines currently take decades to get approved, due to fierce opposition by local people and politicians who are concerned about environmental and social consequences.

An example of this is the Norra Kärr rare earth element project in southern Sweden. Despite this deposit being found in 2009 and a 25-year mining licence being granted in 2013, no metals have been extracted.

The licence granting led to large protests over environmental concerns and the extraction licence was overturned in 2016 and a mine leasing application was rejected in 2021.

Speaking about the environmental impact of hard-rock mining, Dr Simon Jowitt, an economic geologist and associate professor at UNLV Department of Geoscience said: “There’s always a certain potential impact on the environment, on ground and service water.”

“Every mine is a little different in terms of that potential, but there’s always some. There’s also the risk posed by dust from mines.”

Most lithium is extracted by one of two methods: solar evaporation and hard-rock mining.

The biggest concerns with this form of extracting lithium are its high water usage, possible depletion of groundwater levels, and the waste salt which is left behind. Approximately 2.2 million litres of water is needed to produce one tonne of lithium using this method.

The other most common way of extracting this precious metal is through more traditional hard-rock mining, typically using opencast pits.

Not only are such pits an eyesore, but dust from such mines can also spread to surrounding areas sparking health and environmental concerns. Furthermore, the processing of the mined material can also use significant amounts of water.

However, it is important to put the risks involved in precious metal mining in the context of the benefit they bring from reducing fossil fuel extraction.

Higher prices enabling more complicated extractions

Increased demand for batteries — it is set to explode 14-fold between 2020 to 2030 — has pushed up the demand and price of lithium from about $20,000 per tonne five years ago to $80,000 per tonne last November and driven innovation into new, more expensive, mining methods that mitigate possible impacts on the environment.

An example of this is the proposed San José de Valdeflórez lithium mine in Spain’s Western province of Extremadura.

Originally proposed as an open-pit mine less than a kilometre away from the UNESCO mediaeval city of Cáceres and a natural reserve, the project faced fierce opposition from all quarters.

However, Extremadura New Energies (ENE), the Spanish subsidiary of Infinity Lithium, is now planning on building the mine completely underground with the entrance of the mine being located 2 km away from the city.

The material will also be crushed inside the enclosed mine, cutting the risk of dust pollution.

It has also unveiled plans to use patented technology which means the mine will not have to use sulfuric acid for lithium extraction, resulting in a zero-flow discharge mine. This dramatically reduces the risk of contaminating surrounding land water sources.

Additionally, the vehicles and mining operations will be powered by renewable energy, including from a new green hydrogen plant.

However, these mitigation methods were only introduced following objections by local people and authorities – highlighting the importance of local engagement in improving lithium mining.

Furthermore, although the deliberations and debates over the San José de Valdeflórez project resulted in a much-improved end project, it has been a long journey since it was first proposed in 2015.

Despite this, the project’s environmental impact has never been approved or evaluated. The company is currently seeking approval for an exploration permit and hopes to submit the project for environmental evaluation by April this year.

A local protest group, Salvemos la Montaña (Let’s Save the Mountain), has also gained significant support in its campaign against the project.

EU mining ambitions

The Commission wants Europe to build a more resilient supply chain to reduce its reliance on strategic competitors for imports and processing of rare metals.

In a document published last year, The Commission stated it could introduce targets into legislation, for example, that at least 30% of the EU’s demand for refined lithium should originate from the EU by 2030. Another goal is to ensure that the time from the start of exploration work to a mine or a refining facility opening is reduced to a matter of years, not decades.

To do that, it plans “to facilitate the roll-out of targeted raw materials projects in the EU” and for the Commission to be empowered to “list Strategic Projects – which would be labelled as of European interest – based on proposals from member states.”

Ramón Jiménez, CEO of ENE told Euronews he certainly believes that “it is possible to make this process faster without reducing environmental or social impact reductions”.

He said that his San José de Valdeflórez project had enjoyed strong support from the central Spanish government. However, convincing central governments may be the easy part, convincing local residents will be key if the EU really wants to boost its mining output, Euronews writes.

How long will Santander continue to profit from Polish coal expansion?

The Spanish bank’s use of ‘ESG loans’ for companies with fossil fuel expansion plans is part of a dangerous new trend

Poland’s fiercely pro-coal Law and Justice (PiS) party may have been returned to power following general election, but already a vigorous coalition comprising local and regional authorities, farmers, NGOs and grassroots groups, business associations and local communities has succeeded in thwarting the new government’s reckless coal ambitions.

Faced with vocal opposition from across the country to PiS’s proposed legislation, which would have allowed Warsaw to open new coal mines around the country without the approval of local authorities, yesterday the head of the Polish parliament threw out reading of the special mining bill during the final day’s session of the old parliament.

Should the government re-table the bill in the coming months of the new parliamentary session, it will only escalate tensions between Poland and the EU over climate policy and land the national authorities in further hot water with Brussels. Environmental lawyers in Poland maintain that the proposed mining law would violate EU law.

As this blog explores, with the Polish state’s gung-ho approach to coal intensifying, for how much longer can financial institutions such as Santander maintain their credibility as supposedly ‘responsible’ banks if they are prepared to continue funding Polish companies which are going all out to prolong and expand their coal fleets?

All in for coal

PiS officials have not been shy about disclosing one of the most pressing reasons for trying to introduce the new radical mining legislation, a highly unusual and controversial move even by the standards of the ‘Coal is King’ mentality so dominant in the right-wing party.

The mining bill was intended to assist development of the planned lignite open-pit mine at Złoczew, which stands to become the country’s deepest ever open-pit mine, would displace over 3,000 people and destroy 33 villages. A concession to open the Złoczew mine is being sought by the state-run energy group PGE to fuel its Bełchatów power plant for the next several decades.

Bełchatów, Europe’s biggest power plant, is notorious for being the continent’s single largest source of carbon emissions.

For PGE, with no coal phase out policy in place, no Paris compliant decarbonisation goals and a 91% coal share of power production (according to the recently updated Global Coal Exit List), steamrolling over public health concerns, people’s houses and completely disregarding the global climate imperative is somehow par for the course. Flying in the face of economic reality to just keep on digging and burning more and more coal would also appear to be part of the PGE business model, according to an analysis published last week by the Institute for Energy Economics and Financial Analysis (IEEFA).

Assessing PGE’s ‘all in for coal strategy’ since 2015 (not the strategy’s actual name, but coal and lignite have accounted for 76% of its €8.5 billion capital expenditure and acquisition investment so far over four years), IEEFA’s view is that the financial performance of the company has been ‘woeful’ and that the current, hugely coal-intensive pathway is financially ‘unsustainable’.

The IEEFA analysis found that PGE’s cost of equity has exceeded return on equity for at least the last four years, and that it has performed poorly when compared with European electric utilities that have tilted towards renewables.

Of PGE’s proposed Złoczew lignite, one of the report’s authors Gerard Wynn reckons, “It’s a distraction which would inevitably create huge losses, ultimately paid by energy consumers or the Polish state. The time has passed for energy companies to replace old coal with new coal.”

Some banks refusing to get out of Polish coal

Steering clear of coal – and companies like PGE still looking to develop new coal projects – has also got to be a top priority for commercial banks. Yet just over a year ago, Spain’s Santander, Italy’s Intesa Sanpaulo and Japan’s MUFG opted to back PGE’s ‘all in for coal’ approach with a loan for the company of close to €1 billion.

Based on the environmental, social and financial risks which PGE’s stubbornly enduring,  and potentially legally suspect, coal activities pose, these three banks – all of which recently signed up to the UN’s Principles for Responsible Banking, requiring them to align their business strategies with the Paris Agreement in the next two years – must now be prepared to jettison their recalcitrant Polish coal clients and, indeed, other clients still set on coal expansion.

Seeing no palpable signs of a transition out of coal taking shape in its Polish clients, this is in fact what French bank BNP Paribas announced it is doing at its annual shareholders’ meeting in May this year. Another French bank, Crédit Agricole, has also recently laid down a marker for the banking sector by announcing its commitment to fully phase out of coal, including an immediate end to business with companies planning to develop new coal projects.

However, just as they were signing the Principles for Responsible Banking at a launch ceremony in New York in September, two of PGE’s bankers, Santander and MUFG, signalled that they are prepared to give the Polish coal sector further financial leeway.

The two banks have signed off on a PLN 2 billion (approximately €465 million) ESG-linked revolving credit facility agreement with Energa Group, a majority coal-dependent company involved in trying to construct the last new coal power plant on EU soil – the €1.2 billion, 1000 megawatt Ostrołęka C coal plant.

One of the justifications from Santander for this loan (for ‘revolving credit facility’ read ‘company credit card’) is that the agreement with Energa “prohibits the use of loan proceeds for coal power”.

Energa does have business in renewable energy. Yet, according to an anonymous European banking source talking to Reuters about Polish coal power financing trends, “Banks agree to provide financing for energy groups only on condition that it will be spent on distribution networks or renewables. But this helps the energy companies to find money for the coal projects.”

Energa needs funding generally – to buy back domestic bonds this week, and to pay back €500 million worth of Eurobonds (an issue previously arranged in 2013 by BNP Paribas, Bank of America and HSBC) in March next year. And mounting Ostrołęka C construction costs are looming for Energa. The company has ‘stranded asset risk within a decade’ written all over it, chiefly because of its Ostrołęka C ambitions.

But what of the ESG (Environmental, Social and Governance) criteria attached to this Energa loan, which Santander is trumpeting as a first in Poland?

The extent of the interest payable on the loan will be determined by the bank’s assessment of Energa’s “care for the natural environment, social responsibility and corporate governance”. If Energa continues to pump capital into Ostrołęka C – and that is its plan – then under the ESG terms its interest payments on this loan are likely to rise, and hence Santander will profit further.

The emergence of ESG marked lending by banks for companies with explicit fossil fuel expansion plans is a dangerous new trend. If banks like Santander want to encourage companies – like Energa – which are dead set on firing up new coal plants not to do so, the risk of a couple of interest rate penalty points is not going to cut it, especially where state-owned companies such as Energa (and PGE) are concerned.

Rather than profiting by penalising the likes of Energa with exotic new ‘green’ financial engineering, Santander and others should penalise these companies by not funding them at all. Profiting from climate destruction is never going to be ESG-compliant, as much as the finance industry may want to spin it.

Souce: banktrack.org