Issue: Oct 2010/Jan 2011
Sustainability Case Study
Gold Fields’ methane project is a ground-breaker. ZOE LEES, head of climate change and sustainability advisory services at KPMG, explains its financial and environmental significance
The biggest clean-development mechanism (CDM) project being carried out by a gold mining company in SA is Gold Fields’ methane destruction at Beatrix, its large medium-to-deep level mine near Welkom.
The Free State goldfields are rich in methane. Unlocked during the normal course of mining and released into the atmosphere, methane acts as a potent greenhouse gas. Its contribution to global warming is 21 times that of carbon dioxide.
The methane escapes from the Beatrix mining operations in the general mine ventilation air and through a number of geological boreholes. Methane is a flammable gas which can explode, should there be an ignition source, if the methane concentration in the ventilation air is at levels between 5% and 15%.
The project is to capture methane isolated from old exploration boreholes and underground areas. It entails use of the gas to generate power through reciprocating methane-fired engines. It’s also to replace coal used in the generation of steam, and the production of chilled water through absorption chillers which cool underground mining operations. This will enable the mine to reduce its dependence on coal and fossil fuel-based electricity from Eskom.
In 2007, the project was registered with the Designated National Authority (DNA) as a carbon credit project under the CDM of the Kyoto Protocol. In 2009 the project was approved by the CDM board in Geneva to earn certified emission reduction certificates (CERs), also known as carbon credits, which are traded internationally.
Emission-reduction projects in developing countries must meet strict conditions to earn CERs. The process requires technical, financial and regulatory expertise, points out Gold Fields. Funds raised by carbon trading will assist its financing of the project over the registered period1.
The methane was previously emitted into the atmosphere as a direct result of historic and current mining. Beatriix’s ventilation system used dilution of the air to decrease the presence of methane to less than 1%.
Capturing the mine’s methane gas, in addition to earning carbon credits, has the added benefit of improving underground safety (given that methane is highly ignitable). In fact, between 1983 and 2001 explosions caused by the ignition of methane claimed 40 lives at Beatrix.
Methane gas from the mine will only be flared in instances where it is impossible to use the gas for practical, financial, or regulatory reasons.
The main tasks of the Designated National Authority (DNA), which falls under the Department of Mineral Resources, are to assess potential CDM projects – to determine whether they will assist SA in achieving its sustainable development goals – and to oversee the approval process of CDM initiatives. The Beatrix project is one of more than 40 submitted to the DNA for CDM approval, and is so far one of about 15 projects to have received DNA verification.
Gold Fields will sell 1,7m CERs to European energy trading company Mercuria under forward contracts which run until 2016. At CRE values and exchange rates when the transaction was announced in May, the contract is worth about R200m and the capital cost of the project is put at some R78m2.
Construction of a power generation plant, with the potential to generate about 5MW of electricity, is scheduled to start next year.
Gold Fields is also pursuing a number of novel solutions to improve its energy efficiency. These are in various phases of development and motivation.
ABOUT THE CLEAN DEVELOPMENT MECHANISM
The Kyoto Protocol contains a market-based approach to combat climate change by flexible mechanisms. These are emissions trading and generation of tradable emission-reduc-tion credits through projects.
While many developed countries in the Kyoto Protocol accepted a cap on their total greenhouse gas emissions, developing countries such as SA negotiated that their emis-sions will still be allowed to increase. To facilitate technology transfer -- to help developing countries in their sustainable development and at the same time assist the investing (developed) countries with a cap to fulfil their commitments -- projects resulting in emission reductions can be undertaken in developing countries.
Such emission reductions are verified by a third party. They can be used in a country with a ‘cap on emissions’ to comply with its emissions target. This is known as the clean-development mechanism (CDM).
The first step is identification and formulation of a poten-tial CDM project. It must be real, measurable and “addition-al”. To generate emission reductions, it must be proven that the project will lead to emissions lower than in the absence of the project i.e. the amount of emission reduction depends on the emissions that would have occurred without the project, minus the emissions of the project.
So that credits aren’t given to projects that would have happened anyway, rules have been specified to ensure “addi-tionality”. A project is deemed “additional” if its proponents can show that realistic alternative scenarios to the proposed project would be more economically attractive or that the project faces barriers that CDM helps it overcome i.e. only projects that have a sound environmental basis, generating clearly additional emission reductions, qualify for this market mechanism.
The CDM can help:
Specifically, the CDM can contribute to a developing country’s sustainable development objectives through:
The pursuit of economic growth presents challenges for sustainable development, often provoking tension between economic and environmental objectives. Increased access to energy and provision of basic services, if developed along conventional paths, generally causes long-term environmental degradation both locally and globally.
But by charting a different course, and providing the tech-nological and financial assistance to follow it, many potential problems can be avoided.