Home Environment Climate Change Climate Change Climate change represents a scientifically proven reality and a challenge that affects not only our productive activities, but the entire planet. Combating the impacts of climate change is a strategic priority on Vale’s agenda. Vale has the potential to contribute to a more sustainable future, based on a renewable energy matrix and the differentiated quality of its product. We have been acting continuously, guided by scientific and practical references in line with our internal policies and standards, to deal with this issue. Vale characteristics that highlight its contribution to the fight against climate change include: The quality of iron ore, specifically in Carajás. Vale’s iron ore mines located in Brazil have ores with very high iron (Fe) content and low slag content. Consequently, Vale’s iron ore emits less carbon when processed in steel mills. For instance, S11D Eliezer Batista Complex in Carajás produces iron ore with 66.7% Fe content, besides being the biggest iron ore project in the world. producing about 150 million tons annually. The predominance of Class I nickel in its reserves (60%), which has a high quality that allows a wide range of applications. Vale has nickel mines that reserve around 60% of the world’s Class I nickel, a more refined product that enables greater application diversification and stability for sales volumes. With the increase of electric car production, it is expected that an increase in the demand and price of Class I nickel will enable Vale to benefit as Class II nickel begins to be sold with higher added value. KPIs Report In 2018, Vale’s activities resulted in 396 million tonnes of CO2 equivalent. From this amount, more than 95% was indirect Scope 3 emissions, resulting from Vale’s product utilization in other industries, and doesn’t involve our own activities. The direct emissions from scope 1(fuels and industrial processes), and scope 2 (electricity purchases) added 14 million tons of CO2 equivalent. Vale’s GHG emissions in 2018 (in million tCO2e): For more information about greenhouse gases emissions (GHG), access our Sustainability Report - 2018. Performance Evolution Vale's direct GHG emissions (Scope 1) were about 4% higher in 2018 compared to 2017, after discounting emissions from sold assets, totaling 12.7 million tCO2e. Indirect emissions from electricity purchases (Scope 2) were reduced by 7% in 2018, totaling 1.5 million tCO2e on the same basis of comparison. This was mainly due to the reduction of the GRID emission factor of some countries, including Brazil, Canada and the United Kingdom, once that purchased electricity consumption was not reduced in 2018. Total GHG Emissions of Vale (millions of CO2e) Other Indirect GHG Emissions 2018 Scope 3 - Thousand tonnes of CO2e Goals and Deadlines Carbon Goal In 2012, Vale set a target to reduce direct emissions (Scope 1) by 5% by 2020. The goal was reached in 2017. Once the previous carbon goal was reached, in 2018 we set a new goal of 16% reduction in the intensity¹ of our direct and indirect GHG emissions by 2030. This target includes both direct emissions (Scope 1) arising from the use of fuels and processes as well as emissions related to the purchase of electricity (Scope 2) and is based on the 2017 emission intensity. In 2019 we revised our commitments and set a new target of: Reduction of GHG emissions in line with the Paris Agreement by 2030. Besides, we approved the target to become carbon neutral by 2050, and for this goal we approved US$50/tCO2e as an internal carbon price. ¹Emission intensity is the volume of greenhouse gases, in tonnes of CO2 equivalent, emitted for each equivalent tonne of iron ore produced. Main factors to reach 2030 goals Adopt carbon pricing for capital projects. Evaluate the potential reduction in Scope 3. Include resilience evaluation of Vale’s business in relation to climate change scenarios in Strategic Planning. Plans to reach the 2030 goal Recover 500 ha of degraded areas (Forest Goal – 2030 Agenda). Achieve self-sufficiency in renewable energy. Electrify and replace diesel consumption in mining and transportation activities. Achieve energy efficiency. In addition to the target set for emissions resulting directly from its operation, Vale undertakes to act also on indirect emissions, those resulting from activities related to production, such as maritime transportation and the use of products in the supply chain. In particular, Vale's potential for promoting more sustainable shipping logistics and a less polluting steel industry stands out. With the increasing maturity of these initiatives, Vale will have flexibility over the coming years to be even more aggressive in its emission reduction targets, including its Scope 3 emissions. Among the initiatives already implemented we can highlight: Inclusion of contractual clauses related to greenhouse gas management for suppliers. For more information, visit the page about Suppliers here. International Maritime Organization (IMO) goals – initiatives that have already added significant value to the environment and Vale shareholders: Valemax 2G 2018 (Compared to capsize ships in 2011): 41% less emission 41% less fossil fuels consumption 38% cost reduction Policies and Procedures Vale's strategy on climate change is based on the “Global Climate Change Mitigation and Adaptation Policy,” which has the following elements: Performance Transparency Global Emission Reduction Technology and Innovation Institutional Engagement Physical and Economic Adaptation The Policy, among other commitments, defines guidelines on fighting climate change for the Company and its subsidiaries, regarding: Annual publication of greenhouse gas emissions and sequestration of emissions from degraded recovering areas; Emission reduction targets: annual variable compensation targets directly associated with the reduction of its emissions for all employees of the Company; Acting with the supply chain to reduce supplier emissions: Vale has a clause on all standard contracts signed in Brazil requiring suppliers to voluntarily submit their emissions annually; Technical engagement with stakeholders and scientific institutions in an effort to understand the impacts of climate change and their adaptation actions; Risk and opportunity assessment related to climate change; Strategic guidance in the investment decision-making process to choose options to reduce greenhouse gas emissions. Risks Risks and opportunities related to climate change are the responsibility of the Sustainability Department and are identified based on strategic business planning, existing risk management processes and regulatory environment monitoring. These topics are periodically presented to the Risk Management Executive Committee, where they are reviewed for quarterly reporting to the Board of Directors and published in the Annual Report and the Sustainability Report. Identified risks are monitored and reviewed annually if no material change occurs during the year. Vale uses a risk matrix that considers the severity and probability of each occurrence. In the case of risks related to climate change, Vale has developed specific analysis methodologies divided between impacts arising from regulatory changes and physical impacts. Our main risks related to climate change are: Regulatory / Legal Changes in policies to restrict or adapt to the effects of climate change; Disputes over non-compliance with policies to mitigate climate impacts. Technological Substitution of products/processes for more efficient/current technologies. Market Changes in supply and demand due to awareness of cleaner products. Reputation Consumer and investor perceptions of the Company's adherence to greener policies. Physical risks Direct damage to assets and indirect impacts on the supply chain such as floods, droughts, etc. Vale methodologies for climate change risks and opportunities Regulatory risks: Vale has developed an internal carbon pricing model to assess the risks linked to climate change through projections of possible impacts on the operating costs of each business unit. This model takes into account impacts on direct and indirect costs, including impacts on the supply chain. Physical risks: Based on the Intergovernmental Panel on Climate Change (IPCC) studies, Vale developed, together with the Vale Technological Institute, a projection and mapping model of the possible physical impacts that pose risks to the Company's operation. Climate projection is performed using a climate modeling system that allows future temperature and precipitation scenarios to be obtained. Projections were made for the North Corridor, South Corridor and Corumbá sections. Carbon Pricing In 2017, Vale signed the CEBDS¹ letter about carbon pricing, which is a CEBDS initiative with Mundial Bank and Business Initiatives on Climate (IEC in Brazilian Portuguese) to foster the discussion about carbon pricing in Brazil. What would be the impact of carbon pricing to our operations? Direct cost (Process) Indirect Cost – fuels (Purchase) Rising cost of products and services (Purchase) Direct Cost: Accounts for the increased cost due to taxes on Vale’s emissions. Indirect Cost: Accounts for the cost increase due to the taxation of fossil fuel production and fossil-fueled electricity. Currently 20% of global emissions are priced. 27% of mining emissions are subject to carbon pricing (in South Africa, Chile, Canada and the EU). Vale has a low exposion to carbon pricing, but if Brazil adopts carbon pricing, this reality changes completely. ¹The Brazilian Business Council for Sustainable Development (Conselho Empresarial Brasileiro para o Desenvolvimento Sustentável) Vale’s Carbon Cost Balance Emission Reduction Initiative Our projects and initiatives have prevented or reduced direct emissions by about 1 million tonnes of CO2e, which means that emissions would be around 7.8% higher in the absence of these projects, justifying the anticipation of reaching the 2020 target. Below are some emission reduction initiatives: Truckless system Fuel change in pelletizing plants Energy efficiency measures Biomass used in furnaces Adoption of higher biodiesel shares External Engagement We follow trends and studies related to climate change in global forums that aim to define regulatory and economic strategies for mitigation and adaptation worldwide. In Brazil, we participate in discussions on the theme, collaborating on policies and strategies aimed at transitioning to a resilient and low-carbon economy. Examples of relevant agreements and initiatives on climate change in which Vale participates: Carbon Pricing Leadership Coalition International Council of Mining and Metals Task Force on Climate-Related Financial Disclosure CDP Worldwide Brazilian Business Council for Sustainable Development (CEBDS - Conselho Empresarial Brasileiro para o Desenvolvimento Sustentável) WBCSD (World Business Council for Sustainable Development) TCFD In 2017, Vale adhered to the Task Force on Climate-related Financial Disclosure (TCFD) recommendations led by the Financial Stability Board, containing guidelines for reporting financial risks related to climate change by companies and financial institutions. Upon signature, the Company also began an in-house project to tailor climate risk qualification and quantification to the TCFD recommendations. What we already do: Emissions quantification – Greenhouse Gases Inventory; Definition of climate risks; Variable compensation targets linked to GHG emissions reduction performance; CDP Response. What we still have to work on: Carbon pricing; Climate consideration and governance quantification in strategic planning. CDP Worldwide Following its mission to provide investors and clients with greater transparency regarding climate change, we respond to the CDP Worldwide questionnaire annually. Download Vale’s CDP Questionnaire Business Case Autonomous Truck Huge 240-tonne off-highway trucks travel on the roads of a large mining area without a cab operator. Controlled only by computer systems, GPS, radar and artificial intelligence, vehicles move efficiently between the mine front and the unloading area. Autonomous trucks are a reality at Brucutu mine, in the state of Minas Gerais, Brazil. The autonomous operation of iron ore transportation has a higher productivity, generates less wear on parts and extends equipment life by 15%. The initiative has great importance to the Company’s ability to reduce both emissions and fuel and to decrease CO2 particulate emissions. PowerShift Vale has created an internal program called PowerShift to support its sustainability goals, focusing on the transition to a low-carbon economy. The program aims to make the Company's energy matrix clean by focusing on the use of renewable energy and alternative fuels, greater efficiency of operations using new technologies, and forest promotion. PowerShift-linked initiatives are expected to contribute approximately 40% of Vale’s planned reductions to help us reach the United Nations 2030 Agenda target. Sentinela Project – Artificial Intelligence Vale's AI Centre, located in Vitória in the state of Espírito Santo, has been developed in partnership with researcher Ali Soofastei from the University of Queensland in Australia. It is a new tool that uses artificial intelligence for better off-highway truck operation. The tool offers the best speed option for the least fuel consumption on the vehicle operator panel. This technological solution was tested on 50 trucks in Itabira, Minas Gerais, resulting in a reduction of 585 thousand liters of diesel consumption and generating savings of R$1.8 million. In terms of environmental impact reduction, the reduction in diesel consumption prevented the emission of 1,500 tonnes of CO2. This is the equivalent of planting 3,000 trees in the Atlantic Forest. Perspectives Vale is constantly evolving its climate change risk management guidelines. In 2018, we collaborated with an external consultancy to survey and detail the impacts of this theme on the Company's long-term strategy. The results of this work will allow us to refine, over the next cycle, our climate change management by focusing on identifying risks and opportunities.