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November 1, 2018

Teck Resources Limited: Brief to the House of Commons Standing Committee on Environment and Sustainable Development on its study of Clean Growth and Climate Change in Canada: International Leadership

Overview

As a Canadian diversified company and global sustainability leader, Teck supports the Government of Canada in its international leadership on clean growth and climate change. At Teck, we believe our company and our industry have an important role to play in helping tackle the global challenge of climate change. That includes working to reduce our own greenhouse gas (GHG) emissions as well as advocating for policies that support the world’s transition to a low-carbon future. As such, we were pleased to contribute to the development of the Pan-Canadian Framework on Clean Growth and Climate Change, particularly in relation to carbon pricing. We are also proud to be a signatory to the Paris Pledge for Action and the first Canadian natural resource company to have joined the World Bank’s Carbon Pricing Leadership Coalition.

While supportive of the Government of Canada’s leadership on climate change, we believe more action is needed on addressing the competitiveness challenges for Canada’s emissions-intensive, trade-exposed (EITE) sectors. Many of Canada’s natural resource sectors are among the top global performers with respect to carbon and environmental performance. However, despite the important measures undertaken to address the patchwork of climate change policies from federal and provincial governments, there remains a policy challenge to adequately tackle issues such as carbon leakage and cost competitiveness. Canada’s EITE sectors compete in a global trade environment where business and regulatory conditions can differ significantly in material ways for investment across all jurisdictions. Consequently, this results in higher cost-drivers for Canadian companies and increases the potential to shift production and GHG emissions from Canada to higher-carbon jurisdictions, thus resulting in carbon leakage. If the Government of Canada introduced new measures to address these challenges, we believe Canada – and by extension the provinces – could further our position as an international leader by demonstrating to the world that carbon pricing can effectively incentivize cleaner growth and GHG emissions reductions without hindering EITE sectors and the Canadian economy at large.

Within this context, as the House of Commons Standing Committee on Environment and Sustainable Development undertakes its study of Canada’s international leadership on clean growth and climate change, Teck is pleased to provide comments and recommendations for its consideration.

About Teck

Proudly Canadian, Teck is a diversified natural resource company and global sustainability leader with business units focused on steelmaking , , and energy. Headquartered in Vancouver, we own, or have an interest in, 13 mines in Canada, the , and Peru. In Canada, we own six steelmaking coal operations; the country’s largest open-pit copper mine; an integrated zinc and smelting and refining complex; steelmaking coal and copper development projects; metallurgical, technology and innovation complexes; and interests in a port and several projects. Teck directly employs over 10,000 people around the world, including 8,000 people across Canada.

Sustainability and responsible resource development guide Teck’s approach to doing business. For our ninth straight year, Teck was named to the Dow Jones Sustainability Index in 2018, indicating that our sustainability practices rank in the top 10 percent of the world’s 2,500 largest public companies. Similarly, for the fifth consecutive year, Teck was named by the Corporate Knights as among the Best 50 Corporate Citizens in Canada, which demonstrates our ongoing excellence across 14 sustainability metrics.

Our activities consume energy and generate GHG emissions, but, at the same time, the and mineral products we produce are essential to building the technologies and infrastructure necessary to reduce GHG emissions globally and adapt to the effects of climate change. For example, building the average wind turbine requires about 180 tonnes of which, in turn, requires about 100 tonnes of steelmaking coal to produce. Many renewable energy systems also require as much as 12 times more copper than traditional energy systems in order to ensure efficiency.

Teck comments and recommendations Comments about carbon pricing and carbon leakage

With industrial operations in B.C. and , Teck has over 10 years of experience with carbon pricing. Over this time, EITE sectors have faced an increasing disadvantage versus domestic and international competitors, the majority of which have no or significantly lower carbon pricing.

Teck welcomes the Government of Canada’s broad-based carbon pricing policies because we believe they can effectively incentivize GHG emissions reductions and cleaner growth. Unfortunately, many competing jurisdictions have failed to take similar climate action leadership and this has resulted in international cost competitiveness disadvantages for Canada’s sector, where a company like Teck pays more than $50 million per year in carbon costs. As a specific example, because there is no comparable carbon pricing system in Australia – where our biggest steelmaking coal competitors operate – Teck’s cost competitiveness is not only eroded, but this difference exacerbates the potential for carbon leakage.

From a global perspective, carbon leakage is concerning because materials produced in Canada are often among the lowest in GHG intensity in the world. So as production shifts to other jurisdictions, not only are GHG emissions shifting to those jurisdictions, but emissions per unit of production are increasing, resulting in a perverse outcome of driving an increase in emissions globally. To provide a specific and tangible example, in 2015, Teck’s operations in B.C. and Alberta produced steelmaking coal at an intensity of 0.58 kg of CO2e per tonne of product. Based on a 2013 report from the International Council on Mining and Metals, this ranked Teck’s steelmaking coal as having one of the lowest – if not the lowest – carbon-intensities of production in the world. Without addressing the competitiveness

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challenges for EITE sectors, carbon leakage could drive jobs and low-carbon production out of Canada and into more carbon-intensive jurisdictions, consequently resulting in a net increase in GHG emissions globally.

An effective price on carbon is one that reduces emissions and ensures that all emitters and all jurisdictions are contributing to climate action solutions. By applying a carbon price for all emitters, all sectors of the economy are incentivized to play their part. This approach is critical to the long-term success of emissions reductions at home and globally. Carbon policies must also be implemented in a manner that creates reasonably consistent and fair terms of trade between jurisdictions and across provinces so that competitive advantages or disadvantage are not created for some emitters that could, in turn, induce carbon leakage and capital misallocation.

Recommendation Carbon pricing policies must be designed to address, not imperil, the competitiveness challenges that come from a global trade environment that has uneven carbon pricing. We recommend the Government of Canada implement provisions for EITE sectors that accounts for the degree of trade exposure and ability to factor carbon costs into pricing. As indicated in Teck’s previous submissions to the Government of Canada on carbon pricing, we support an output-based allocation system whereby the amount of carbon pricing paid is influenced by the risks of carbon leakage to a specific sector and the carbon performance of a facility relative to its peers.

Within the Pan-Canadian Framework on Clean Growth and Climate Change, we support the creation of a national ‘minimum standard’ for trade-exposed sectors in all provincial EITE provisions, reviewable on a regular basis to reduce EITE rates as other competitors introduce carbon pricing and thereby eliminating cost competitiveness challenges. As such, we welcome the Government of Canada’s announcement earlier this year to change the benchmark for emissions output from 70 percent to 80 percent (or 90 percent for specific industries), and we encourage the Government to ensure that there are provisions for regular reviews to account for changes in global carbon pricing policies.

We also recommend that more detailed analysis be undertaken to consider a broader portfolio of tools that enable EITE sectors to be competitive and that incentivize cleaner growth and GHG emissions reductions while preventing carbon leakage. Examples of tools that should be considered are:

 Direct refunds from a portion or all of the carbon tax paid by EITE sectors.  Tax credits payable on qualified goods (e.g. Lower Carbon Investments), Property Tax, and/or resource tax rate for mining companies.  Internationally transferred mitigation outcomes, such as carbon offsets – inclusive of achieving greater clarity on Article 6 (Paris Agreement) rules.  Specific capital incentives for EITE sectors targeting investments in low-carbon technologies or innovations.

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Acquiring internationally transferred mitigation outcomes

Teck welcomes the Government of Canada’s efforts in exploring tools relating to the acquisition of internationally transferred mitigation outcomes, such as carbon offsets. We support the use of carbon offsets to reduce GHG emissions as they provide an important tool to achieve emissions reductions at a low cost. Carbon offsets not only provide greater flexibility and liquidity within the market, but also promote the economic benefit of developing a low-carbon industry. To maximize efficiency, carbon offsets should be fungible among jurisdictions with comparable regulations, thereby broadening the market and driving costs down even further.

Recommendation We recommend that the Government of Canada supports the use of internationally transferred mitigation outcomes, so long as they are governed by standard accounting practices and a rigorous assurance system to ensure that they credible and of the highest quality and integrity.

Engaging in trade and climate policy

As noted above, many countries – including those that Canadian exporters compete directly with – have failed to undertake comparable climate action leadership as Canada. This has resulted in international cost competitiveness disadvantages for Canada’s mining sector.

To drive further international climate action and to minimize the risk of carbon leakage, other jurisdictions need to do significantly more. Towards that end, Teck is supportive of the Government of Canada working with other countries and/or subnational jurisdictions to adopt carbon pricing policies. We believe that such policies can take on at least two forms, one of which is directly applying the carbon pricing policies to domestic production, while the other is to introduce border carbon adjustments (BCAs) which would place levies on imports from jurisdictions that do have not carbon pricing systems in place.

Applying BCAs in countries that are large importers of goods (e.g. China and Japan) could have numerous benefits, including reducing carbon leakage, pressuring trading partners with less stringent climate policies to catch up, and enhancing the competitiveness of Canada’s EITE sectors. As an example, to help increase trade competitiveness with China, we recommend the Government of Canada explore opportunities with China to introduce a Chinese border tax on carbon, which would place levies on imports from jurisdictions without carbon pricing (e.g. Australia) and ultimately help level the playing field for Canadian exporters.

Recommendation We recommend that the Government of Canada advocates for further global climate action, including the application of equally stringent carbon pricing policies in other jurisdictions and the potential use of BCAs in countries that are large importers of goods.

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