Let me tell you a story about how good intentions, bad incentive structures, and strategic naivety combined to hand China another piece of the midstream.
Glencore — one of the world’s largest commodity trading and mining companies — identified Canada as a viable location for a new copper smelter. The project made industrial sense. Canada has copper. Canada needs copper processing capacity. The geopolitical case for keeping critical midstream processing in a friendly jurisdiction was obvious.
Then the Canadian government’s environmental requirements landed on the project economics. To meet the emissions standards for sulfur and arsenic — both legitimate concerns; I’m not dismissing them — Glencore would need to install high-pressure water scrubbing systems, solidification tanks, and secure burial infrastructure for the captured waste. Necessary. Expensive. Craig Tindale’s analysis put the ESG compliance cost at 7-8% of project economics.
In a Chinese state capitalism model, that 7-8% gets absorbed. The state treats it as a cost of doing business — the price of having a strategic industrial asset on your soil. In the Western free market model, with a required return on capital of 15-20%, that 7-8% ESG burden tips a marginal project into the red. The project gets shelved. The smelter doesn’t get built. Canada remains without copper processing capacity.
Meanwhile, Chinese state-owned enterprises were actively expanding smelting capacity and offering Chilean and Peruvian copper mines a $100 per tonne bounty to send their ore to China. Running at a deliberate loss. Not because it makes quarterly sense — it doesn’t — but because capturing the midstream is a strategic objective that a patient state actor is willing to subsidize.
The bitter irony: the ESG framework that killed the Glencore smelter didn’t eliminate the environmental cost. It exported it. That copper gets processed in China, under environmental standards that don’t meet Canadian requirements. The arsenic and sulfur still go somewhere. The difference is we don’t have to see it, and China controls the output.
Moral hygiene achieved. Industrial sovereignty surrendered. That’s the ESG ledger nobody wants to audit.
The Hedge 