IEA (2021), The Role of Critical Minerals in Clean Energy Transitions, IEA, Paris https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, License: CC BY 4.0
The state of play
The Covid-19 pandemic and resulting economic crisis have had an impact on almost every aspect of the global energy system. However, while fossil fuel consumption was hit hard in 2020, clean energy technologies – most notably renewables and electric vehicles (EVs) – remained relatively resilient. As a result, our latest estimates suggest that global energy-related CO2 emissions fell by 6% in 2020, more than the 4% fall in energy demand.
Nonetheless, as things stand, the world is far from seeing a decisive downturn in emissions – CO2 emissions in December 2020 were already higher than their pre-crisis level one year earlier. Putting emissions on a trajectory consistent with the Paris Agreement, as analysed in the World Energy Outlook Sustainable Development Scenario (SDS), requires a significant scale-up of clean energy deployment across the board. In the SDS, the annual installation of solar photovoltaic (PV) cells, wind turbines and electricity networks needs to expand threefold by 2040 from today’s levels, and sales of electric cars need to grow 25-fold over the same period. Reaching net-zero emissions globally by 2050 would demand an even more dramatic increase in the deployment of clean energy technologies over the same timeframe.
An energy system powered by clean energy technologies differs profoundly from one fuelled by traditional hydrocarbon resources. While solar PV plants and wind farms do not require fuels to operate, they generally require more materials than fossil fuel-based counterparts for construction. Minerals are a case in point. A typical electric car requires six times the mineral inputs of a conventional car and an onshore wind plant requires nine times more mineral resources than a gas-fired plant of the same capacity. Since 2010 the average amount of minerals needed for a new unit of power generation capacity has increased by 50% as renewables increase their share of total capacity additions. The transition to clean energy means a shift from a fuel-intensive to a material-intensive system.
These characteristics of a clean energy system imply a significant increase in demand for minerals as more batteries, solar panels, wind turbines and networks are deployed. It also means that the energy sector is set to emerge as a major force in driving demand growth for many minerals, highlighting the strengthening linkages between minerals and clean energy technologies.
Today’s international energy security mechanisms are designed to provide some insurance against the risks of disruption, price spikes and geopolitical events in the supply of hydrocarbons, oil in particular. These concerns do not disappear during energy transitions as more solar panels, wind turbines and electric cars are deployed. However, alongside the many benefits of clean energy transitions, they also raise additional questions about the security and resilience of clean energy supply chains, which policy makers need to address.
Compared with fossil fuel supply, the supply chains for clean energy technologies can be even more complex (and in many instances, less transparent). In addition, the supply chain for many clean energy technologies and their raw materials is more geographically concentrated than that of oil or natural gas. This is especially the case for many of the minerals that are central to manufacturing clean energy technology equipment and infrastructure.
For lithium, cobalt and rare earth elements, the top three producing nations control well over three-quarters of global output. In some cases, a single country is responsible for around half of worldwide production. South Africa and the Democratic Republic of the Congo are responsible for some 70% of global production of platinum and cobalt respectively, and China accounted for 60% of global REE production in 2019 (albeit down from over 80% in the mid-2010s). The picture for copper and nickel is slightly more diverse, but still around half of global supply is concentrated in the top three producing countries.
The level of concentration is even higher for processing and refining operations. China has gained a strong presence across the board. China’s share of refining is around 35% for nickel (the figure becomes higher when including the involvement of Chinese companies in Indonesian operations), 50‑70% for lithium and cobalt, and as high as 90% for REE processing that converts mined output into oxides, metals and magnets.
This creates sources of concern for companies that produce solar panels, wind turbines, electric motors and batteries using imported minerals, as their supply chains can quickly be affected by regulatory changes, trade restrictions or political instability in a small number of countries. The Covid-19 pandemic already demonstrated the ripple effects that disruptions in one part of the supply chain can have on the supply of components and the completion of projects.
The implications of any potential supply disruptions are not as widespread as those for oil and gas. Nonetheless, trade patterns, producer country policies and geopolitical considerations remain crucial even in an electrified, renewables-rich energy system.
Minerals are increasingly recognised as essential to the good functioning of an evolving energy system, moving into a realm where oil has traditionally occupied a central role. There are similarities, in that threats to reliable supply can have far-reaching consequences throughout the energy system. So traditional concerns over oil security (e.g. unplanned supply disruption or price spikes) are relevant for minerals as well.
However, fundamental differences exist in the impacts that disruption may have. An oil supply crisis, when it happens, has broad repercussions for all vehicles that run on it. Consumers driving gasoline cars or diesel trucks are immediately affected by higher prices.
By contrast, a shortage or spike in the price of a mineral required for producing batteries and solar panels affects only the supply of new EVs or solar plants. Consumers driving existing EVs or using solar-powered electricity are not affected. The main threats from supply disruptions are delayed and more expensive energy transitions, rather than disturbed daily lives.
Notably, oil burns up when it is used, requiring continuous inputs to run assets. However, minerals are a component of infrastructure, with the potential to be recovered and recycled at the end of the infrastructure lifetime (Hastings-Simon and Bazilian, 2020).
Moreover, while oil is a single commodity with a large, liquid global market, there are multiple minerals now in play for the energy sector, each with its own complexities and supply dynamics. Individual countries may have very different positions in the value chain for each of the minerals that are now rising in prominence in the global energy debate.
Despite these differences, the experience of oil markets may offer a number of lessons for an approach to mineral security. The approach to safeguarding oil security tended to focus on supply-side measures. Strategic stockholding has long been at the centre of the IEA’s efforts to ensure oil market security. However, the framework for oil security has evolved over time to encompass demand and resilience aspects, including efforts to identify immediate areas of demand restraint, improve fuel efficiency and review countries’ preparedness against potential disruption.
This range of responses and measures provides valuable context for the discussion on minerals security. While supply-side measures (e.g. ensuring adequate investment in production) remain crucial, these need to be accompanied by efforts to promote more efficient use of minerals, assess the resilience of supply chains, and encourage wider use of recycled materials, to be more effective.
One of the major differences between oil and minerals lies in the way that they are used and recovered in the energy system. Unlike oil, which is combusted on an ongoing basis, minerals and metals are permanent materials that can be reused and recycled continuously with the right infrastructure and technologies in place. Compared with oil, this offers an additional lever to ensure reliable supplies of minerals by keeping them in circulation as long as possible.
The level of recycling is typically measured by two indicators. End-of-life (EOL) recycling rates measure the share of material in waste flows that is actually recycled. Recycling input rates (also called recycled content rates) assess the share of secondary sources in total supply. EOL recycling rates differ substantially by metal. Base metals used in large volumes such as copper, nickel and aluminium have achieved high EOL recycling rates. Precious metals such as platinum, palladium and gold have also achieved higher rates of recycling due to very high global prices encouraging both collection and product recycling. Lithium and rare elements, however, have almost no global recycling capabilities due in part to limited collection and technical constraints. There are also regional variances: around 50% of total base metal production in the European Union is supplied via secondary production, using recycled metals, as opposed to 18% in the rest of the world (Eurometaux, 2019).
Recycling does not eliminate the need for continued investment into the primary supply of minerals. A World Bank study suggests that new investment will still be needed in primary supply even in the case that EOL recycling rates increase to 100% by 2050 (World Bank, 2020). However, recycling can play an important role in relieving the burden on primary supply from virgin materials at a time when demand starts to surge. For example, the amount of spent EV batteries reaching the end of their first life is expected to grow exponentially after 2030 in the SDS, offering the potential to reduce the pressure on investment for primary supply.
Although various commercial and environmental challenges exist, the competitiveness of the recycling industry is set to improve over time with economies of scale and technology improvement as more players enter the field. Their relative advantages are likely to be further supported by potential upward pressure on production costs for virgin resources. Also, regions with greater deployment of clean energy technology stand to benefit from far greater economies of scale. This highlights the sizeable security benefit that recycling can bring to importing regions and underscores the need to incorporate a circular approach in the mineral security framework.
As the world moves from fuel-intensive systems to more material-intensive systems, companies that produce minerals and metals provide an essential bridge between resources in the ground and the energy technologies that consumers need. As such, there is large scope for mining and refining companies to contribute to orderly clean energy transitions by ensuring adequate supply of minerals. These projects will inevitably be subject to strong scrutiny of their social and environmental performance.
Many of the large mining companies are already involved in the energy sector, as producers of coal. Energy transitions therefore present a challenge, as well as an opportunity, as companies respond to rising stakeholder pressure to clarify the implications of energy transitions for their operations and business models. Some of these companies are already moving away from coal. Rio Tinto entirely exited the coal business in recent years and other companies are heading in a similar direction, largely through reducing thermal coal production. Although there has been growing participation in copper production in recent years, they have yet to make a concerted move into energy transition minerals.
Despite the prospects offered by energy transitions, until recently companies were quite cautious about committing significant capital to new projects; this is largely because of uncertainties over the timing and extent of demand growth (linked to questions about the real commitment of countries to their climate ambitions) as well as the complexities involved in developing high-quality projects.
The picture is starting to change, as countries have sent stronger signals about their net-zero ambitions and price signals for some minerals in 2017-2018 offered greater encouragement. Investment in new projects picked up in the latter part of the 2010s (although there was a Covid-induced fall in 2020). This trend would need to be sustained in order to support ample supply, although the risk of boom and bust cycles is ever-present for commodities that feature long lead-times from project planning to production.
Prices for minerals tend to be volatile, often more so than for traditional hydrocarbons, and also due to the mismatch between the pace of changes in demand patterns and that of new project development, and also to the opacity of supply chains. In the late 2010s, prices for minerals with relatively smaller markets – such as lithium and cobalt – recorded a dramatic increase in a short time as the adoption of EVs started to grow in earnest. Although prices have since dropped, as higher prices triggered a swathe of supply expansions (in the form of artisanal small-scale mines for cobalt), this has been a wake-up call about possible strains on supply and market balance. This provides additional reasons for policy makers to be vigilant about this critical aspect of a clean energy future.