ARKANSAS, Sept 10 (Future Headlines)- The rapid growth of clean energy technologies and the increasing adoption of electric vehicles (EVs) are driving an unprecedented demand for critical minerals. These minerals are essential components of batteries, solar panels, wind turbines, and other clean energy infrastructure. As the world strives to reduce greenhouse gas emissions and transition to a more sustainable energy system, the importance of these minerals cannot be overstated.
- Clean energy surge and the role of critical minerals
In recent years, the clean energy sector has experienced remarkable growth. Solar photovoltaic (PV) installations have shattered previous records, wind power is set to resume its upward march, and electric car sales surged by 60% in 2022, exceeding 10 million units. This surge in clean energy technologies is a significant driver of the demand for critical minerals. Electric vehicles, in particular, have gained substantial momentum. In 2022, global EV sales exceeded 10 million units, marking a 60% increase from the previous year. This surge is not limited to passenger cars; commercial EVs, including buses and trucks, are also gaining traction. As countries set ambitious targets to phase out internal combustion engine vehicles, the demand for EVs is expected to continue its upward trajectory.
Energy storage systems have also experienced rapid growth, with capacity additions doubling in 2022. These systems play a crucial role in stabilizing energy grids and storing excess renewable energy for use during periods of high demand or low generation. As grids become more reliant on intermittent renewable sources like wind and solar, energy storage is becoming increasingly indispensable.
- Critical minerals: The backbone of clean energy technologies
Critical minerals, including lithium, cobalt, and nickel, are fundamental components of clean energy technologies. These minerals are essential for the production of lithium-ion batteries, which power most electric vehicles and energy storage systems. Additionally, rare earth elements like neodymium and dysprosium are vital for manufacturing the magnets used in wind turbines and electric motors. The demand for these critical minerals has seen a significant uptick in recent years. From 2017 to 2022, demand from the energy sector was the primary driver behind a tripling in overall demand for lithium, a 70% increase in demand for cobalt, and a 40% rise in demand for nickel. In 2022, clean energy applications accounted for 56% of total lithium demand, 40% of cobalt demand, and 16% of nickel demand. This surge in demand for critical minerals reflects the growing importance of clean energy technologies in global energy systems.
- Market size and price trends
Driven by rising demand and high prices, the market size of key energy transition minerals doubled over the past five years, reaching an impressive USD 320 billion in 2022. This significant expansion contrasts with the more modest growth of bulk materials like zinc and lead. Consequently, energy transition minerals, once a small segment of the mining and metals industry, have now taken center stage. The surge in demand and limited supply of critical minerals has led to price increases. Many critical minerals experienced broad-based price increases in 2021 and early 2022, accompanied by strong price volatility, particularly for lithium and nickel. While most prices began to moderate in the latter half of 2022 and into 2023, they remain well above historical averages.
- Challenges in clean energy technology costs
The affordability and pace of energy transitions are heavily influenced by the availability and cost of critical minerals. The rise in material prices during 2021 and 2022 reversed the decade-long trend of declining clean energy technology costs. Until the end of 2020, technological innovation and economies of scale had consistently driven down the costs of clean energy technologies. However, the surge in material prices disrupted this trend. It’s important to note that despite these recent setbacks, the prices of all clean energy technologies today are significantly lower than they were a decade ago. This highlights the overall progress made in making clean energy technologies more accessible and affordable.
- Policy initiatives and trade implications
Recognizing the critical role of minerals in the clean energy transition, countries are implementing policies to secure sustainable mineral supplies. These policy initiatives span the globe and include the European Union’s Critical Raw Materials Act, the United States’ Inflation Reduction Act, Australia’s Critical Minerals Strategy, and Canada’s Critical Minerals Strategy, among others. The IEA Critical Minerals Policy Tracker identified nearly 200 policies and regulations worldwide, with over 100 of them enacted in recent years. Many of these interventions have implications for trade and investment, and some have included restrictions on import or export. Several resource-rich countries, including Indonesia, Namibia, and Zimbabwe, have introduced measures to ban the export of unprocessed mineral ore. Globally, export restrictions on critical raw materials have increased fivefold since 2009.
- Investment and exploration trends
Investment in critical minerals development has seen a sharp increase, rising by 30% in 2022 following a 20% increase in 2021. Large mining companies, with a significant presence in developing energy transition minerals, have notably increased capital expenditure on critical minerals. Companies specializing in lithium development recorded a 50% increase in spending, followed by those focusing on copper and nickel. Chinese companies nearly doubled their investment spending in 2022.
Exploration spending also rose by 20% in 2022, driven by record growth in lithium exploration. Canada and Australia led the way with over 40% year-on-year growth, particularly in hard-rock lithium plays. Exploration activities are also expanding in Africa and Brazil. Lithium, in particular, saw a substantial increase in exploration activities, with spending rising by 90%. Uranium, amid renewed interest in nuclear power due to concerns over Russian supplies, experienced a significant surge in exploration spending, increasing by 60%. Nickel followed closely with a 45% growth rate for exploration, led by Canada.
- Venture capital funding for critical minerals
Despite challenges in the wider venture capital sector, critical minerals start-ups had a remarkable year in 2022, raising a record USD 1.6 billion. This 160% year-on-year increase took the critical minerals category to 4% of all venture capital (VC) funding for clean energy. Battery recycling received the most VC funding, followed by lithium extraction and refining technologies. The United States-based companies secured the majority of funds, accounting for 45% of the total between 2018 and 2022. Canadian and Chinese start-ups were notably active in battery recycling and lithium refining, while European start-ups focused on rare earth elements, battery reuse, and battery material supply.
- Battery technology advancements
The battery sector, a cornerstone of clean energy technologies, is undergoing transformative changes. Global battery demand for clean energy applications surged by two-thirds in 2022, with energy storage becoming a growing part of the total demand. The demand for batteries in vehicles outpaced the growth rate of electric car sales. This trend is largely driven by the increase in the average battery size for electric cars in nearly every major market. Much like in the conventional car market, there is a preference for larger electric vehicles, which is adding additional pressure to critical mineral supply chains. Sodium-ion batteries, a promising alternative to traditional lithium-ion batteries, made significant strides in early 2023. Plans for production capacity exceeding 100 gigawatt-hours were announced, primarily concentrated in China. Initially, these batteries are targeting less demanding applications such as stationary storage or micromobility. It remains to be seen if sodium-ion batteries can meet the requirements for electric vehicle range and charging time.
- Battery recycling and second-life batteries
Battery recycling is becoming an increasingly important aspect of the battery supply chain. Currently, the vast majority of battery recycling capacity is located in China. However, new recycling facilities are under development in Europe and the United States. At present, most recycled materials come from manufacturing processes. Still, this is expected to change around 2030 as used EV batteries reach the end of their first life. This shift towards recycling used batteries will further enhance the sustainability and circularity of critical mineral supply chains.
- Industry participation in critical minerals value chain
To secure critical mineral supplies, various industries, including automakers, battery cell manufacturers, and equipment makers, are actively engaging in the critical minerals value chain. Long-term offtake agreements have become common in the industry’s procurement strategies. However, many companies are taking it a step further by investing directly in critical mineral activities, including mining, refining, and precursor materials. This direct investment trend has gained momentum since 2021. Examples of this trend include General Motors’ USD 650 million investment in Lithium Americas and Tesla’s plan to construct a new lithium refinery in the United States. These investments are driven by the recognition of the strategic importance of securing a stable and sustainable supply of critical minerals.
- Projected demand for critical minerals
As the world intensifies its efforts to combat climate change and transition to cleaner energy systems, the demand for critical minerals is set to increase rapidly. The IEA has been continually updating its projections for future mineral demand based on the latest policy and technology developments. In the Announced Pledges Scenario (APS), demand for critical minerals more than doubles by 2030 (ASP: this scenario assumes that all long-term emissions and energy access targets, including net zero commitments, will be met on time and in full, even where policies are not yet in place to deliver them). In the Net Zero Emissions by 2050 (NZE) Scenario, which represents a more ambitious clean energy transition, demand for critical minerals grows three and a half times by 2030, reaching over 30 million tons. This heightened demand is driven by the proliferation of electric vehicles, energy storage systems, low-emissions power generation, and electricity networks.
- Supply-side challenges
Meeting the growing demand for critical minerals poses several supply-side challenges. Ensuring that future supplies can keep pace with the rapid growth in climate-driven scenarios is a paramount concern. While many new projects have been announced, challenges such as schedule delays and cost overruns, which have been prevalent in the past, must be addressed. Supply adequacy remains uncertain, especially for battery-grade products. In addition, diversifying the sources of critical minerals is crucial to reduce supply chain vulnerabilities. However, progress in this regard has been limited. The concentration of top producers has either remained unchanged or increased, especially for minerals like nickel and cobalt. Geographical concentration remains a concern, particularly in refining operations.
Improving sustainable and responsible practices in critical mineral mining and processing is essential. While some companies have made strides in areas like community investment, worker safety, and gender balance, environmental indicators have not improved at the same rate. Greenhouse gas emissions remain high, and water withdrawals have increased substantially. There is a question regarding the extent to which sustainability is being considered by consumers. Despite cleaner production pathways being available, few signs indicate that end users prioritize them in sourcing and investment decisions. However, downstream companies are beginning to show a preference for minerals with a lower climate impact.
- China’s quest for critical minerals
China, as the world’s largest metal refining hub, heavily relies on imports for significant volumes of raw materials, often from a small number of sources. For instance, China depends almost entirely on the Democratic Republic of the Congo for mined cobalt. To mitigate supply risks, China has been actively investing in mining assets in Africa and Latin America. Additionally, China has started investing in overseas refining and downstream facilities to secure strategic access to raw materials. Between 2018 and the first half of 2021, Chinese companies invested USD 4.3 billion to acquire lithium assets, twice the amount invested by companies from the United States, Australia, and Canada combined during the same period.
- Expanding the focus to niche minerals
While much attention has been directed towards battery metals and copper, recent events, such as export restrictions on Chinese gallium and germanium, have highlighted the significance of lesser-known critical minerals. These minerals, often characterized by small volumes but high supply concentration, can disrupt supply chains. Examples include magnesium, high-purity manganese, high-purity phosphorus, and silicon. A comprehensive and forward-thinking strategy is needed to address these niche minerals and ensure their availability in clean energy technologies.
- The way forward: International summit on critical minerals
Recognizing the global importance of critical minerals, the IEA is set to host the first-ever international summit on critical minerals on September 28, 2023. The summit will bring together ministers from mineral-producing and -consuming economies, along with industry representatives, investors, and civil society. The objective is to discuss measures for collectively promoting a secure and sustainable supply of critical minerals.
- Supply challenges and opportunities
The global transition to a more sustainable and low-carbon energy system is essential to mitigate climate change and reduce greenhouse gas emissions. Key to this transition are the critical minerals that power clean energy technologies. However, as demand for these minerals’ skyrockets, significant challenges arise in ensuring a steady and sustainable supply.
The rapid adoption of electric vehicles, energy storage systems, and renewable energy technologies has led to an explosive increase in demand for critical minerals. Ensuring that future supplies can keep up with this pace is a major challenge. Moreover, the speed at which supply chains can be established and ramped up is constrained by various factors, including geological, regulatory, and infrastructure limitations. The concentration of mineral production in a few key regions or countries poses a significant supply risk. Overreliance on specific suppliers can create vulnerabilities in the supply chain, especially if geopolitical tensions or trade disruptions occur.
The extraction and processing of critical minerals can have detrimental environmental and social impacts if not managed responsibly. This includes issues such as deforestation, water pollution, and inadequate labor practices. Striking a balance between meeting demand and ensuring sustainable and responsible mineral production is a complex challenge. The cost of developing new mining projects for critical minerals can be high, which may lead to increased marginal costs and, subsequently, higher prices. Price volatility, as witnessed in the past, can impact the economics of clean energy technologies, potentially slowing down their adoption. Not all mined minerals meet the stringent quality requirements for battery production. The supply of battery-grade minerals may be constrained even if there is an overall balance of supply and demand for a mineral. This distinction highlights the need for a consistent supply of high-quality minerals to meet the specifications of modern batteries.
Encouragingly, numerous mining projects have been announced to address the growing demand for critical minerals. These projects span various minerals, including lithium, cobalt, nickel, and rare earth elements. While some projects are still in the planning or exploration phase, their development could significantly enhance the global supply of critical minerals. Despite challenges in diversifying supply sources, there have been positive signs. Many resource-holding nations are seeking to move further up the value chain by investing in refining and precursor materials. Likewise, consuming countries are actively looking to diversify their sources of refined metal supplies. Successful efforts to connect these dots could lead to more diversified midstream supply chains.
Some mining companies are making progress in adopting sustainable and responsible practices. They are investing in community development, worker safety, and gender balance. However, there is room for improvement in reducing environmental impacts. With increased awareness and consumer pressure, mining companies may prioritize cleaner production pathways. The growth of battery recycling and second-life battery applications represents an opportunity to reduce the demand for primary mining. As more electric vehicles reach the end of their first life, recycling used batteries will become increasingly important. Companies and governments are investing in recycling infrastructure to make this a reality.
The IEA’s initiative to host an international summit on critical minerals in 2023 is a significant step toward international cooperation. Bringing together key stakeholders from mineral-producing and -consuming economies, as well as industry and civil society, offers the potential for collective solutions to the challenges of securing a sustainable supply of critical minerals.
As the world continues to embrace clean energy technologies and work toward ambitious climate goals, the importance of critical minerals will only grow. Recognizing this, governments, industries, and stakeholders must collaborate to navigate the challenges and opportunities presented by the critical minerals landscape. Only through such collective efforts can we ensure a sustainable and responsible supply of these essential materials to power the clean energy revolution.
Writing by Kevin Wood; Editing by Ehsan Hosseini