Critical Minerals in the North American Supply Chain
Everyone is talking about semiconductors these days, but what about critical minerals?
It's important to recognize the often overlooked but crucial role that critical minerals play in shaping the North American supply chains. Just like semiconductors, these minerals have a pivotal function within various industries, be it energy, manufacturing, or technology, among others. However, despite their significance, they often remain in the shadow of semiconductors.
Why are critical minerals important?
Critical minerals are fundamental to the modern digital and green economies, underpinning various industries. According to the American Geosciences Institute, critical minerals are mineral resources that are essential to the economy and whose supply may be disrupted. The 'criticality' of a mineral changes with time as supply and society's needs shift. Some commonly recognized examples of critical minerals include lithium, nickel, cobalt, graphite, and zinc, among others. While each list may be country-specific, there is a shared view that critical minerals (1) have few or no substitutes, (2) are strategic and somewhat limited commodities, or (3) are increasingly concentrated in terms of extraction and, even more, in terms of processing location.
"Critical minerals are the building blocks for the green and digital economy. There is no energy transition without critical minerals: no batteries, no electric cars, no wind turbines and no solar panels. The sun provides raw energy, but electricity flows through copper. Wind turbines need manganese, platinum and rare earth magnets. Nuclear power requires uranium. Electric vehicles require batteries made with lithium, cobalt and nickel and magnets. Indium and tellurium are integral to solar panel manufacturing. It is therefore paramount for countries around the world to establish and maintain resilient critical minerals value chains that adhere to the highest ESG standards." - The Honourable Jonathan Wilkinson, Minister of Natural Resources, Canada
Some daily uses of critical minerals
Minerals remain fundamental to the U.S. economy, contributing to the GDP at several levels, including mining, processing and manufacturing finished product. In 2022, the estimated total value of nonfuel mineral production at mines in the United States was $98.2 billion dollars. Domestic raw materials and domestically recycled materials were used to produce mineral materials worth $810 billion in 2022. These mineral materials (as well as $118 billion of imports of processed mineral materials) were, in turn, consumed by downstream industries creating an estimated value of $3.64 trillion in 2022.
The role of nonfuel mineral commodities in the U.S. economy, 2022
The 2023 Critical Minerals Market Review shows that record deployment of clean energy technologies such as solar PV and batteries is propelling unprecedented growth in critical minerals markets. In response, investment in critical mineral development rose 30% in 2022, following a 20% increase in 2021.
An energy system powered by clean energy technologies differs profoundly from one fueled by traditional hydrocarbon resources. Solar photovoltaic (PV) plants, wind farms and electric vehicles (EVs) generally require more minerals to build than their fossil fuel-based counterparts. 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. Since 2010 the average amount of minerals needed for a new unit of power generation capacity has increased by 50% as the share of renewables in new investment has risen.
Minerals used in clean energy technologies compared to other power generation sources
Growth in demand for selected minerals from clean energy technologies by scenario, 2040 relative to 2020
Note - Demand trajectories are subject to large technology and policy uncertainties. IEA analysed 11 alternative cases to understand the impacts. For example, cobalt demand could be anything from 6 to 30 times higher than today’s levels depending on assumptions about the evolution of battery chemistry and climate policies. The largest source of demand variance comes from uncertainty around the stringency of climate policies.
Why are critical minerals a concern for nearshoring supply chains?
The prospect of a rapid rise in demand for critical minerals – in most cases well above anything seen previously – poses huge questions about the availability and reliability of supply. As shown below, the United States had a $118 billion dollar net import reliance of critical minerals in 2022. Of the 50 mineral commodities identified in the “2022 Final List of Critical Minerals,” the United States was 100% net import reliant for 12, and an additional 31 critical mineral commodities (including 14 lanthanides, which are listed under rare earths) had a net import reliance greater than 50% of apparent consumption.
U.S. net import reliance of critical minerals
China dominates investment in the “lithium triangle”—Argentina, Chile, and Bolivia—and accesses copper, nickel, iron ore, and gold investments for both processing and extraction. For rare earths, a subset of critical minerals, China possesses 85 percent of the processing capacity.
Rare earth elements (REEs) are abundant throughout the earth’s crust, but only sufficiently concentrated to be mined and processed economically in certain locations. China is one of such locations, possessing one of the largest known REE reserves in the world. The majority of this ore is located in the Chinese autonomous region of Inner Mongolia. China mines the most REEs of any nation on earth and is responsible for nearly 65% of all extraction. Not only does China mine the most REEs, the majority of REE separation and processing also occurs in China, with around 85% of all processing taking place in the country.
Raw materials are a significant element in the cost structure of many technologies required in energy transitions. In the case of lithium-ion batteries, technology learning and economies of scale have pushed down overall costs by 90% over the past decade. However, this also means that raw material costs now loom larger, accounting for some 50-70% of total battery costs, up from 40-50% five years ago. Higher mineral prices could therefore have a significant effect: a doubling of lithium or nickel prices would induce a 6% increase in battery costs. If both lithium and nickel prices were to double at the same time, this would offset all the anticipated unit cost reductions associated with a doubling of battery production capacity. In the case of electricity networks, copper and aluminum currently represent around 20% of total grid investment costs; higher prices as a result of tight supply could have a major impact on the level of grid investment.
Rapidly increasing demand, under-developed national resources, intense international competition, and years of neglect in this issue area place the U.S. at a distinct disadvantage versus China in securing access to the metals and Rare Earth Elements that are vital for the energy transition and for geopolitical ambitions. The Wilson Center convened a working group to examine the vulnerabilities that exist in the U.S. supply chains.
What potential does North America have to source critical minerals?
Regionalization has become the name of the geopolitical game. Clusters around the world such as the European Union, the Association of Southeast Asian Nations (ASEAN) and Middle East North Africa Pakistan (MENAP) are all seeking to form stronger trade blocs and integrated supply chains. Regional collaboration of the three countries in the clean energy transition will be critical to the competitiveness of North American, as prescribed in the USMCA.
According to the International Energy Agency, the energy sector’s overall needs for critical minerals could increase by as much as six times by 2040. The North American zero-emission vehicle (ZEV) market alone is estimated to reach $174 billion by 2030, creating more than 220,000 jobs in mining, processing, and manufacturing.
Canada
Canada is endowed with enormous resource wealth spread across critical-mineral-rich regions from coast to coast to coast, including rural, remote, and Indigenous communities. For example, Canada is the only Western nation that has an abundance of cobalt, graphite, lithium, and nickel — essential to creating the batteries and electric vehicles of the future. Canada is also the world’s second-largest producer of niobium, an important metal for the aerospace industry, and the fourth-largest producer of indium, a key input in semiconductors and many materials needed for advanced vehicle manufacturing.
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In 2019, the Canadian government launched the Mines to Mobility initiative to build a sustainable battery innovation and industrial ecosystem in Canada. To date, the initiative has attracted more than $7 billion in announced investments to capture opportunities in the growing global battery market. The government will continue to support Canada’s battery ecosystem through the Canadian Critical Minerals Strategy by building value chains that position Canada as a global leader in the innovative and sustainable production of ZEV batteries.
The United States
At present, the U.S. does not mine significant quantities of any of the relevant critical minerals needed for decarbonization. The country is 100% reliant on foreign imports for 12 critical minerals, including graphite, and greater than 50% reliant on imports for another 31 critical minerals, including rare earths (95%), cobalt (77%) and nickel (56%). In the future, the U.S. will be able to rely on recycling as an alternative to mining for a significant portion of critical minerals. But in the short term (by 2030), there will not be sufficient quantities of these minerals in circulation to make recycling a feasible approach. Additionally, there are a range of research efforts underway to obtain the necessary minerals without mining virgin land, but at present, the stage is set for a significant increase in the amount of mining and processing of these minerals globally.
Strengthening North American supply chains, especially in critical minerals and semiconductors is a U.S. national security goal. Last year (2022) saw significant U.S. legislation that includes tax incentives and subsidies for manufacturing and supply chains. For instance, the Inflation Reduction Act (IRA) includes nearly $400 billion in federal funding for clean energy with special tax credits for EVs manufactured in the region. The Infrastructure Investment and Jobs Act (IIJA) includes $1.2 trillion that will increase the overall efficiency and competitiveness of the U.S. The CHIPS and Science Act includes over $50 billion in funding for domestic semiconductor manufacturing.
Today's mineral supply and investment plans fall short of what is needed to transform the energy sector, raising the risk of delayed or more expensive energy transitions.
Mexico
Mexico has opportunities to carve out a bigger, and more profitable, role for itself as the US seeks to shore up its supplies of critical minerals:
Mexico has a sophisticated mining industry, significant reserves of copper and lithium, a heavy presence of foreign (mostly Canadian) mining firms, a manufacturing platform that is deeply integrated with that of the United States and a 21st century free trade agreement with Canada and the United States. At present, the Mexican government is pursuing a nationalist, anti-private sector approach to natural resource extraction, but in the long-term the country should be viewed as an integral member of the North American mining and resource platform.
Only 10% of Mexico's territory has been granted in concession for mining activities, but these resources are present almost everywhere in the country. Below is a map of 803 mining projects identified in 2022 (by Grupo Regional de Género y Extractivas) in which almost half are in initial stages of development, and nearly a third in exploration.
In addition, the foreign ministry, with support from the University of California, launched the U.S.-Mexico Electrification Working Group, which seeks “to ensure a coordinated and strategic transition towards electromobility.” But Mexico is undertaking this initiative without the National Electromobility Strategy, ready since 2018 but halted for “review” by the environment ministry under the López Obrador administration after it took office in December of that year.
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Very informative ??Critical minerals are the building blocks for the green and digital economy. There is no energy transition without critical minerals: no batteries, no electric cars, no wind turbines and no solar panels.