Mission critical: we need fewer fossil fuels, and more critical minerals

Without doubt, the transition to green energy is vital to reduce our consumption of fossil fuels and the harmful emissions they generate.?But through our enthusiasm for this transition, are we in danger of simply substituting one problem – global warming – for another – a rapid decline in the availability of critical rare minerals?

Take a typical electric vehicle (EV) – it requires six times the mineral inputs of a conventional car, while an onshore wind plant requires nine times more mineral resources than a gas-fired power plant.[1]?How truly sustainable is that??

Green energy essentials

As we reduce our reliance on fossil fuels in the transition to clean energy, we’re also becoming increasingly reliant on other less abundant and finite resources on our planet: so-called ‘critical minerals’ that are vital to produce much of the technology on which the energy transition relies.?Some of the increasingly important applications for critical minerals include:

1. Lithium, nickel, cobalt, manganese, and graphite—crucial to battery performance, longevity, and energy density.
2. Rare earth elements – essential for the permanent magnets in wind turbines and EV motors.
3. Copper and aluminum – used extensively in electricity networks, with copper being a cornerstone for all electricity-related technologies.

Some of these, like copper and nickel, are, let’s say, relatively large-volume commodities.?Others, like the rare earth minerals (the clue’s in the name) tellurium and neodymium, are quite niche.?The challenge is, how do we dramatically ramp up the supply of critical minerals in a way that is not only environmentally sustainable, but which also minimizes the impact on communities and the environment itself?

Which sectors are driving demand for critical minerals?

Renewable energy

Wind and solar power need far more minerals to generate the same amount of electricity as fossil fuel technology.?One terawatt-hour of electricity from solar and wind consumes 300% and 200% more metals, respectively, compared to a gas-fired power plant[2] but provide power with zero or negligible carbon emissions.

This didn't use to be much of an issue.?Before 2010, the energy sector only consumed a fraction of the total supply of critical minerals.?Now, as the transition to renewables accelerates, green energy accounts for a much larger proportion – with the average amount of minerals increasing by 50% per unit of power generation.[3]?

To meet the Paris climate goals, we could see a tripling of mineral demand from the renewable energy sector by 2020, led predominantly by wind and solar,[4] (although geothermal, hydropower, green hydrogen, and nuclear power also have significant requirements for various critical minerals[5]).

Road transport

EVs also use a lot of critical minerals.?Producing battery or fuel-cell EVs – a relatively new technology – is more materials-intensive than building an internal combustion engine (ICE) vehicle,[6] - technology that is over a century old.?In a climate-driven scenario, mineral demand for EVs and battery storage will grow at least thirty times by 2040.[7]?Lithium demand alone increases by over 40 times, and graphite, cobalt, and nickel demand will increase by around 20–25 times.?Copper will also double as more electricity networks are rolled out to power the vehicles.[8]?Of course, the rise of EVs will also put pressure on green energy generation, which in turn increases that sector’s own use of critical minerals.

According to a report from the International Energy Association (IEA):

"In a scenario that meets the Paris Agreement goals, clean energy technologies' share of total demand rises significantly over the next two decades to over 40% for copper and rare earth elements, 60–70% for nickel and cobalt, and almost 90% for lithium.?

EVs and battery storage have already displaced consumer electronics to become the largest consumer of lithium and are set to take over from stainless steel as the largest end user of nickel by 2040."[9]

How do we manage the shift to a more minerals-intensive world??

Producers, policymakers, and consumers must factor in how increased mineral demand affects supply, sustainability, and social impact in the race to scale green energy.?

Supply considerations

Experts at McKinsey state that "Net-zero commitments are outpacing the formation of supply chains, market mechanisms, financing models, and other solutions and structures needed to smooth the world's decarbonization pathway."[10]

The supply and investment of critical minerals are not yet ready to support the rapid transition to green energy as envisaged by the Paris targets and affirmed at COP26.?This increases the risk of long (and expensive) delays.?For example, although lithium and cobalt are expected to be surplus in the near term, expected production from existing mines and projects under construction will only supply around half of our requirements by 2030.?Similarly, we'll be missing 20% of our projected copper demand.[11]?Meanwhile, materials like battery-grade nickel and key rare earth elements like neodymium and dysprosium could also hit bottlenecks in the years ahead.”[12]

Advances in extraction technologies may help to fill some of this gap by increasing supplies.?Take lithium for example.?Most of the world’s lithium reserves are found in brines – natural saltwater deposits.?The conventional process for extracting lithium from brines requires large evaporation ponds that are environmentally damaging, slow to start up, and vulnerable to weather.?Not to mention destroying wildlife habitats.?This conventional process suffers from low lithium recovery, low product purity, and is ineffective for most new brine discoveries with lower grades of lithium.?

A US-based start-up Lilac Solutions – in which I’m happy to say JIMCO (the Jameel Investment Management Company) is an investor – has developed a new efficient technology to extract lithium from brines without the need for these large evaporation ponds.?Their technology protects the environment while accelerating project development, increasing recovery, and yielding a high-purity product.

As exciting as new technologies like this are, however, they are not a short-term solution, and much remains up in the air.?For example, demand projections for cobalt demand vary wildly from 6–30 times higher.[13]?It's hard to gauge the impact of future innovations and economies of scale.?But perhaps the biggest cause of fuzziness is lack of clarity or clear policy signals – this impedes demand and makes it harder for suppliers to lock in investment plans with confidence.?With the right incentives, however, producers stand to make more money from low-carbon tech – and it’s expected that we’ll see more robust policies as governments make good on their commitments.

While accelerating the sustainable energy transformation to reduce emissions, we’ll also need to make sure energy systems remain resilient and secure.?Current systems are mainly designed for disruption in the supply of hydrocarbons – but we’re going to see a lot of price volatility and disruption in mineral supply.

Although prices have dropped by 90% over the last decade for producing lithium batteries, that means raw materials, rather than the technology, account for a more significant share of the cost.?For example, raw materials now comprise 50%–70% of battery costs, up from 40%-50% just five years ago.?Copper and aluminum are currently around 20% of total grid investment costs for electricity generation.[14]?These factors make the energy and EV sectors particularly vulnerable to supply and price fluctuations.

Key issues impacting availability and price of critical minerals

Minerals are found in fewer places than hydrocarbons – the world's top three producing nations control over three-quarters of the supply of lithium, cobalt, and rare earth minerals.?For example, The Democratic Republic of the Congo (DRC) and China produced 70% and 60%, respectively, of the world's cobalt in 2019.?China has a major share of processing operations, which compounds the threat of supply disruptions.[15]

Long lead times – it takes an average of 16 years to move from discovery to production, limiting the ability to ramp up supply.

Declining resource quality - it's not all about quantity.?For example, Chile's average copper ore grade has declined by 30% in the past 15 years.?Lower-grade sources require more energy and can produce more emissions.

ESG concerns - it's a good thing that businesses are starting to take environmental and social disruption more seriously in their operations.?However, improving standards takes time and money, and therefore impacts supply.?Likewise, the mining assets are increasingly exposed to climate risks, such as water stress, extreme heat, or flooding, affecting areas like Australia, China, and Africa.

How can we tackle this??Governments can support more geological surveys, streamline the permitting process and provide additional financing to help diversify supply sources.?Regular market assessments, periodic stress tests, and voluntary strategic stockpiling will also help shore up supply.

Finding ways to use fewer materials, and swap them out for others where possible, will also be key.?We’re making good progress in this area.?For example, the amount of silver used in solar power is expected to be more than halved by 2028.[16]?Production innovation can also increase supply, with emerging tech such as direct lithium extraction[17] and enhanced metal recovery[18] promising significant gains.

Sustainability and social impact considerations

According to the World Bank:

"While the growing demand for minerals and metals provides economic opportunities for resource-rich developing countries and private sector entities alike, significant challenges will likely emerge if the climate-driven clean energy transition is not managed responsibly and sustainably."[19]

Green energy is not yet entirely green or beneficial for all communities.?Fortunately, sustainability and social impact can be improved through a combination of practical measures and high-level policies.?

Firstly, renewable energy tech has a lower power capacity than fossil fuels and needs more materials to produce an equivalent amount of electricity.?Using fewer materials and substituting others can help to alleviate the pressure on supply and lower associated emissions.

In the case of EVs, there is some complex number crunching to do.?Using a half-ton of aluminum adds six tons of CO2 to the non-battery embodied emissions of an EV.[20]?However, aluminum is lighter than steel and therefore reduces lifetime emissions in operation.?

Of course, EVs typically emit around half the greenhouse gas emissions of internal combustion engine cars, with the potential for a further 25% reduction with low-carbon electricity.?Furthermore, fuel switching, and efficiency improvements can all reduce total emissions.[21]?Producers need to balance the supply pressure alongside production and total lifetime emissions to figure out which is the most sustainable approach in each case.

Recycling will be essential to reduce supply pressure and minimize environmental impact.?Bulk metals are already widely recycled, so producers are working on recycling transition metals like lithium and rare earth minerals.?By 2030, recycled cobalt, nickel and lithium could make up 10%–20% of global demand, according to Ajay Kochhar, CEO, and co-founder of Canadian battery recycling company Li-Cycle Corp.[22]

It matters where and how we get minerals because some commodities have higher emissions depending on their source.?We need to tackle the emissions from mining and processing across the board and improve waste and water management.?We also need to ensure that mineral wealth helps local communities.?The industry is noted for poor worker safety and human rights abuses, such as child labor and corruption.?For example, the well-documented child labour issues surrounding cobalt extraction in the Democratic Republic of Congo.[23] ?In a 2020 article on the role of justice in developing critical minerals, Professor Raphael J Heffron, Professor for Global Energy Law & Sustainability at the University of Dundee, states that, “Justice in reality has only touched some parts of the mining sector.”[24]

An expert on the challenges of ensuring a just transition to a low carbon economy, Heffron divides justice into different categories, all of which need to be addressed:

• Distributive justice – this concerns the distribution of benefits from the energy sector and also the negatives (i.e., are oil and gas revenues shared sufficiently? ?Who suffers the environmental damage?).
• Procedural justice – the focus here is on legal process and the necessary full legal steps (i.e., are all the steps for an environmental impact statement observed?).
• Recognition justice – are rights recognized for different groups in society? (i.e., in particular, are we recognizing the rights of indigenous communities?).
• Cosmopolitanism justice – this stems from the belief we are all citizens of the world, and so have we considered the effects beyond our borders and from a global context?
• Restorative justice – any injustice caused by the energy sector should be rectified and it focuses on the need for enforcement of particular laws (i.e., energy sites should be returned to former use, hence waste management policy and decommissioning should be properly done).

It’s clear that supply chain due diligence and regulatory enforcement will be essential to identify and mitigate risks by improving traceability and transparency.

Governments can incentivize responsible production and bring more suppliers into the market through improved environmental, social, and governance (ESG) standards and internal collaboration. ?The IEA recommends "an overarching international framework for dialogue and policy coordination among producers and consumers" to collect reliable data and conduct regular assessments of supply chain vulnerabilities and what we can do about them, while promoting knowledge sharing to spread sustainable development practices and level the playing field with shared ESG standards.[25]

Climate Smart Mining

The Climate-Smart Mining approach has been developed by the World Bank alongside the UN Sustainable Development Goals.?Its mission is to decarbonize the mining and energy sectors and help the resource-rich countries that host these strategic minerals and the communities directly impacted by their extraction.?

As the WHO explains:

“[Climate-Smart Mining initiative] supports the sustainable extraction and processing of minerals and metals to secure supply for clean energy technologies by minimizing the social, environmental, and climate footprint throughout the value chain of those materials by scaling up technical assistance and investments in resource-rich developing countries.”

All resources are precious if they help us achieve our climate goals

We used to worry about depleting our fossil fuel resources - but green tech relies on far less common commodities.?In reality, there are too many hydrocarbons and too few critical minerals in the supply chain at present.?

Ultimately, supply will match demand.?The question is how fast and with how much disruption??The good news is that we have the existing technology and capacity for innovation to support a sustainable transition to green energy.?As governments back their climate commitments with solid incentives, producers will ramp up supply accordingly.?Provided environmental and social standards rise in tandem, we can accelerate the green energy transition to the benefit of all.

We don’t have any time, or minerals, to waste.

[1] https://www.iea.org/news/clean-energy-demand-for-critical-minerals-set-to-soar-as-the-world-pursues-net-zero-goals

[2] https://www.mckinsey.com/industries/metals-and-mining/our-insights/the-raw-materials-challenge-how-the-metals-and-mining-sector-will-be-at-the-core-of-enabling-the-energy-transition

[3] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, IEA, May 2021

[4] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, IEA, May 2021

[5] https://www.powermag.com/energy-transition-facing-potentially-debilitating-critical-mineral-supply-gap/

[6] https://www.mckinsey.com/industries/metals-and-mining/our-insights/the-raw-materials-challenge-how-the-metals-and-mining-sector-will-be-at-the-core-of-enabling-the-energy-transition

[7] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, IEA, May 2021

[8] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, IEA, May 2021

[9] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions,%20IEA,%20May%202021

[10] https://www.mckinsey.com/industries/metals-and-mining/our-insights/the-raw-materials-challenge-how-the-metals-and-mining-sector-will-be-at-the-core-of-enabling-the-energy-transition

[11] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, IEA, May 2021

[12] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, IEA, May 2021

[13] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, IEA, May 2021

[14] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, IEA, May 2021

[15] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, IEA, May 2021

[16] https://www.pv-magazine.com/2018/07/06/amount-of-silver-needed-in-solar-cells-to-be-more-than-halved-by-2028-silver-institute-says/

[17] https://www.nrel.gov/news/program/2021/using-direct-lithium-extraction-to-secure-us-supplies.html

[18] https://www.sciencedirect.com/science/article/pii/S0956053X20305110

[19] https://www.worldbank.org/en/topic/extractiveindustries/brief/climate-smart-mining-minerals-for-climate-action

[20] https://techcrunch.com/2021/08/22/the-tough-calculus-of-emissions-and-the-future-of-evs/

[21] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, IEA, May 2021

[22] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/battery-recycling-efforts-pick-up-as-cobalt-lithium-face-potential-deficit-64847803

[23] Raphael J Heffron, The role of justice in developing critical minerals, The Extractive Industries and Society, Volume 7, Issue 3, 2020.

[24] Raphael J Heffron, The role of justice in developing critical minerals, The Extractive Industries and Society, Volume 7, Issue 3, 2020.

[25] https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions, IEA, May 2021