Cooperative frameworks are needed for the extraction, processing and trade of critical minerals

Framing the need for supply security through narrowly-defined vantage points ignores key issues.

Expert comment Published 6 December 2023 3 minute READ

Barely a day goes by without another government announcing a plan to diversify and create sustainable, resilient, clean energy supply chains.

The rationale typically invokes some variant on the theme of a fast-evolving and geopolitically charged global resources landscape involving trade in critical minerals. Recent examples include the EU’s Critical Raw Materials Act, or Australia’s talks with India on critical mineral trade.

The International Energy Agency (IEA) has highlighted several minerals required for clean energy technologies. Individual governments’ designations will vary according to national priorities, resource endowments or vulnerabilities.

Recent breakthroughs in sodium-ion battery technology underscore how innovation might alter the utility of a given mineral – but as things currently stand lithium, nickel, cobalt, manganese and graphite are key to the performance, longevity and energy density of batteries.

Rare earth minerals are also essential components of wind turbines and electric vehicles (EVs), and copper and aluminium permeate nearly all electricity-related technologies.

The IEA estimates that overall mineral requirements for the climate transition could double by 2040.

The IEA estimates that overall mineral requirements for the climate transition could double by 2040, and to meet the climate goals set out in the Paris Agreement, would quadruple.

Scaling clean energy deployment to meet that demand will require a significant increase in mineral extraction and processing. But the current debate is about more than scarcity of minerals.

It also concerns fear of dependency driven by European reliance on Russian gas, and China’s dominance in many critical mineral supply chains, especially but not only in processing.

While these dependencies differ in nature, it would be ill-advised to be overly dependent on any single state for any critical inputs. The EU, for example, stipulated that no more than 65 per cent of any key raw material should come from any single country.

Market forces alone will not resolve critical minerals dilemmas

There is little consensus on how best to reconcile the national pursuit of supply resilience, often framed as a contest against geopolitical rivals, while still keeping the cost of decarbonization manageable at speed, while ensuring that those same adversaries can access the materials needed to reach global climate goals. You might wish to run a country out of polite society, but you cannot run them off the planet.

Many major economies like the G7 have responded to geopolitical strife by viewing supply security through the zero-sum, mercantilist lens of national industrial policy.

In the current climate, talk of a multilateral approach or global cooperation can sound naïve. Many major economies like the G7 have responded to geopolitical strife by viewing supply security through the zero-sum, mercantilist lens of national industrial policy, emphasizing access to critical minerals for their burgeoning industries tied to local content requirements and jobs. Yet framing the need for supply security through narrowly-defined vantage points ignores key issues.

Attempts to de-risk global supply chains by moving production will likely add immediate costs and inefficiencies that hinder the speed of global uptake of clean energy technologies.

No countries or even regions can be entirely self-sufficient when it comes to the full range of raw materials and processing facilities needed for the energy transition.

And even though many countries are moving fast to acquire manufacturing capacity, no countries or even regions can be entirely self-sufficient when it comes to the full range of raw materials and processing facilities needed for the energy transition.

As the pace of the energy transition increases, it is also evident that the same barriers to scaling clean energy investments are pertinent to that of critical minerals projects, especially in developing countries and regions of high political risk.

To address this risk there is a need for a common framework that helps safeguard the positive social benefits mineral development can bring in these countries – not only because it is the right thing to do but because it will strengthen the resilience of critical minerals security.

Without a cooperative framework, export restrictions could continue to dampen prospects to scale deployment of clean energy – as was illustrated by the case of China’s restrictions on germanium and gallium exports, which introduced special export licenses for the materials used in chip production.

Of course, the world is beset with duelling imperatives. Western governments are stepping up in their quest to dominate the production of the next generation of green tech, with developing countries at best deemed trusted suppliers of raw materials.

If mineral-producing countries limit access to those who would process on-site, it could undermine the scale economy and drive costs up.

Yet if mineral-producing countries limit access to those who would process on-site, it could undermine the scale economy and drive costs up.

Cooperative frameworks needed for critical minerals

All these challenges highlight the need for cooperative frameworks. These could start as open partnerships and comprise some or all the following five elements:

  • Joint investment frameworks with blended finance mechanisms that reduce risk and the cost of capital – to help spearhead and sustain investments in new projects extracting and processing critical minerals.
  • Guiding principles for investors and development finance institutions (DFIs) seeking partnerships with mineral-rich developing nations – that incentivize not only extraction but also enhancing industrial capacities.
  • A voluntary peace clause among a coalition of the willing over the use of export controls and restrictions on critical minerals, metals and materials, with a view to expanding this group over time.
  • Principles and support mechanisms including finance to embed circularity in future supply chains.
  • Benchmarks and voluntary standards for sustainable mining and processing technologies.

The Financial Times recently described the current geopolitical order as that of an à la carte world, where any pre-fixe menu of assumed allegiances is open for challenge and maybe eschewed, in this case, perhaps by mineral-rich countries.

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This is why any cross-border cooperation will likely take place only in the form of ad hoc, case-by-case groupings, or what are often described as the coalitions of the willing or the capable.

This is also why, rather than go it alone or divide up the world in a new ‘land grab’ for control over critical resources, economies like the G7 nations, that profess to want to lead on climate action and the clean energy transition, should seek supply chain partnerships. These should be open to all and any to join and embrace the five elements above.

This article was first published by the World Economic Forum Agenda.