The Energy Transition and the Extractives Sector

4. Demand for green energy metals and minerals

Following the Paris accord, many governments adopted ambitious targets for deployment of renewable energy and measures to mitigate Greenhouse Gas (GHG) emissions. As a result, we are already witnessing substantial growth in the share of renewable energy in global energy consumption. Renewable energy technologies such as solar panels, wind turbines and energy storage batteries are heavily dependent on a number of minerals. Proliferation of distributed energy systems, such as smart grids is going to exacerbate the demand for metals and minerals. In that sense, construction of zero carbon infrastructure, climate change and mineral extraction are inseparably linked. However, relatively little analysis has been carried out on material implications of a low carbon future.

Minerals are increasingly scare due to growing demand and limited supply. Two metals in particular, lithium and cobalt, have seen supply chain fears in recent years, although many other metals are used. Alongside cobalt, lithium and rare earth metals, aluminium, silver, steel, nickel, lead and zinc may also play a role. The majority of these precious metals are mined in low-income and developing countries. The 2017 Resource Governance Index reveals that more than 50 per cent of those minerals are in countries with weak or poor resource governance. The transition in the energy sector opens up an opportunity for mineral rich resource countries economic development. At the same time these countries will be most vulnerable to volatility in the commodities market caused by rapid shifts in demand for climate friendly technologies. It is important that developing countries are better positioned to take advantage of the transition in the energy sector, and raise awareness on social, environmental and carbon footprint of extraction and processing of minerals and metals.

Some minerals will see higher demand spikes than others. Electric vehicles and wind turbines for instance are driving global demand for neodymium and estimates suggest that there could be a 250% increase in demand through 2050 for the international community to meet its Paris Agreement goals unless viable substitutions are identified. Recent spikes of price of cobalt and lithium also has raised concerns regarding their long-term supply availability.

In the context of the energy transition, therefore, substitution and an increase in recycling rates are both important factors, particularly when balanced against the use of minerals which may exhibit price and supply volatility. A recent report by the CCSI identified Lithium and Cobalt used in EV and battery technology as having the highest criticality and significance for the future of global green technology. In fact, the concerns for cobalt supply are more serious given that less than 10% of cobalt supply comes as a primary product, the remainder being produced as a by-product, primarily copper and nickel mines. In addition, more than 65% of global production concentrated in the Democratic Republic of the Congo (DRC). In comparison, over 95 percent of the world’s lithium supply occurs as a primary product in the form of brines or hard-rock ores, with a global production footprint including Australia, China, and Latin America. Despite the evolution of battery and recycling technologies, experts argue that the rate of substitution would not be sufficient to halt demand for cobalt due to the mechanics and chemistry of batteries.

Other critical materials fundamental for achieving the objectives of the Paris Agreement include tellurium and indium, both have an important role in renewable technologies. The table below, complied by the CCSI presents the key uses and suppliers of some of the minerals referenced above.

A key consideration for producers is the importance of using of sustainable practices in the mining sector. The mining industry is inherently energy intensive. Mining sector contributes to GHG emissions directly through the power used in operations and indirectly through the emissions released in the processing and transportation of minerals and metals.

As a result of international initiatives to regulate and control energy intensive industries GHG emissions, increasingly, major mining companies are replacing fossil fuels, in particular coal, with low-carbon alternatives. For instance, Rio Tinto reported that today three quarters of Rio Tinto’s energy supply comes from hydro, nuclear and renewable power sources. They have targeted energy-intensive processes such as aluminium smelting and invested in hydropower assets to reduce fossil fuel usage. Likewise, Newmont recently announced that the company has added the cost of carbon to their investment model, thereby acknowledging the role of climate change as a key business factor.

Furthermore, many electronic companies and electric vehicle manufacturers are under increased pressure to deliver sustainable supply chains and target new technologies that enable use of responsibly sourced minerals. For many of the companies producing electric vehicles, it is no longer acceptable to entertain relationships with suppliers who may be involved in human rights violations or in the funding of conflict. Risks arise in politically unstable areas because the proceeds from minerals trade may be used to finance armed groups, fuel forced labour and other human rights abuses, or to support corruption and money laundering.

In response, international and regional regulations aimed at reducing and ultimately breaking the connection between the minerals trade and conflict have been introduced, requiring international companies to investigate their supply chains to check that the products they buy are responsibly sourced and do not contribute to conflict or other related illegal activities.

For instance, the EU passed  Conflict Minerals Legislation in 2017, with the aim of stopping conflict minerals from being exported to the EU, preventing global and EU smelters and refiners from using conflict minerals and avoiding human rights abuses of miners, particularly ASM operators. The regulation requires EU companies importing conflict minerals, Tungsten, Tantalum, Tin, and Gold (3TG), to comply with, and report on, supply chain due diligence obligations if the minerals originate (even potentially) from conflict-affected and high-risk areas. It will be applicable from January 2021 to allow companies to adapt to the new rules.

Sustainable supply chain practices are a practical pathway to contributing to the Sustainable Development Goals. At the same time, corporate practices are also responding to these challenges with initiatives that address human rights abuses and child labour, environmental protection, health and safety and corruption.