Critical raw materials for the energy transition: a short- and long-term challenge

The new energy system, harnessing clean and renewable energies, has completely reshaped the market for certain commodities. Demand for five of the minerals considered critical to ensure the energy transition—lithium, cobalt, nickel, copper and neodymium—could increase up to sevenfold by 2050, according to estimates.

To avoid shortages of the so-called critical minerals needed to manufacture a range of goods from electric cars to solar panels, the solutions include strengthening cooperation between states and reinforcing extraction systems. But no less important are improvements in innovation and recycling to reduce the demand for these materials, mitigate the environmental and social impact of their extraction, and decrease dependence on producer countries.

Finding new ways to optimize and reuse these materials is crucial to meeting zero emissions targets and reining in climate change.

The materials for decarbonization

For the world to quit fossil fuels, energy production from renewable sources must be secured. To achieve this, we need technology such as electric cars, solar panels or wind turbines. And pivotal to developing this technology are materials for which demand is soaring as investment in renewable energy grows.

It takes six times more minerals to make an electric car than to make a conventional one. Operating an onshore wind power plant, meanwhile, requires nine times more mineral resources than a gas-fired plant. Thus, and according to the International Energy Agency (IEA), the average amount of minerals needed for each new unit of installed power capacity has increased by 50% since 2010.

The IEA’s report Energy Technology Perspectives 2023 examines the challenges and threats for clean energy and technology supply chains in the next few years. One of its findings is that demand for five minerals considered critical by the European Commission, the US and other countries and agencies could increase by between 1.5 and 7 times in a net-zero emissions environment by 2050. 

These minerals are lithium, cobalt, nickel, copper and neodymium. They are concentrated in a few countries and are currently mined on a limited scale. For example, it can take more than 10 years from the discovery of a lithium deposit to its being efficiently and continuously exploited.

More investment through 2030

According to the International Energy Agency, investment in projects linked to critical minerals reached $40 billion in 2022, a 30% increase on the previous year. In the report The net-zero materials transition: Implications for global supply chains, published last July by the consultants McKinsey & Company, experts predict that investment in mining, refining and smelting these minerals will need to increase by between $300 billion and $400 billion to secure their supply beyond 2030. “Labor capacity will need to be increased by 300,000 to 600,000 specialized mining professionals”, according to the report. In the lithium industry alone, the investment required exceeds $100 billion.

As acknowledged by the FIA (the Futures Industry Association), nickel—obtained through mining and recycling—presents sustained growth and sound long-term prospects due to its importance in the electronics and electric vehicle battery industries. Experts highlight nickel’s price volatility. Indeed, in March 2022, at the start of the war in Ukraine, its price soared on the back of supply shortages (Russia is the world’s third-largest producer of nickel), and a year later its price fell after production was ramped up, especially in countries such as Indonesia, the world’s leading producer.

Another material whose performance is closely linked to the manufacture of EVs, smartphones, tablets and laptops is lithium, a market that is also volatile but one with a potential for “steady returns”, according to Forbes specialists. Despite fluctuations, prices appear to have gradually stabilized since April this year. In 2022, Australia was the top lithium producer, followed by Chile and China. In Latin America (Argentina, Chile and Bolivia), where more than half of the world’s lithium is found, a “window of opportunity” has opened up for investment in developing the lithium industry, add value to the product and generate other businesses linked to its extraction.

Avoiding a bottleneck

The main consequences of the gap between high demand and low extraction rates, coupled with the fact that there are no unlimited materials, are rising (or volatile) renewable energy prices and, as a result, a slowing down of the energy transition. This despite global investment in renewable energy reaching record levels in 2022. To illustrate this, according to the IEA, investment in solar energy will this year, for the first time, outstrip spending on oil production.

Among the solutions cited by the IEA in its report is to invest in innovation to improve sustainability and encourage recycling. A few weeks ago, the European Council advocated the recycling and reuse of critical raw materials in its assessment of the regulations guaranteeing their secure and sustainable supply. Dependent as it is on third countries for its supply, the EU is committed to processing and recycling these materials within its borders.