Beata Javorcik Lucas Kitzmüller Sushil Mathew Helena Schweiger Xuanyi Wang / 21 Nov 2023
A successful transition to a green economy depends crucially on the availability of various critical raw materials. Currently, China dominates the production and processing of many of these materials, and most of the reserves are in countries that are not politically aligned with the Western economies. This column discusses the current situation and potential policy solutions.
With the World Meteorological Organization (WMO) issuing a warning that global temperatures are likely to surge to record levels in the next five years, the task of limiting global warming in line with the Paris Agreement – keeping global temperature rises well below 2°C (and ideally as low as 1.5°C) relative to pre-industrial levels – is becoming more challenging by the day. The necessary large-scale roll-out of clean technologies to fully decarbonise the electricity supply, electrify most final energy use, and scale up the use of low-carbon hydrogen requires a range of critical raw materials (Energy Transitions Commission 2023). 1 These include (i) copper for wiring, (ii) rare earth elements for electric motors, (iii) lithium, nickel, and graphite for batteries, and (iv) silicon for solar photovoltaic (PV) panels. The amounts of materials involved are significant (Valckx et al. 2021, IEA 2022). Few substitutes are available for these inputs at present, and Western economies have poor access to many of them. This would be challenging at the best of times but is even more fraught with rising geopolitical tensions and Russia’s war on Ukraine. In recent work (EBRD 2023), we document the scramble for critical raw materials and discuss possible solutions.
Western economies have poor access to many critical raw materials
The supply risk that is associated with a critical raw material is determined by (i) where it is mined and processed, and (ii) the general availability of reserves (known commercially viable deposits in the ground). For example, rare earth elements tend, on average, to be more abundant than silver, gold and platinum (despite what their name suggests); however, few of those deposits are concentrated and economically viable to mine (Van Gossen et al. 2014).
If a country does not have critical raw materials within its territory, firms located in that country may seek to acquire mines overseas or import such materials from trading partners that are regarded as reliable (for instance, countries that are aligned in geopolitical terms).
To analyse the extent to which such similarities in values might affect countries’ bilateral trade in critical raw materials, we use data on the United Nations (UN) General Assembly voting between 2014 and 2021 and, following a large political science literature, measure countries’ bilateral political attitudes towards one another using the similarity of their UN votes. We divide them into two blocs based on (i) average ideal points on a unidimensional scale and (ii) the Jenks natural breaks classification method. Bloc 1 comprises countries that are more closely aligned with the United States and other Western economies, while Bloc 2 contains the rest of the world (including China). Of the various countries in Bloc 2, Armenia is the closest to Bloc 1 using this measure. 2
Figure 1 shows that Bloc 2 dominates the known reserves of all raw materials critical for the green transition, as well as most other critical raw materials (except for boron, zirconium, hafnium, helium, and lead). Importing critical raw materials from politically aligned trading partners would thus not solve the problem.
China dominates the production of most critical raw materials
The production of critical raw materials is heavily concentrated in a handful of countries, particularly China (Figure 2). The minerals with the highest levels of geographical concentration are gallium and germanium (used in chips), followed by niobium (used in steel alloys) and tungsten (used in wear-resistant metals). In contrast, zinc (used to protect steel from corrosion), silver (used in solar cells) and copper mining are the most geographically diversified.
Reserves are only slightly more geographically diversified. While China has more than half of all known reserves of tantalum (used in electronic components), as well as significant percentages of the world’s reserves of tungsten, vanadium (used in batteries and steel) and rare earth elements, almost 90% of all known reserves of niobium and boron (used in fertilisers, EVs, wind turbines and solar panels) are in Brazil and Türkiye, respectively.
As the scramble for resources has intensified, major mining companies have sought to explore deposits and buy mines around the world. While companies headquartered in the US and Canada own the most mines overseas, Chinese companies have been actively buying overseas mines over the past decade. In Africa, which is home to about 30% of all known mineral resources, the number of Chinese-owned mines has doubled since 2013. From an individual country’s perspective, acquiring overseas mines increases the security of supply for critical raw materials.
Does it matter?
Access to critical raw materials and products that (currently) cannot be manufactured without them is important because they are crucial for a successful green transition. While demand for critical raw materials has grown in recent years, the percentage of critical products that are subject to export restrictions shot up around 2020. Data on export restrictions taken from the Global Trade Alert can be combined with data on international trade flows to gauge the economic importance of such restrictions (Evenett and Fritz 2020). This analysis reveals that around 30% of global exports of critical raw materials by value were subject to restrictions in 2022, up from just 5% in 2019 (Figure 3). A much smaller increase, 5 percentage points, was observed for other products over that period, reflecting broader trends in terms of geopolitical tensions and the fragmentation of global trade (Aiyar and Ilyina 2023).
The biggest increases in the percentage of critical materials subject to export restrictions occurred in the US, Vietnam, and China. 3 In terms of individual materials, export restrictions have been tightened for feldspar, lithium, and rare earth elements, while trade in selenium, baryte, and palladium has become less restricted (Figure 4).
Van Gosen, B S, P L Verplanck, K R Long, J Gambogi, R R Seal II (2023), “The rare-earth elements: Vital to modern technologies and lifestyles”, USGS Mineral Resources Program.
Voeten, E (2013), “Data and Analyses of Voting in the UN General Assembly”, in B Reinalda (ed.), Routledge Handbook of International Organization, Chapter 4, first edition, Routledge.
World Meteorological Organization (2023), “Global temperatures set to reach new records in next five years”, 17 May.
Footnotes
We classify a raw material as critical if it is on the International Energy Agency (IEA) list or in the EU’s proposed Critical Raw Materials Act (IEA 2021, European Commission 2023).
Bloc 1 consists of countries that are more closely aligned with Western economies and comprises Albania, Andorra, Australia, Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, the Marshall Islands, Micronesia, Moldova, Monaco, Montenegro, Nauru, the Netherlands, New Zealand, North Macedonia, Norway, Palau, Poland, Portugal, Romania, San Marino, Serbia, the Slovak Republic, Slovenia, South Korea, Spain, Sweden, Switzerland, Türkiye, Ukraine, the United Kingdom and the United States. Bloc 2 contains all other economies.
Since 2020, export bans have been the most frequently used export restriction measure by the US. China has favoured export-related non-tariff measures and tax-based export incentives, while Vietnam primarily imposed export licensing requirements. Critical products such as aluminium alloy bars, rods and profiles (HS code 760429) and processors and controllers, electronic integrated circuits (HS code 854231) have been subject to export restrictions by each of these three countries. Natural graphite (HS code 250410), antimony oxides (HS code 282580) and ferrosilicon (HS code 720221) were subject to export restrictions only in China.
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