Net zero brings materials supply and social justice challenges
Recycling and technical advances will be essential to overcoming a potential shortage of raw materials for the energy transition — together with higher ESG standards if human rights and environmental degradation issues are to be addressed.
29 May 2024 / ESG, Energy transition, Environmental justice, Global, Sustainability
In summary:
Offshore wind turbines need nine times more mineral resources than gas-fired plants. Electric vehicles (EVs) need six times more than conventional ones
By 2030, demand for lithium for EVs will grow by more than 40 times, followed by demand for graphite, cobalt, and nickel at 20-25 times
Lithium and copper are most exposed to supply and volume risks, whereas graphite, cobalt, rare earths, and nickel face geopolitical risks
China dominates world supplies of copper, lithium, cobalt, and graphite and produces 70% of the world’s rare earth elements
Alternative chemistries and greater recycling could reduce demand for critical materials by 25% by 2030 in a net zero scenario.
The global energy transition is also a materials transition.
The world’s switch from hydrocarbons to renewable energy, rechargeable batteries, and clean hydrogen impose radically different resource requirements from those we have now.
With 72 countries covering 82% of global emissions having committed to net zero, it’s estimated that modernising distribution grids and establishing new ones will require more than 80 million km of new grids by 2040, the equivalent of the entire existing network.
Huge quantities of materials will be needed for the transition. The most significant materials by tonnage — up to 95% of the total — are steel for construction and copper and aluminium as electrical conductors.
But large quantities of cobalt, lithium, nickel, and graphite will also be required to facilitate a mass shift to electric vehicles (EVs). Rare earth elements will be needed at scale for magnets, and the precious metals platinum and iridium will be needed for electrolysis to produce green hydrogen.
Low carbon technologies are materials intensive. An offshore-wind turbine needs nine times more mineral resources than a gas-fired plant and EVs six times more than an internal combustion engine vehicle.
Quantity, location, and rights
The first problem for critical materials is the sheer quantities required. In its Global Critical Minerals Outlook for 2024, the International Energy Agency (IEA) estimates that by 2030, the need for these materials will at least double.
To meet the anticipated demand for lithium, nickel, graphite, and cobalt, one analysis projects that 384 new mines would be needed.
Lithium will see the most rapid growth in demand due to EV battery needs. In the IEA’s sustainable development scenario, its demand grows by more than 40 times by 2030, followed by that for graphite, cobalt, and nickel, at 20-25 times.
The second problem is location. Global lithium reserves are concentrated in South America’s lithium triangle, where its evaporative extraction process seriously pollutes groundwater. Most of the world’s cobalt is found in the Democratic Republic of Congo, in which production is associated with child worker exploitation and toxic pollution.
China, with its low capital, land, and labour costs, plays a dominant global role in copper, lithium, cobalt, and graphite production and produces 70% of the world’s rare earth elements. The IEA concludes that it will be essential to diversify supply to ensure resource security and adequate supply or critical raw materials.
Safety, human rights, and environmental degradation are still serious concerns. Daniel Litvin, original founder of ERM-owned firm Critical Resource, says that the extraction of cobalt and nickel "sits under an ESG cloud." He says: "There’s going to be growing scrutiny on water use and energy use in the mining process as well as impacts on local communities and indigenous people’s issues."
Data from human rights NGO Transition Minerals Tracker shows that human rights abuses linked to the supply of critical minerals show no sign of letting up. It records more than 630 allegations of human rights violations in the extraction of seven minerals since 2010, of which 91 were made in the last year.
Glass half empty or half full
Could a critical materials crunch jeopardise the shift to net zero? Recent major studies have come to some very different conclusions.
An Energy Transitions Commission report of July 2023 concludes that, "there is no fundamental shortage of raw materials to support a complete global transition to a net-zero" and that turning to reserves won’t be a major challenge, because of economic incentives, technological progress and increased exploration.
By contrast, a McKinsey & Company report concludes that "there is a significant gap between prospective supply and demand for copper and lithium. Anticipated mine supply from announced projects meets only 70% of copper and 50% of lithium requirements."
Lithium and copper, says the McKinsey report, are the minerals most exposed to supply and volume risks, whereas graphite, cobalt, rare earths, and nickel face more substantial geopolitical risks.
Like the IEA, McKinsey recommends diversifying supply as a priority, particularly warning of the world’s over-reliance on China for transition materials.
The report also says: "Most minerals are exposed to high environmental risks. For example, refining operations occur in places where grids tend to have a higher carbon intensity, relying mostly on coal-based electricity."
Tech to the rescue
Technology is moving quickly, offering potential for making critical resources last longer. Innovation is driving up solar panels, wind turbines, and electrolyser efficiency so that fewer raw materials are required.
Promising battery developments include sodium-ion batteries, which have no need for lithium, high energy density lithium-air and lithium-iron phosphate batteries, requiring no cobalt, and biographite for anodes, made from organic materials.
The IEA report argues that ‘right sizing’ EV batteries, alternative chemistries and recycling could reduce raw material demand by 25% in 2030 in a net zero scenario, saving an amount roughly equivalent to today’s production.
But it also acknowledges that recycling rates for many materials have exhibited limited growth in the past and says, "in a net zero scenario, this needs to change, with growing policy attention to stepping up rates of collection and reprocessing".
Recycled copper and cobalt, it says, could reduce 2040 primary supply requirements by 30% and 15% for lithium and nickel. It concludes: "Without the uptake of recycling and reuse, mining capital requirements would need to be one third higher.
IXR Price at posting:
1.2¢ Sentiment: Buy Disclosure: Held
(20min delay)