Sustainable Finance: Growing demand for EV batteries, and the role of ESG Tommaso Zaffaroni Tommaso Zaffaroni Hons BEng Mechanical Engineering at The…
Published Oct 25, 2022 + Follow
A rising number of nations, cities, companies and other organizations have made commitments to achieve net-zero emissions. More than 70 nations have established a net-zero target by 2050, which accounts for nearly 76% of global emissions and includes the three greatest polluters: China, the United States, and the European Union, as shown in the graph provided by the United Nationsnet-zero commitments survey. Technology advancements in generating power and mobility will be crucial in the race to achieve net zero emissions by the previously arranged date.
The battery is the device that is hiding behind the renewable power junction, grabbing the interest of nations, businesses, and investors. Major automobile markets in Europe and the US have seen a sharp increase in demand for batteries as the world accelerates the switch to electric vehicles. The size of the change required to reach worldwide net zero by 2050 is indicated by projections drawn by the International Energy Agency (IEA): before 2035, all new automobiles would have to be electric, and by mid-century, two-thirds of the world's energy supply must come from renewable energies like wind, solar, bioenergy, geothermal, and hydropower.
The battery distribution network is currently experiencing a challenging phase of uncertainty, and many automotive and battery manufacturers are looking to create their independent Gigafactories or establish joint ventures to manage the tight supply. According to an analysis by McKinsey & Company, the battery supply chain is estimated to expand by up to ten times before 2030, reaching an annual turnover as high as $410 billion. Before 2030, the demand is predicted to rise by almost 30%, approaching 4,500 gigawatt-hours (GWh) worldwide.
As shown in the clustered column graph provided by McKinsey & Company, China is predicted to account for 40% of global lithium-ion battery demand by 2030. The prediction indicates that the two most popular chemistries, lithium iron phosphate (LFP) and lithium nickel manganese cobalt oxide (NMC), will be split evenly. Transportation industries, especially electric automobiles, will account for almost 90% of the demand (EVs). Overall, the growth has sparked a previously unheard-of amount of investment, which battery producers must master if they want to keep pace whereas other sectors compete for the same limited resources.
It is clear that the majority of lithium-ion battery cells are made in China, however, due to regulations requiring automotive fleets to reduce their emissions and the introduction of the European Battery Alliance (established in 2017), a program to increase EU battery manufacturing capacity allows Europe to catch up with the east Asian country.
Europe is pushing for a quicker transition to EVs by 2030, however, some European countries such as Italy, whose automotive sector covers a major part of its gross domestic product, would be immensely disadvantaged by such reform while causing a high cascade of unemployability hence economic shrinkage.
Why is the EU not considering other zero-carbon solutions? Moreover, would investing everything in electric transportation, instead of looking for new solutions, not mean becoming highly dependent on the Chinese sovereign state?
The role of Environmental, Social, and Governance (ESG) assessment.
Batteries have their ecological consequences in addition to the harm caused by the extraction of raw resources and the power consumption in their production and transportation. For instance, lithium requires a vast amount of water to be pumped from the ground to be extracted, moreover, mining for cobalt can release debris and pollutants into the environment. Furthermore, due to efforts to make batteries lighter for application in transportation, their parts are sometimes bonded together with adhesives instead of nuts and bolts, which makes it more challenging to be disassembled and recycled.
An analysis released by the Financial Times, that focused on the emissions vary of electric vehicles by country, assuming the life of a car to be around 250.000 km allowed us to appreciate the expected occurrence of a decrease, in terms of tons of CO2, by 2030. Along with that, new technological developments allow for batteries to be recycled and reused for a secondary purpose, such as stationary storage applications, instead of being thrown away.
It is easily reasonable that there is still more to be done to solve these issues, as well as to produce enough batteries to enable the widespread use of EVs and convert most energy use to renewable sources.
The European Institutions are now reviewing the legislation from the European Commission for a new EU battery rule. The revised proposed regulations are expected to have a significant impact on the whole battery supply chain, both inside and beyond the EU. In light of their growing significance, the EU Commission has worked hard to create a robust set of regulations that covers every phase of the life cycle of an electric vehicle battery, from extraction to life edge management.
The final question I would like to pose is the following: Will these regulations be capable of driving the EV takeover in a true renewable way, without limiting the EU manufacturers in their competition against other global players in the market? If the intrinsic scarcity of resources and difficulties in the disposal of batteries are insurmountable technological limits, then the solution for true green mobility may not necessarily lay in a stubborn push for pure electric transportation only, but in other hybrid solutions too, such as hydrogens and synfuels and many others.
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