Key vulnerabilities in getting to net zero

In a recent report, the International Energy Agency warned that demand for critical minerals like copper, cobalt, lithium, nickel and rare earth elements needed for clean energy technologies is going to explode by 2040, and cautioned that “how policy makers and companies handle the challenges around reliable and sustainable supply will determine whether critical minerals are a vital enabler of clean energy transitions or a bottleneck in the process.”

The Paris-based agency, which advises governments on energy policy, outlined the key vulnerabilities in reaching emissions targets, most of which the mining industry knows all too well, but bear repeating here: the geographical concentration of production; long project development timelines; declining resource quality; environmental and social performance of production; and exposure to climate-related risks such as water stress.

The Role of Critical Minerals in Clean Energy Transitions is a wake-up call that should be required reading for everyone, especially for those who haven’t yet drawn the link between mining and the materials it provides, and the fight against climate change. While it’s difficult to summarize all of its 287 pages here, I’ve extracted what I believe are the report’s most salient points.

Geographical Concentration of Metals: Production and processing operations are concentrated in a handful of countries and that isn’t going to change any time soon. The world’s top three producing nations for lithium, cobalt and rare earth elements (REEs), control well over three quarters of global output. In 2019, the Democratic Republic of Congo produced 70% of the world’s cobalt and China produced 60% of the world’s REEs. The western part of South America – Chile and Peru – is responsible for 40% of global copper output; Indonesia and the Philippines represent 45% of all nickel output; and South Africa about 70% of the world’s platinum. In terms of refining, the level of concentration is higher still: China’s share is about 50-70% for lithium and cobalt; nearly 90% for REEs and about 35% for nickel (the nickel refining figure “becomes higher when including the involvement of Chinese companies in Indonesian operations”). These types of concentrations can lead to supply disruptions, the IEA warns, due to changing trade patterns, geopolitical considerations and climate events.

Development Timelines: Of the major mines that began operating between 2010 and 2019, it took an average of 16.5 years to move them from discovery to production. (On average more than 12 years for exploration and feasibility studies and four to five years for construction.) And mining is only one aspect of the supply chain; many of these critical materials must then be converted into chemicals, such as lithium hydroxide, which is used in batteries. In short, the report argues, “there is a mismatch between the pace of change in demand and the typical project development timeline.”

Declining Resource Quality: Average copper grades in Chile have fallen by 30% since 2005. And mining lower grades requires more energy, which raises production costs and greenhouse gas emissions. “Due in part to declining resource quality, the production and processing of energy transition minerals are energy-intensive, involving higher emissions to produce the same quantity of product.” Mining lower grade ore also results in greater amounts of waste rock and tailings.

Environmental and social production performance: Increasing scrutiny of environmental, social and governance (ESG) could impact costs and supply. In 2019, about 10-15% of copper, lithium and cobalt production and nearly half of nickel production “came from regions with low governance scores and high emissions intensity.”

Lithium Chile’s exploration property. Credit: Lithium Chile.

Climate risks and water stress: About half of the world’s lithium and copper production comes from regions that experience water stress. In Chile, about 80% of the copper is produced at mines in arid and water-stressed areas.

The report also quantifies the demand it sees for critical minerals by 2040, if the world wants to reach the goals of the Paris Agreement, or keep temperature rise to below 2 degrees Celsius.  “In a scenario that meets the Paris Agreement goals, clean energy technologies’ share of total demand rises significantly over the next two decades to over 40% of copper and rare earth elements, 60-70% for nickel and cobalt, and almost 90% for lithium.”

Put another way, meeting the goals of the Paris Agreement “would mean a quadrupling of mineral requirements for clean energy technologies by 2040,” and “an even faster transition, to hit net-zero globally by 2050, would require six times more mineral inputs in 2040 than today.” The report also notes that “expected supply from existing mines and projects under construction is estimated to meet only half of projected lithium and cobalt requirements and 80% of copper needs by 2030.”

As for policy prescriptions, the IEA puts forth key recommendations: making sure there is adequate investment in diversified sources of new supply; promoting innovation in technology throughout the value chain; making recycling a priority;  improving supply chain resilience and market transparency; mainstreaming better ESG standards; and improving international collaboration.

And in order to increase investment in new sources of supply, governments must make their climate ambitions clear because they offer signals to investors. “Here, governments have a key role to play in reducing uncertainty by sending strong and consistent signals about their climate ambitions and implementing specific policies to fulfill these long-term goals,” the report states. “Long-term visibility is essential to provide the confidence investors need to commit to new projects.”