By Tim King
A low-carbon future will not be possible without the extraction of critical minerals
The COP261 summit will bring parties together to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change. The energy sector2 accounts for approximately 75% and 80%3 of global and Australia’s emissions respectively; limiting global warming to at or below 1.5°C–2°C will therefore require a global transition to clean energy in order to mitigate the effects of climate change.
Critical energy minerals are materials that are essential for the transition to clean energy. Demand for materials such as lithium, copper, nickel, cobalt and graphite, and even steel and cement – key ingredients in solar, wind, electricity networks, electric vehicles (EV) and utility battery storage components – is primed to increase rapidly. This is because clean energy technologies need significantly more of these materials than fossil-fuel-based electricity generation technologies. For example, demand for lithium is expected to grow 70 times over the next two decades.4
However, the levels of recycling and extraction of these critical minerals today falls well short of what is needed to transform the energy sector, raising the risk of delayed or more expensive energy transitions.
What quantities of critical minerals are required?
An energy system powered by clean energy technologies differs from one fuelled by fossil-fuel-based resources, with a much higher requirement for materials such as copper and lithium. We expect a significant increase in demand for these critical materials as we outline in the demand outlook section below.
Supply constraints
The transition to low-carbon technologies and the associated rapid increase in demand for critical minerals raises significant questions about the availability and reliability of supply. There are many challenges to meet the rapid growth in demand for critical materials including:
- Production of many energy transition minerals today being more geographically concentrated than that of oil or natural gas;
- Long project leadtimes;
- Declining resource quality in some cases;
- Growing expectations of responsible and sustainable mining;
- Deposits of many critical materials are in regions with developing economies, such as Africa and South America – places where the mining industry has had a sometimes chequered relationship with environmental standards;
- Production of some materials are exposed to significant climate risk. For example, Chile produces nearly a quarter of the world’s copper, with the majority of production coming from the northern provinces – one of the driest places on the planet;
- Many new reserves of critical energy materials are are in jurisdictions with weak governance and higher levels of corruption and ESG risk.5
Recycling - important but insufficient
Whilst recycling has an extremely important role in relieving the burden on the primary supply from virgin critical materials, according to the World Bank, even a 100% end-of-life recycling rate for critical metals would not be enough to meet the growing demand for clean energy technologies.6
Recycling rates vary greatly for all critical materials, largely due to costs and technical issues:
- the challenge with meeting most of the demand from recycling is partly due to lack of existing material to recycle and reuse (e.g. lithium), either because there is insufficient product in the system and/or low recycling rates;
- there are often technological barriers; for example, some technologies may not be easily recyclable due to their design;
- recycling sometimes comes with additional environmental challenges, such as energy use and water footprints, that need to be weighed against the environmental benefits.
The good news is that products such as lithium batteries and solar PV panels are technically recyclable, but the near-term challenge is the lack of recycling infrastructure both locally and globally. As Professor Andrew Blakers (Director of the Australian National University Centre for Sustainable Energy Systems) notes, “During the early growth of an industry the logistics to deal with a new product at end of life might not initially keep up. This currently applies to some extent to both lithium batteries and PV panels, but the mature lead-acid battery industry provides a good example of high collection rates.”7
End of life recycling rates of selected critical materials
The demand outlook
Demand trajectories for critical minerals are subject to large technology and policy uncertainties, with the largest source of demand variability derived from uncertainty around climate policies.
Notwithstanding this, we have attempted to estimate the additional quantities of critical materials required over and above current requirements, which will be driven by demand from:
- Low-carbon power generation: solar PV, wind;
- Electricity networks;
- Utility battery storage; and
- Electric Vehicles.
We base our analysis on the “Transforming Energy Scenario” (TES)8, which describes an ambitious, yet realistic, energy transformation pathway based largely on renewable energy sources and steadily improved energy efficiency. This scenario would set the energy system on the path needed to keep the rise in global temperatures to well below 2°C and towards 1.5°C during this century.
The chart to the right shows our estimates of the additional supply requirements for critical materials between now and 2050 to meet the TES scenario, expressed with reference to current global supply.
For example, the additional supply requirements for copper are equivalent to approximately 4.5x current annual global copper supply.
Critical mineral requirements in the TES scenario – multiples of current global production
Melior’s Response
New and more diversified supply sources of critical energy materials are vital to pave the way to a clean energy future. Producers of critical energy materials contribute to SDG sub goal 7.2: “Increase substantially the share of renewable energy in the global energy mix”, and Melior believes that it is crucial to both direct capital to these companies as well as advocate for continuous improvement in mining practices such that companies minimise their environmental footprints, invest in community projects and programs, respect cultural heritage and diversity and create economic opportunities.
IGO (held) is an example of a company that will benefit from the transition to clean energy. It has repositioned itself as the only company globally which can supply four key electric vehicle (EV) battery materials; copper, nickel, cobalt and lithium. IGO has a strong focus on responsible production and integrates “proactively green thinking” and a sustainability framework into all aspects of its value chain.
Sources
1 26th UN Climate Change Conference of the Parties in Glasgow, 31 October – 12 November 2021.
2 Stationary energy, transport and fugitive emissions from fuels.
3 https://www.industry.gov.au/sites/default/files/August%202021/document/quarterly_update_of_australias_national_greenhouse_gas_inventory_-_march_2021.pdf; https://www.wri.org/insights/4-charts-explain-greenhouse-gas-emissions-countries-and-sectors
4 https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions
5 https://transparency.org.au/publications/corruption-risks-esg-investors/
6 https://www.worldbank.org/en/news/press-release/2020/05/11/mineral-production-to-soar-as-demand-for-clean-energy-increases
7 https://reneweconomy.wpengine.com/solar-pv-panel-waste-will-not-become-a-significant-problem-98181/
8 https://irena.org/-/media/Files/IRENA/Agency/Publication/2020/Apr/IRENA_GRO_Summary_2020.pdf?la=en&hash=1F18E445B56228AF8C4893CAEF147ED0163A0E47
This content is for general information only. In preparing and publishing this content, Melior Investment Management Pty Ltd (ACN 629 013 896, authorised representative no. 001274055) does not seek to recommend any particular investment decision or investment strategy and has not taken into account the individual objectives, financial situation or needs of any investor. Investors should consider these matters, and whether they need independent professional financial advice, before making any investment decision.