The PlayStation game No Man’s Sky offers a glimpse into a world not far removed from how life on Earth is panning out, as countries scramble to stockpile the critical raw materials and minerals — like silicon, cobalt, copper, lithium, platinum, palladium, nickel and manganese — and rare earth elements — like dysprosium, neodymium, praseodymium and terbium — needed to power a lower-carbon future.
In the game, space travellers’ survival hinges on their ability to find and extract these critical metals and minerals to power bases, electric vehicles and rockets, and construct buildings that provide shelter from the radioactive and toxic elements on less-than-hospitable planets.
Here, back on Earth, many of these minerals and rare earth elements are not only essential for everyday technologies and household appliances, but are also key inputs for clean energy technologies such as batteries, EVs, wind turbines and solar photovoltaic panels.
A typical EV requires six times as many mineral inputs as a conventional car, according to the International Energy Agency
But herein lies the fundamental paradox of the so-called “green” transition. A typical EV requires six times as many mineral inputs as a conventional car, according to the International Energy Agency. An onshore wind plant requires nine times more mineral resources than a gas-fired plant.
A typical EV requires six times as many mineral inputs as a conventional car, according to the International Energy Agency
Since 2010, the IEA estimates that the average amount of minerals needed for a new unit of power generation capacity has increased by 50 per cent as the share of renewables in new investment has risen. By 2040, the world is expected to need four times as many critical minerals for clean energy technologies as it does today.
“There is an under-appreciation of the sheer importance of the precious metals and minerals needed to green the global economy,” says Ehsan Khoman, head of commodities, ESG and emerging markets research at MUFG.
The challenge is that the metals and minerals needed for a net zero world are concentrated in just a handful of countries: China, Chile, South Africa, and the Democratic Republic of Congo. For example, 75 per cent of the world’s cobalt, which is used in rechargeable batteries, is located in the DRC, where reports say the technically illegal practice of “artisanal” mining persists, as informal workers dig out the material in dangerous ways for little pay.
“If we assume net zero, then you need to scale copper, aluminium, cobalt, all the rare earth minerals, magnesium, all the things needed for EVs, solar panels and wind turbines. But for every single one of these metals and minerals, there is an inadequate amount of supply,” says Khoman. “So, either net zero will not be met, or prices will have to go up significantly.”
Prices for copper, which is widely used in EVs and wind turbines, just reached an 11-month high, which Khoman says is the start of a broader “commodities super cycle”.
Resource nationalism
Add rising geopolitical tensions and “resource nationalism”, and you have a heady cocktail of factors that could jeopardise the green transition. “The escalation of trade tensions and fragmentation is not compatible with the green transition,” says Beata Javorcik, chief economist at the EBRD, adding that a potential proliferation of export restrictions on critical raw materials and minerals could jeopardise the EU’s Green Deal.
According to the EBRD’s 2023 Transition report, around 30 per cent of global exports of critical raw materials by value were subject to export restrictions in 2022, up from just 5 per cent in 2019.
Last year, Beijing imposed export controls on two rare earth elements — gallium and germanium — used in computer chips and solar panels, reportedly in retaliation for the US and Europe restricting chip exports to China. China accounts for 90 per cent of the world’s production of gallium and germanium.
“Under the scenario of escalating trade tensions between Europe and China,” says Javorcik, “Europe may find itself cut off from access. Export restrictions can be introduced at a stroke of a pen, while developing rare earth or critical mineral deposits takes time.”
Recognising the need to shore up supplies of critical raw materials and minerals, the European Council and parliament reached provisional agreement on the EU’s Critical Raw Materials Act in November, setting out 34 critical raw materials and 17 strategic raw materials. By 2030, the EU wants 10 per cent of the extraction of raw materials and 40 per cent of their processing to occur in the EU.
In December, the European Investment Bank announced a strategic alliance with Rwanda to enhance investment in critical raw material value chains. Rwanda is the first country in Africa to partner with the EIB to unlock this kind of investment. “We expect an overview of potential investments sooner than five years, depending on the homework done by both sides,” an EIB spokesperson says.
China is also investing in mines in Africa, which is home to 30 per cent of all known mineral resources, but the EIB spokesperson says Chinese interests are more focused on the export market, and do not necessarily support growth in local supply chains.
Natalia Lacorzana, head of natural resources at the EBRD, says countries with substantial metals and mineral resources, such as Kazakhstan, Mongolia, Uzbekistan and Serbia, are looking to capitalise on growing demand for critical raw materials. Uzbekistan, for example, hopes to capitalise on copper production, while Serbia wants to be part of the value-added chain in battery production as well as extract raw materials and minerals.
The opportunities are enormous for Australia, says Tim Buckley, a director at think-tank Climate Energy Finance in Sydney. “Australia has always been a lucky country. We are blessed. We supply half of the world’s iron ore and lithium. We also have the best wind and solar resources in the world,” he says. Potentially, Australia could not only export the raw minerals and materials needed for the green transition, but also do the value-added processing, Buckley suggests.
However, that hinges on international collaboration with key partners, including China, which not only has the best technology when it comes to solar, but is also the biggest buyer of critical raw materials from Australia. “As the buyer, they want a lower price. We’ve got a disproportionate power relationship,” says Buckley. “China’s got the value-add. Australia needs to reset the bar.”
But how can the likes of Australia compete with the US and other countries, asks Buckley, as it lacks the substantial subsidies and incentives that the Inflation Reduction Act in the US provides to help build zero-emission industries of the future?
“Most countries have responded to the $1tn of subsidies [under IRA],” he says. “China has doubled down. They are already a decade ahead of the west. But Australia has been complacent.”
In an effort to re-industrialise Australia’s economy and capitalise on the opportunities of the green energy transition, in April, Australian Prime Minister Anthony Albanese announced the Future Made in Australia Act, which combines existing policies such as the $15bn National Reconstruction Fund and critical minerals strategy, alongside investments such as the $1bn Solar Sunshot programme to build Australia’s solar PV manufacturing capabilities.
Dirty mines
Investment is not the only thing that is needed. “It also requires a willingness to accept the undesirable effects of mining,” says Javorcik, such as open-pit mining and the radioactive waste produced from rare earth processing.
“There is no point in having a green transition with dirty mines on the other side of the world,” says the EIB spokesperson, adding that is why international mining interests are interested in working with development banks given the environmental and social role they can play. “They want to ensure things are done correctly in terms of social rights, water and waste issues, which can sometimes delay the commercial realisation of projects.”
James Lea-Cox, senior environmental adviser at the EBRD, says a lot of the delays in getting mines off the ground relate to social issues. “These things take a bit longer than your average project to get to a point where you can actually build a mine. The development cycle is years not months.”
Despite growing demand for critical raw materials and minerals, Lea-Cox says the EBRD cannot shortcut what it requires in terms of a “full-blown" impact assessment, involving public stakeholders and civil society. “There are examples of projects never getting off the ground, because companies haven’t done that,” he says.
Mining is not the “cleanest” sector, Khoman notes, and few banks — particularly those in Europe, which are looking to decarbonise their lending portfolios — have significant appetite for investing in such carbon-intensive industries. Over time, he expects banks’ lending ratio to the sector to come down, with investment only likely going to companies that can decarbonise using technologies such as carbon capture and storage. He says MDBs and blended finance are likely to play a vital role in helping de-risk and scale some of these projects.
But the mining sector has a long way to go in decarbonising its entire value chain, says Dimitris Koufos, head of sustainable business and infrastructure, industry and agribusiness at the EBRD. “They need to put in place specific objectives such as setting Scope 1 and Scope 2 targets and accelerating Scope 3 [which refer to various types of carbon emissions linked to a company]. They also need to apply new technologies for extraction, refining and smelting, and openly and transparently disclose their emissions in line with international standards such as the Taskforce on Climate-related Financial Disclosures or the International Sustainability Standards Board.”
Koufos says these targets need to be put in place by 2035, as in 10 to 15 years, all products will have some form of carbon-intensity benchmark they need to follow under EU regulations such as the Carbon Border Adjustment Mechanism.
Those mining companies that have already modernised are much better placed to capitalise on the opportunities presented by surging global demand for critical raw materials and minerals, says Lacorzana. “Unfortunately not all of them took that direction. Kazakhstan and Mongolia are two countries that have been gradually reforming the sector, with the EBRD’s support, and are now in a good position, while others are only thinking about it.”
