The "critical" role of critical minerals in the energy transition
By Margret Nellissery, Analyst, BRC-Canada
(November 24, 2023)
When we think about renewable energy, what mostly comes to mind is sun, wind, tides and biomass. But it’s the materials and technologies that convert these natural resources to usable electricity and power that will need our increased attention and scrutiny.
That conversion equation requires significantly more critical minerals than was needed by carbon-intensive energy technologies. An onshore wind plant, for example, requires nine times more mineral resources than a gas plant.1
With net-zero targets approaching, businesses and governments are increasingly relying on renewable energy. This means there is a higher-than-ever demand for critical minerals, so much so that the average amount of critical minerals needed for a new unit of power generation has increased by 50 per cent since 2010. This shift to renewables has transformed the energy sector into a major player in the global critical minerals market.1
A little background here: critical minerals are naturally occurring elements that play a significant role in many industries, including transportation, telecommunications and energy. Each country has its own list of critical minerals, which depends on each mineral's strategic significance, that country’s internal supply and demand, and the availability of potential substitutes.2
Aluminium is practically a prerequisite element for nearly all clean energy technologies, from photovoltaic systems, wind plants, battery storage and even hydrogen. This is followed closely by copper. Other minerals essential to clean technologies are zinc, nickel, chromium and rare earth elements (REEs).
According to the International Energy Agency (IEA), if the goals under the Paris Agreement are met, the demand for many of these minerals will significantly increase. For example, demand for lithium is projected to increase by almost 90 per cent, primarily due to its requirement in batteries for both electric vehicles (EVs) and storage.1
Explaining the “critical” in critical minerals
The “critical” aspect of these minerals is largely attributed to them having a high-risk supply chain.3 There are multiple factors behind the high risk in the supply chain of critical minerals. For one thing, they are not easily substituted. Combine that with an uneven global distribution and worldwide political volatility, and we end up with a high-risk supply chain.2
This poses significant vulnerabilities and uncertainties for both energy-consuming and producing nations and impacts the adoption, cost and sustainability of energy transition technologies. The best way to reduce these risks is to have multiple sources of supply internationally and domestically that could diminish challenges caused by production disruptions and global politics.
The supply chain for most critical minerals needed for renewable systems is geographically concentrated. For example, the top-producing countries control almost 50 to 80 per cent of the production of most minerals. Minerals like lithium, REEs and cobalt are almost entirely controlled by the top-producing countries.
The story is very similar when it comes to processing and refining these minerals. China is among the top countries that process more than 40 to 50 per cent of REEs, lithium, cobalt, and copper, with only a few other countries following suit. This concentration creates a concern for companies and countries taking part in the energy transition because their supply chains are subjected to any regulatory changes, trade restrictions, and political instability that may arise in those few countries.1,4
The rising demand for critical minerals has also resulted in many of them experiencing price increases in the last couple of years, with 2023 remaining above historical averages. According to the IEA, clean energy technology's decade-long trend of declining costs because of technological innovation and economies of scale ended in the latter half of 2020, with the increase in material prices attributed mainly to the rise in critical mineral costs.5
Canada’s progress in the critical minerals field
Canada has made considerable strides in addressing the risks in its critical minerals supply chain. Last December, the federal government unveiled a Critical Mineral Strategy backed by $3.8 billion in Budget 2022 to strengthen the domestic production, infrastructure, investment and approval processes for critical minerals development. With global energy transition as one of the main drivers, the strategy is led by the federal government and has active involvement from provincial and territorial partners, Indigenous communities, and industry stakeholders.
A portion of the strategy involves a $1.5-billion fund to accelerate investment in the manufacturing, processing and recycling of critical minerals. Currently, the fund includes the Calgary-based E3 Lithium Ltd. and the Rio Tinto Fer et Titane in Sorel-Tracy in Quebec.6 Despite efforts to increase the production of critical minerals within Canada, we will still have to continue procuring them internationally to match the immediate demand and volume required.
Ethical considerations and potential solutions
While considerably minor compared to the negative externalities of fossil fuel technologies, the renewable industry still has issues throughout its life cycle, and to maximize the potential of the energy transition, its supply chain must be operated responsibly and ethically. If poorly managed, mining for critical minerals could result in various social and environmental issues such as biodiversity loss and social disruption, leaving the communities they operate in with polluted and degraded waterways and land.1 Due to ethical implications, importer countries and companies have taken action against these issues. For example, in 2021, the U.S. banned imports of solar products from a company linked to human rights abuse.
The key is to separate the bad operators from the good, rather than stop supply from these countries altogether, because most countries that are rich in these minerals and produce them are developing nations that significantly depend on the industry's growth to support their economy.7
Although not a direct user of critical minerals, but as a significant downstream player that benefits from the renewable energy system, buyers have a significant role in setting standards while contracting deals with developers. Organizations like the Initiative for Responsible Mining Assurance (IRMA) set standards and independently assess social and environmental performance at mine sites globally.8 Buyers could demand certifications or assessments like these from renewable energy projects they get involved with, which would help push the industry towards more sustainable mining practices.
Developers that build systems that incorporate these minerals can also demand assessments like IRMA from the products in their supply chain, and at the same time encourage suppliers to use established standards and best practices set by industry groups like the International Council on Mining and Metals (ICMM) and the Mining Association of Canada (MAC) that try to improve environmental and social performances at mine sites.
Since this industry has several international players, a cooperative approach in foreign policy engagement is needed, and that requires importing countries like Canada to support capacity building within the industry in developing countries to get out of unsustainable practices in their supply chains. By advocating for responsible sourcing practices, promoting policies that push for transparency and accountability, and by investing in sustainable initiatives, the renewable energy industry can enable the inclusive, equitable and sustainable development of the critical mineral industry.6