More than 70 countries have set net-zero targets, and even more have pledged to lower their emissions. However, these widespread objectives for a greener future are straining supplies of natural resources, especially the minerals required to produce energy transition technologies. Many required minerals, such as lithium, cobalt, copper, and nickel, are considered critical because resources are either in short supply, monopolised by individual regions, or at risk of significant supply chain disruption. Energy transition objectives risk being delayed if critical mineral supply cannot meet demand.

GlobalData’s thematic report, Critical Minerals, identifies 15 minerals that are vital for the energy transition. Of these 15, the five most critical are lithium, cobalt, copper, nickel, and rare earth elements (REEs). These minerals are imperative to the development of batteries for electric vehicles as well as solar, wind, nuclear, and hydrogen energy. With more than 50 million electric vehicles expected to be produced annually by 2035 and renewable electricity growth accelerating faster than ever, energy transition objectives risk being delayed if critical mineral supply cannot meet future demand.

Critical minerals are heavily monopolised

Many critical minerals are found in large concentrations within select regions. The uneven distribution of mineral resources has led to volatile market dynamics that are vulnerable to sudden changes in export quotas and production volumes. Aside from the issue of geographic monopoly is the risk of political monopoly. Driven by a competitive desire to establish market dominance within the tech sphere, there is a race between industrially advanced nations to secure access to mines for their own domestic research and manufacturing bases. China acted very quickly to secure access to mineral resources both inside and outside of its borders. As such, it has acquired a strong political monopoly, allowing its energy transition industry to flourish.

The international response to China’s increasing hegemony has been to dedicate significant investment to developing new mines and supply chains that can balance the scales. The US Inflation Reduction Act of 2022 is directing nearly $400bn in funding for clean energy projects.  The act prioritises securing a US-controlled supply chain of critical minerals to reduce the country’s dependency on China. In March 2023, the EU presented the Critical Raw Materials Act, which aims to diversify and de-risk the EU’s supply of essential minerals while reducing dependency on foreign countries. The act seeks to speed up the granting of extraction permits within the EU to enable greater domestic mineral production.

The mineral wars

The issue of mineral monopolisation has ongoing geopolitical consequences. The US and China are engaged in an increasingly fierce trade war, with each nation striving to assert itself as the leader in advanced industries. The trade war has resulted in various import and export restrictions and trading embargos. These political decisions have wreaked havoc on supply chain security and market expectations.

To a lesser extent, the Russia-Ukraine war has also raised further concerns over the reliable supply of key minerals required for the energy transition. Russia has a large market share in nickel and palladium production, as well as substantial unexploited reserves of rare earth elements (REEs). While the war has distracted Russia from its previously announced ambitions to become the second-biggest producer of REEs by 2030, its exports of nickel and palladium are necessary for the international industry. There has already been speculation that Russia’s minerals may be weaponised as a form of retaliation against the West, given the announcement of a strategic partnership between Russia and China. However, despite widespread speculation, it has not yet caused significant market turbulence.

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By GlobalData

The challenge of ethics

A separate geopolitical factor is enforcing fair and equitable labour policies surrounding mineral procurement. Many minerals, such as cobalt, are mined in regions with limited labour laws. The public is growing more conscious of social equality and human rights abuses, with many consumers making active choices to avoid certain brands or products because of the treatment of workers. International government regulations are also cracking down on companies exploiting cheap and unfair labour in foreign regions. Ensuring all ESG standards within the mining sector are met is important for corporations to maintain a good public image and avoid incurring government penalties.