Our key takeaway: We have seen a surge in the need for critical minerals. Electric car sales increased by 60% in 2022. The additional capacity for energy storage systems doubled in 2022. Solar PV installations are on a high, and wind power will surge. All of these need critical minerals, including copper, battery metals (lithium, nickel, cobalt and graphite) and rare earth elements. In fact, we are looking at an “unprecedented growth” in the need for energy transition minerals, according to the International Energy Agency (IEA). This brings with it its own set of challenges, including how to guarantee the supply in such a way as to ensure rapid and secure energy transitions. This is shaping company behaviour - with a growing number of companies taking extra steps to invest directly in the critical minerals value chain such as mining, refining and precursor materials. However, the IEA finds that the focus on securing supply has not extended to environmental and social performance: although there has been some progress on some human rights topics, we are lagging behind in a number of other areas. Greenhouse gas emissions remain high, and water withdrawals almost doubled between 2018 and 2021. Time for downstream companies to give preference to minerals with a lower climate impact and more rights-respecting practices.
The International Energy Agency (IEA) published Critical Minerals Market Review 2023 (July 2023) which provides “a major update on the investment, market, technology and policy trends of the critical minerals sector in 2022 and an an initial reading of the emerging picture for 2023”:
- Unprecedented growth in energy transition minerals: Energy transition minerals cover copper, major battery metals (lithium, nickel, cobalt and graphite) and rare earth elements. The IEA also includes trends for other important minerals and metals such as aluminium, manganese, platinum group metals and uranium as relevant. We have seen a “significant increase in demand for critical minerals.” “From 2017 to 2022, demand from the energy sector was the main factor behind a tripling in overall demand for lithium, a 70% jump in demand for cobalt, and a 40% rise in demand for nickel.” More generally, “the market size of key energy transition minerals doubled over the past five years, reaching USD 320 billion in 2022.” Looking ahead, the IEA finds that demand for critical minerals for clean energy technologies is set to increase rapidly in all IEA scenarios. For instance, demand more than doubles by 2030 in the Announced Pledges Scenario (APS), and demand for critical minerals grows by three and a half times to 2030 in the Net Zero Emissions by 2050 (NZE) Scenario. The main users are EVs and battery storage, but also low-emissions power generation and electricity networks.
- Companies seeking to secure mineral supplies: “[A]utomakers, battery cell makers and equipment manufacturers are increasingly getting involved in the critical minerals value chain.” This includes entering into long-term offtake agreements which “have become the norm in the industry’s procurement strategies.” Companies are also “taking extra steps to invest directly in the critical minerals value chain such as mining, refining and precursor materials.” For instance, General Motors has invested USD 650 million in Lithium Americas, Tesla plans to build a new lithium refinery in the United States, and “Contemporary Amperex Technology Co. Limited, the world’s largest battery cell maker, has made the acquisition of critical mineral assets a central element of its strategy.” The IEA points to a range of challenges that need to be addressed on the supply side in order to secure the supply needed. These are: “i) whether future supplies can keep up with the rapid pace of demand growth in climate-driven scenarios; ii) whether those supplies can come from diversified sources; and iii) whether those volumes can be supplied from clean and responsible sources."
- “[M]ixed progress towards improving sustainable and responsible practices”: The IEA has assessed the environmental and social performance of 20 key companies and finds that “companies are making headway in community investment, worker safety and gender balance.” However, the report finds that “environmental indicators are not improving at the same rate. Greenhouse gas emissions remain high, with roughly the same amount being emitted per tonne of mineral output every year. Water withdrawals almost doubled from 2018 to 2021.” The IEA further notes that end users do not appear to be prioritising cleaner production pathways in their sourcing and investment decisions - “although some downstream companies have started to give preference to minerals with a lower climate impact.”