Steep climate targets and the transition to a net-zero economy has triggered a “materials transition”. The term refers to the ways in which the metals and mining industries can adapt production methods to produce less carbon intensive critical materials.
A report by McKinsey and Company states that the journey towards a net zero economy will require fundamental shifts in technologies at exceptional speeds. These technologies often require more materials for the same output, compared with their conventional counterparts during manufacturing.
The report highlights that electric vehicles are 15 to 20% heavier than internal combustion engine vehicles, requiring more metal, and therefore will become a key driver of materials demand in the coming years. The extent to which global materials supply chains can keep up with new and accelerating sources of demand will be a determinant of decarbonization rates.
Furthermore, the report states that the supply many minerals and metals used in lower-carbon technologies will face a shortage by 2030. Certain metals will face more significant shortfalls than others- for example, nickel will be minimally affected, whereas dysprosium, a magnetic material used in EVs, could face shortages of up to 70%.
A third finding suggests that minerals and metals supplies will be concentrated in certain countries, such as China (rare earth elements), the Democratic Republic of Congo (cobalt), and Indonesia (nickel). Combined with a climate that is increasingly focused on regionalization, these concentrated supplies could affect regional access to materials, even if the market is balanced globally.
Additionally, the COVID-19 pandemic, volatile commodity and shipping costs, the Russian invasion of Ukraine, and the subsequent European energy crisis all contributed to long delays and price surges that shocked global supply chains.
This led governments around the world to realize the importance of energy security, reassess domestic policies, and invest more in clean energy. Prime examples of increased governmental support of these policies is the passing of the US Inflation Reduction Act, as well as the EU Green Deal Industrial Plan.
Mining for critical materials will need to ramp up beyond historical rates, while also committing to exploration to ensure scale-up of supply. It is expected that investments in mining, refining, and smelting will need to increase from US$3T to US$4T by 2030.
Additionally, the industry’s workforce is expected to increase by 300,000 to 600,000, and an additional 200 to 500 gigawatts of energy will come online by 2030.
Further, the report highlights the following suggestions for synchronized action on supply, demand, innovation, and policy, to achieve a materials transition.
- The scale-up of supply will require efficient permitting processes, timely infrastructure deployment, equipment availability, and adequate water resources.
- Downstream industries will need to focus on proven technologies that are less materials intensive, or that require different materials for which supply is more available.
- Investment in new technologies and materials should be prioritized. On the demand side, this might involve exploring substitution options for constrained or regionally concentrated materials.
Investors may consider focusing on recycling practices for new materials, as well as innovative solutions to increase the output of existing assets.
- New policies should be implemented that facilitate scale-up of critical materials, such as by streamlining permitting procedures for new asset developments.
The Energy Transition Commission (ETC) maintain that there are enough resources and minerals to achieve net-zero, however, support from investors and policy makers is needed to ensure that the supply of some key minerals grows quickly and sustainably over the next decade.
In an insight briefing for the ETC, chair, Adair Turner, commented “The energy transition is fundamentally achievable if supply chain risks are managed. In addressing these challenges there are some clear wins to pursue and some trickier trade-offs which require deep thought from governments and industry. The priority should be to rapidly scale and diversify supply chains to build resilient clean energy capacity, while localizing manufacturing where there is a clear competitive advantage and alignment with domestic priorities.”
The net-zero energy transition and critical materials are strongly interconnected, the world must embark on a materials transition to deliver on its net-zero ambitions.