By Karl Mehta-
(Karl Mehta serves as Chairman Emeritus of the Quad Investors Network. He is a serial entrepreneur, author, and chairman of Mehta Trust. The views expressed in this article are his own)
To mitigate the adverse effects of climate change, the industrialized nations must transition to a clean energy future. This shift is dependent on the reliable and sustainable supply of the set of 17 metallic elements known as rare earth elements (REEs) and other transition metals (TMs) such as copper, cobalt and nickel. These, as well as many minerals, are essential components of clean energy technologies, including electric vehicles, wind turbines, and solar panels. The International Energy Agency (IEA) estimates that demand for elements to support clean energy technologies may increase 4-6 times by 2040, highlighting the urgency of addressing the supply chain constraints.
Four periods of production are evident: The monazite-placer era, starting in the late 1800s and ending abruptly in 1964; the Mountain Pass era, starting in 1965 and ending about 1984; a transitional period from about 1984 to 1991; and the Chinese era, beginning about 1991.
Global supply chain constraints
The global supply chain for critical minerals, including TMs and REEs, is complex and subject to numerous constraints that impact the availability of these materials. These constraints include:
Geographic concentration: As demand increases, the limited supply of REEs is evident. In the United States, the only operating REE mine is the Mountain Pass Rare Earth Mine and Processing Facility, owned by MP Materials, and located in San Bernardino County, California. Producing some of the highest quality rare earth deposits in the world, the Mountain Pass mine was the biggest source of rare earth elements until China began dominating global rare earth production in the 1990s.
Today, China is the world’s largest producer of REEs, accounting for 61% of global annual mine production, estimated at 168,000 tonnes for 2021. The United States, Burma (Myanmar), Australia, and Thailand provide the majority of the remaining mine production.
Other smaller sources include Vietnam, India, Russia, Madagascar, and Brazil. Canada is reported to be ramping up its significant potential for REE mining.
China remains virtually the only producer of the 10 highly valued heavy REEs—gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, scandium, and yttrium.
This concentration makes the supply chain vulnerable to geopolitical risks, trade disputes, and climate-related disasters, such as flooding and drought. Similarly TMs used in batteries, such as cobalt, nickel and copper, appears to have majority of downstream plant developed in China, bringing global supply chain challenges to electric mobility and renewable storage market. Although there is strong drive in USA, Australia and India, with respect to cobalt and nickel free batteries, and companies such as C4V has taken lead to build such ecosystem in these countries to foster next generation storage products.
Environmental and social impacts: The mining and processing of critical minerals and REEs and TMs have significant environmental and social impacts. This has led to increased scrutiny and regulatory oversight, making it challenging to develop new mines and expand existing ones. Environmental and social concerns, especially those related to indigenous land rights, water availability, pollution from mining waste, and corruption, have historically plagued much of the mining sector. These challenges are not limited to multinational corporations and state-owned enterprises, but also extend to artisanal and small-scale miners (ASM).
To address these challenges, good governance practices, responsible sourcing, and adherence to international standards must be prioritized. The mining sector has an opportunity to drive more ethical and sustainable development through responsible practices, and by doing so can increase the likelihood of secured supply of critical minerals and REEs and TMs for clean energy solutions. It is essential to take a holistic approach to mitigate the range of the ESG risks across the mining sector.
Infrastructure and technology investment: The mining and processing of critical minerals and REEs and TMs require specialized infrastructure and technology. The lack of investment in infrastructure and technology can limit the development of new mines and increase the cost of mining and processing existing ones. Investors face price volatility and uncertainty around the economic feasibility of mineral production, given the significant up-front capital investments required. To address these issues, increased investment in infrastructure and technology is necessary to promote the sustainable production of critical minerals and REEs, and TMs.
To bridge the supply gap for minerals, an investment of $360-$450 billion in new mines will be required, mostly over the next three years. Some scenarios show significant gaps for cobalt, zinc, graphite, and REEs, with nickel underinvested by as much as 60%.
The investment case is further complicated by the long timelines required to develop new mining projects, with an average of 16.5 years from discovery to production. Investment plans must consider the dynamics across minerals, with cobalt being a crucial product of copper mining, which is also essential for the low-carbon transition.
Adverse impact on clean energy transition
The constraints in the global supply chain for critical minerals and REEs and TMs have an adverse impact on the clean energy transition in several ways, including:
Delayed deployment: Limited availability can delay the deployment of clean energy technologies. This can have a ripple effect on the achievement of climate targets and the transition to a low-carbon economy.
Increased costs: It can increase the cost of clean energy technologies, making them less competitive with fossil fuels. This can slow down the adoption of clean energy technologies and delay the transition to a low-carbon economy.
Limited innovation: It can limit innovation in clean energy technologies, slowing down the development of new technologies that are more efficient and less dependent on critical minerals including TMs and REEs.
Case-study about India’s dependency on China
As of 2020, India had 100% import dependency with the lion’s share of imports coming from China for critical minerals like cobalt, lithium, tantalum, etc., which are integral for increasing the domestic manufacturing for achieving India’s 500GW target by 2030.
However, the recent trade imposition by the People’s Republic of China on manufacturing technologies and critical minerals such as gallium and germanium, has posed a challenge for the country to seek out alternative partner countries which could fulfil the existing demand for such critical minerals.
India has taken several countermeasures, such as the introduction of an exploration licence and incorporation of KABIL, which have opened the doors for private sector stakeholders to participate in and provide advanced technology, finance and expertise. The reduction in copper imports from China by 6.43% in 2022-23, compared to 2021-22, is a testament to what a supportive regulatory and policy environment can achieve. However, there is still a long way to go to achieve the goal of Atmanirbhar Bharat. This goal can be realized through a just and sustainable partnership between the government and industry agencies of the QUAD Nations.
Conclusion
The global supply chain for critical minerals including TMs and REEs is subject to numerous constraints that impact the availability of these materials. These constraints have an adverse impact on the clean energy transition, delaying the deployment of clean energy technologies, increasing their costs, and limiting innovation. To address these challenges, there is a need for increased investment in exploration, mining, and processing of critical minerals and REEs; the development of new technologies that are less dependent on these materials; and increased international cooperation to ensure a sustainable and reliable supply of these materials. Moreover, strategic policies and investments between Quad nations that support the development of new mineral sources in diverse geographical locations can reduce security, environmental, and governance risks.
Photo: Mining image (representational). Courtesy: Unsplash
