Energy transition will need much more lithium than expected – 07/14/2023 – Market

Cut to 2031. The European Union sold out its £250 billion Green Deal months ago; the US Inflation Reduction Act is also failing and things are not going well. Electric vehicle sales have been hurt by global shortages and price spikes for lithium and other minerals.

Without enough minerals to fuel assembly lines, workers in the US “Battery Belt” are on leave, with similar supply problems plaguing Europe. Negotiations with the new cartel of critical mineral producers have stalled, in part because China – having acquired large stakes in member countries’ mines – is shifting supplies to its own battery makers.

It doesn’t have to be like that. Industry analysts are all flashing the same warning lights: achieving the energy transition will require far more lithium and other minerals by 2030 than the world is prepared to produce. Responsible scaling up of global production is critical.

Avoiding shortages of critical minerals will require about 330 new mines over the next decade, according to Benchmark Minerals, even assuming maximum progress in recycling. This includes 59 new lithium mines; the world currently has a few dozen.

This is not a problem that any country can solve alone. The magnitude of supply needed to avoid impending deficits is greater than any one country could produce alone. The US and its partners can and should cooperate to increase production abroad. Nor is it a problem that the market can manage alone.

There are several reasons to doubt the old adage, “the cure for high prices is high prices.” After all, lithium prices have surged 800% in the past three years — and yet miners, worried about price volatility, aren’t investing anywhere near the required rates.

The US’s recent critical mineral deals with Japan, and soon, Europe, represent a promising opening. But to avoid global shortages, policymakers must go much further. For starters, they will need to bring exporters to the table, not just buyers — stitching Washington’s bilateral deals with Japan and the EU into a new critical minerals pact with major net importing and net exporting countries.

Absent that kind of expansion, the world could read the US deals with Tokyo and Brussels as an attempt at a “buyers’ club”, which risks instigating calls by some exporters to form an OPEC-like cartel for essential minerals. .

For a new mineral club to work, buying countries must offer incentives to expand production responsibly. This starts by treating battery minerals as essential commodities and adapting policy accordingly. As in agriculture and oil, personalized measures such as price insurance –basically, a contract that gives the seller the option to sell a certain amount of ore for a certain price and term– will be important to encourage investment, given the high price volatility.

The US and other net importers could also offer tariff reductions, concessional financing and access to technology, all conditional on stricter labor and environmental standards.

Next, the US and other net importers must combine long-term purchase agreements with more generous value-sharing models and royalties for exporting governments. Mining executives told me they would accept as long as mineral-rich governments ensured that existing investments would not be nationalized, which seems reasonable.

Third, all sides would agree to diversify their supply chains, which is especially important in areas like mineral processing, where China controls around 85% of the market. Members would also cooperate on innovation and recycling to reduce demand. The magnitude of the predicted deficits implies a bet on technology. But the most promising technologies – like batteries that use sodium instead of lithium – still face real obstacles.

With these measures, everyone wins: supply increases and net exporters gain more generous investments and conditions in new businesses. Affected communities earn more profits. We made progress in decarbonizing one of the dirtiest industries in the world (Indonesia, the world’s largest nickel producer, has a carbon footprint up to six times greater than the industry average). And the guarantee of supply may even encourage climate commitments from other major emitters. Convincing India to ban internal combustion engines becomes much easier, for example, if battery shortages for EVs are not an acute risk.

The history of essential commodities, especially those pertaining to energy, is heavily arbitrated by governments. The headlines in a decade could be positive: a thriving electric vehicle manufacturing sector, transatlantic climate targets met, and the tense geopolitics of oil largely replaced by safe, clean energy. But that depends on Washington and Brussels acting now.

Translated by Luiz Roberto M. Gonçalves