Critical minerals, geopolitics, and the risks for achieving net-zero transition
By Nathaniel Dolton-Thornton
For many Californians, the words “Salton Sea” evoke cracked mud, desert air, the smell of rotten eggs, agriculture, pesticides, environmental injustice, and a lot of wasted water. But in recent years, the sea has acquired a new significance: lithium, and through it a potential—if fraught—solution to the US’s clean energy concerns.
Lithium belongs to a group of resources called “critical minerals”: minerals with a “supply chain vulnerable to disruption” whose absence “would impact economic or national security.” More specifically, the term often refers to “transition-critical minerals,” that is, minerals essential to the clean energy transition. Lithium, for instance, is a major component in rechargeable batteries for electric vehicles and other products (though this could change).
Share of top producing countries in extraction of selected minerals and fossil fuels (IEA 2019)
Share of top producing countries in total processing of selected minerals and fossil fuels (IEA 2019)
As the clean energy transition picks up steam, demand for critical minerals will, too. According to some estimates, lithium requirements could increase 40-fold by 2040, while demand for graphite, cobalt, and nickel could increase 25 times. The world will likely struggle to meet these needs. Meanwhile, the extraction and processing of many critical minerals are concentrated in a few countries. The Democratic Republic of the Congo supplies 69% of the world’s cobalt, and 60% of all rare earth elements are extracted in China. China also dominates critical mineral processing: 87% of rare earth elements are processed in China, as is 65% of cobalt and 58% of lithium. In a world of heightened geopolitical tensions, governments are struggling to secure critical mineral supplies by circumventing political rivals and strengthening alliances. Many are also reexamining reserves back home in places like the Salton Sea’s Imperial Valley, which some now call “Lithium Valley.”
On March 29, 2023, researchers convened for a conversation on “Critical minerals, geopolitics, and the risks for achieving net-zero transition.” Jointly hosted by the London School of Economics’ Grantham Research Institute on Climate Change and the Environment and the Organization for Economic Co-operation and Development (OECD), the event brought together four speakers: Eric Buisson, a critical minerals analyst at the International Energy Agency; Sophia Kalantzakos, Global Distinguished Professor in Environmental Studies and Public Policy at New York University Abu Dhabi; Daniel Litvin, Senior Advisor to the Executive Committee of ERM and Founder of Critical Resource; and Rob Patalano, Head of OECD’s Financial Markets Division. The event covered a wide range of topics related to critical minerals, but three stood out:
In recent years, a growing number of researchers has wondered whether the “resource curse”—the theory that resource-rich countries strongly reliant on one natural resource paradoxically see disproportionately low economic development—might extend to critical minerals. Daniel Litvin argued that geopolitical competition in the energy transition seems likely to perpetuate the resource curse in many countries. “Many good initiatives in this area, but it’s difficult to see them overcoming, in my mind, very deep-rooted, almost historical dynamics around geopolitical competition for resources,” Litvin said. Litvin added that the dynamics around oil and gas in recent decades might parallel the future of critical minerals.
Turning to differences between critical minerals and fossil fuels, Rob Patalano pointed out that, while oil and gas enable energy flows, critical minerals enable energy infrastructure. In this sense, the dynamics of supply, demand, and financial risks around critical minerals will significantly differ from those related to oil and gas.
Rob Patalano also highlighted the increasing, often overlooked, financialization of critical minerals. This process is linked to several recent crises, including a spike in nickel prices that prompted the London Metal Exchange to suspend and cancel trades on March 8, 2022. “This concentration of players due to the financialization of critical minerals, and the way that our markets work and the nature of the derivatives markets, this could be really fragile when we need it to perform most,” Patalano said.
We here at the Climate Policy Lab are working on several projects related to critical minerals, so stay tuned for updates. In the meantime, while speakers could only scratch the surface of the critical minerals debate, the event offers a great starting point for those who would like to dig deeper into this important topic.
Nathaniel Dolton-Thornton is an Assistant Researcher at The Climate Policy Lab.