Geopolitical rifts challenge the progress of the energy transition. Energy transition will become the main driver of demand for critical minerals.
The International Renewable Energy Agency (IRENA) has published a new report on the geopolitics of critical materials, identifying a significant geographical concentration in supply chains. The agency urges policymakers and officials to find collaborative strategies to secure the energy transition. In the report, IRENA argues that supply disruptions could hinder the progress of the energy transition in the short and medium term because the mining and, especially, the refining of required critical minerals are geographically concentrated. The agency cites “External shocks, resource nationalism, export restrictions, mineral cartels, instability, and market manipulation” as examples that could potentially present significant obstacles in the global supply of critical minerals. IRENA’s Director-General Francesco La Camera emphasized further that “the energy transition will become a main driver of demand for critical minerals.”
Processing Concentrated – Reserves More Spread Out
To reduce the possibilities of supply chain disruptions, IRENA now advocates supporting the exploration of known deposits around the world that have not yet been tapped into. According to the agency, despite the processing being heavily geographically concentrated, there is no scarcity of critical minerals. However, many countries lack the necessary mining and refining capabilities, the report argues further. Bolivia, for example, has 21 million tons of lithium reserves – more than any other country – but it produced less than 1% of world supply in 2022. Countries like Bolivia can utilize their critical mineral resources to attract foreign investments in their industry mitigating geopolitical risks for countries depending on individual trade partnerships. Likewise, the production of Nickel is heavily concentrated in Indonesia. Since 2009, the Asian country has progressively implemented policies to restrict exports of raw nickel ores to keep the refining steps within its borders. The U.S. Geological Survey projects that the U.S. has equally sized reserves as the Asian country but only a fraction of its production. Incentivizing the mining and processing of geographically concentrated critical minerals could therefore make supply chains more resilient.
Gallium and Germanium Restrictions – One Symptom of Geopolitical Risks
China’s recent announcement to impose export restrictions on gallium and germanium-related products fostered fears of further escalating trade disputes and subsequent restrictions or even outright export bans of critical minerals. The People’s Republic accounts for roughly 60 percent of the global rare earths mining production and 90 percent of downstream refining steps. Because of this concentration, other countries have become increasingly dependent on China to successfully conduct their energy transitions and produce high-tech applications containing rare earths.
Photo: iStock/Maksim Safaniuk