Critical Minerals for the Energy Transition

As more countries set ambitious clean energy goals, demand for clean energy technologies has skyrocketed. Critical minerals play an essential role in solar PV, EV batteries, and wind turbines, and as demand for these technologies increases, so do the geopolitical concerns over access to critical minerals. Ortec Finance, a Dutch financial technology and risk firm, wants to incorporate the concern over critical mineral supply into its climate risk model.

Our objective for this project was to develop a quantitative model examining the relationship between the supply and demand of critical minerals while incorporating global policy impacts into our analysis. Our research focused on the supply and demand of five critical minerals- lithium, cobalt, copper, nickel, and neodymium- in a net zero by 2050 scenario. We chose these critical minerals because they are essential for solar PV, EV batteries, and wind turbines.

We had three main research areas: demand, supply, and critical minerals policy. In developing our model, we collected our raw data from public data sources, such as IEA and IRENA, and then used projection methods to extrapolate historical data to 2050. We used the expected demand for our three technologies to estimate future demand. Then, we took the critical minerals used in each technology and calculated the expected future demand for critical minerals. Using the Bass-Diffusion Theory, we calculated future supply by projecting historical data out to 2050. In comparing our supply and demand projections, we determined that each critical mineral has enough known supply to meet the demand.

However, to meet the demand for Cobalt, Lithium, and Neodymium, the world will need to tap into known reserves, while Nickel and Copper can meet demand through current deposits. A major concern surrounding critical minerals is the discrepancy between the location of supply and demand. The known reserves of these critical minerals are located primarily in Asia, Russia, and Australia, but demand for these critical minerals comes largely from China, Europe, and the U.S. The mismatch in geography sets the stage for geopolitical challenges.

Given the many geopolitical tensions over critical minerals, we chose to research the global policy of critical minerals and its impacts on demand and supply. We examined policy and its impact on global supply and demand through country case studies, specifically looking at the energy and critical mineral policies of Kenya, the U.S., Australia, and the EU. Although each country chose diverse energy and critical mineral strategies, they all had a focus on energy independence to bolster the economy or ensure national security. The policies signified significant steps toward developing clean and resilient energy systems that rely heavily on solar PV, EV batteries, and wind. As our model and policy research demonstrate, there is a heightened need for countries to factor critical mineral access into their geopolitical considerations.