Commodities Crisis Demands Climate Diplomacy

Given the stock market’s movements, it’s clear that many investors are still betting on the clean energy transition, as are world leaders. But the outlook has new major challenges. It’s time for climate diplomacy to work to solve them, before we blow through the climate goals the world has worked so hard to set.

COVID-19 has already suppressed supply chains around the world, and now the war in Ukraine has thrown a further major disruption at commodities – the oil and gas that remains critical to today’s energy security, and the minerals we need to continue electrifying and hit net-zero carbon goals. But that’s not all.

Both the pandemic and the war are having a severe impact on geopolitics. China, the number one supplier of commodities essential to U.S. renewable energy initiatives, is now contemplating new trade agreements to buy up Russia’s unused mineral supply as well.

And Chile has just approved an early-stage proposal to nationalize its copper and lithium industries, which threatens more constraints on the global supply chain.

These big players in upstream clean energy commodities hold keys to accelerating net-zero efforts, and they can also slow those efforts dramatically unless we initiate climate diplomacy. The United States now finds itself in an acute situation that requires a well-considered but rapid policy response — and semiconductors lie at the heart of the issue.

These devices are essential to most of our electric products. Whether you are driving an electric car, operating your phone, or even using a modern refrigerator, you are benefiting from a semiconductor working hard behind the scenes.

Digitization has accelerated as a byproduct of the work-from-home life that many have experienced during the pandemic, and with that, the need for ever more semiconductors.

The EV market is also ramping up exponentially, and new vehicles, in general, are relying on more minerals for their complex circuitry and semiconductors than ever before. An electric vehicle uses about six times more minerals to make than an internal combustion engine.

This means more copper, lithium, cobalt, nickel, platinum, and palladium — all of which are becoming harder to access in today’s geopolitical environment. Semiconductor manufacturing also requires rare industrial gasses such as xenon, krypton, and neon – 70-90% of which currently comes from Ukraine as a byproduct of steel manufacturing and other metallurgical industries.

To broaden supply sources and keep the clean energy transition moving forward will require establishing stronger connections between trading partners around the globe.

That requires opening up a dialogue with countries such as Chile on these issues. South American countries which share other values with the United States can be natural trading partners. We need a coordinated push for access to raw materials within the bounds of what Chile is trying to achieve with its nationalization. And we need those commodities to keep pursuing electrification at a commercially reasonable price.

It also means talking with China — even at a time when our 9th largest trading partner, Taiwan, is being likened to Ukraine — on how to best move forward on climate solutions so that we reach worldwide net-zero goals. Otherwise, we could see the slim chance of keeping the climate livable slip through our fingers.

To keep accelerating our energy transition, we need to extend these diplomatic efforts to the maximum extent possible, before we face even more upheaval to vital commodities supplies that could set us back on our climate goals for a decade — a decade we can’t afford to lose.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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