Mining is the Next Global Energy Security Threat
Humanity is at an inflection point in the fight against climate change. The next decade will be a critical test for whether we can marshal both the technologies and the policies required to fundamentally change the global economy and its energy and transport systems.
Modern human society has always been dependent on mining and the minerals and metals it produces to build our economies, power our technologies, and serve as the foundations and structures of our buildings. The energy systems of the future, which will rely more heavily on renewables than fossil fuels, will be much more mineral and metal intensive than those of the past.
The recent unveiling of an electric version of Ford’s iconic F150 is as clear an example of moving from the energy systems dominated by oil to those dominated by minerals and metals.
According to a recent International Energy Agency (IEA) report, we would need to quadruple the output of raw minerals by 2040 to meet the goals of the Paris Climate Agreement. Reaching net-zero globally by 2050 would require about five times more mineral inputs in 2040 than today.
The demand for solar panels, wind turbines, LED lights, and other technologies have spiked, but currently, the global mining industry does not have capacity to produce the raw materials needed for this transition, nor are there the requisite processing plants in place. Importantly, the markets for these materials are often tiny, opaque, poorly regulated, and do not provide good price signals for investment—making those coming gaps even more worrisome.
The U.S. Congress and the Department of Defense have taken notice. The analysis thus far has focused on what can be done in the U.S. to improve mining licenses, procurement policies, and fiscal measures to help motivate companies to get back into mining and processing these critical materials.
But the U.S. has ignored the reality that there is one country that dominates the space: China. China controls not just the bulk of the advanced manufacturing of solar panels and batteries for electric vehicles, but also much of the processing of these critical minerals – like cobalt and lithium. It also is a major player in the mining of raw materials. Its dominance extends throughout the supply chain. Moreover, the United States’ understanding of the security issues of critical minerals is still nascent. The methodologies and metrics are still somewhat simplistic, and too tied to a supply-side focus or flawed notions like independence.
Given how critical mining is to reach our climate goals, the U.S. must act to address this threat, and take these important steps toward finding a solution.
First, acknowledge the sometime atrocious labor practices and environmental impacts of mineral supply chains. One needs to think about supply chains when considering minerals and metals. Just thinking of rocks and the upstream is limiting. It is also complicated by the fact that there are many different supply chains to keep an eye on in this space. The data and methodologies to track finances or emissions across these chains are hard to find or overly complex. To do this will require international collaboration toward more transparent practices globally, including creating standards and certifications for products and emissions.
Second, just last week, the IEA suggested a new “producer-consumer dialogue” for critical minerals—much the same as its international arrangement that’s in place for crude oil— to address this new global energy security threat. It's going to be difficult to compete with China’s trade agreements, state-owned enterprises, and relatively weak labor and environmental standards. They also have a large head start, can ask their industries to make moves that don't necessarily make economic sense, and go to places that American enterprises might deem too risky. Nevertheless, the US should begin a minerals-focused, formal diplomacy with China.
Third, the minerals markets for most critical minerals are not transparent. As a result, there are glaring governance issues that need to be addressed. The lack of price discovery and liquidity in these markets is limiting appropriate investment signals. This is evident in the investment gaps in, say, lithium. There are additional challenges around market size being relatively small in many cases. Again, international partnership is required here to lay down the global governance required to build such markets.
Fourth, we must build a sustainable mining and processing industry in the United States for those minerals where we have good resources and the possibility for green jobs. Addressing issues from R&D, to building demand through procurement, to siting, to financial risk mitigation tools, to institutions will all be required. The U.S. can play a leadership role from mining to advanced manufacturing with the right set of policies.
Fifth, embedding this within the domestic US policy and political machinery is necessary. But, recall that policy is largely about prioritization and implementation. Elevating the issue and keeping it on the agenda through multiple administrations in the wider climate and security debates will make a difference, as will refining the 150-year-old General Mining Act.
Critical minerals and the advanced products they help make are the new key area of energy security. As fossil fuels decline, and minerals rise, they become essential for meeting our climate goals. U.S. leadership is critical, but not sufficient. International cooperation and thoughtfully navigating a new geopolitical landscape will both be required as well.
Morgan Bazilian is Director of the Payne Institute for Public Policy at Colorado School of Mines and a former Lead Energy Specialist at the World Bank.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.