Date : 19/07/2023

Relevance:

• GS Paper 1: Geography- Critical Resources
• GS Paper 3; Clean Energy,

Keywords: The International Energy Agency (IEA), Russia-Ukraine war, KABIL, US-China Trade War

Context-

As the global shift towards clean energy technologies accelerates, the demand for critical minerals such as lithium, cobalt, nickel, and copper has skyrocketed. These minerals are vital for powering electric vehicles, solar panels, wind turbines, and other clean energy devices. However, the supply of critical minerals has struggled to keep up with the surging demand, leading to significant challenges.

Surging Demand for Critical Minerals Outpaces Supply

• The demand for critical minerals, such as lithium, cobalt, nickel, and copper, is experiencing unprecedented growth due to their crucial role in clean energy technologies.
• These minerals are essential components in electric vehicles, wind turbines, solar panels, and other devices driving the transition to clean energy.
• The International Energy Agency (IEA) reports a tripling of lithium demand from 2017 to 2022, a 70% increase in cobalt demand, and a 40% increase in nickel demand, contributing to a rapidly expanding market for energy transition minerals, which reached $320 billion in 2022.
• However, the available supply of critical minerals has not kept pace with this soaring demand, leading to concerns about a resource crunch.

Implications for India's Green Drive

• India faces challenges related to critical minerals, including the impact of the ongoing Covid-19 pandemic on China's supply chains and the implications of the Russia-Ukraine war on critical mineral supply chains.
• The evolving balance of power between countries, particularly the China-Russia partnership, poses risks to critical mineral supply chains.
• Developed countries have formed collaborative strategies, but developing countries like India have not been actively involved, potentially missing out on the benefits and protection offered by these partnerships.
• The shortage of critical minerals poses a significant challenge to India's efforts to advance its green drive and achieve decarbonization goals.
• With the country aiming to transition to cleaner energy sources, the availability of key minerals becomes crucial. India's success in achieving a sustainable and renewable energy future is subject to the uncertainties of global mineral markets and supply chains.
• The potential scarcity and rising prices of critical minerals like copper could disrupt the production costs of essential clean energy devices, including solar panels and electric vehicles.
• To overcome these challenges, India must explore strategies to secure a stable supply of critical minerals while also promoting domestic production and responsible sourcing practices.

Supply-Side Challenges and Policy Responses

• The supply-side challenges associated with critical minerals necessitate proactive policy responses. Governments around the world, including the US, Canada, the EU, and Australia, have introduced regulatory legislation to diversify their mineral supplies.
• Resource-rich nations like Indonesia, Namibia, and Zimbabwe have imposed restrictions on the export of unprocessed mineral ores to retain more value within their own economies.
• Furthermore, industries such as automakers, battery cell manufacturers, and equipment manufacturers are increasingly engaging in the critical minerals value chain, including mining and refining, through long-term offtake agreements.
• These efforts aim to secure access to critical minerals and mitigate potential disruptions caused by uncertain global supply chains.

China's Dominance as a Supply Risk

• China's dominant position in the supply of key materials for the green transition poses a significant supply risk.
• Recent export restrictions imposed by China on metals like gallium and germanium highlight the vulnerability of relying heavily on a single source.
• The geopolitical landscape, marked by trade wars and conflicts such as the US-China trade war and the Russia-Ukraine war, has led to sanctions and disruptions in settled trade flows, further exacerbating the supply risks associated with critical minerals.
• Diversifying sources and reducing dependence on a single country for critical minerals become imperative for ensuring a secure and resilient supply chain.

Importance of Sustainable Practices in the Critical Minerals Sector

• As the demand for critical minerals continues to rise, it becomes crucial to prioritize sustainable and responsible practices in the mining and refining processes.
• The environmental and social impacts of mineral extraction and processing must be assessed and mitigated.
• The IEA emphasizes the need for a comprehensive strategy that combines investment, innovation, recycling, rigorous sustainability standards, and well-designed safety nets.
• Promoting clean and responsible sources of critical minerals is essential to ensure a sustainable transition to clean energy technologies while minimizing adverse environmental and social consequences associated with their extraction and production.

Recommended strategies to mitigate these challenges

• India should assess the availability and accessibility of critical materials, evaluate domestic reserves, and explore sustainable extraction and diverse international markets. It is important to secure a steady supply of critical minerals, considering potential disruptions in global supply chains.
• Financing mechanisms, incentives, and international collaborations should be explored to attract public and private investments for the transition to clean energy.
• Technology development, transfer, and collaborations with academia and industry are crucial for achieving energy goals.

Conclusion:

The demand for critical minerals essential to clean energy technologies is exceeding the available supply, potentially impeding India's transition to a greener economy. As the energy sector drives up the demand for minerals like lithium, cobalt, nickel, and copper, securing a consistent supply becomes crucial. Governments and industries must address supply-side challenges by diversifying sources, ensuring responsible production, and investing in innovation and recycling. China's dominance in critical mineral supplies presents a risk, necessitating a focus on resilient and sustainable supply chains. To achieve successful energy transitions, India and other countries must navigate the resource crunch while prioritizing sustainability and responsible practices in the critical minerals sector.

Source The Business Frontline