The ESG Challenges for Transition Metals

An accelerated energy transition is needed to respond to climate change.

According to the Paris Agreement, 196 countries have already committed to limiting global warming to below 2°C, preferably 1.5°C. However, changing the energy system after over a century of burning fossil fuels comes with challenges.

In the above graphic from our sponsor Wood Mackenzie, we discuss the challenges that come with the increasing demand for transition metals.

Building Blocks of a Decarbonized World

Mined commodities like lithium, cobalt, graphite and rare earths are critical to producing electric vehicles (EVs), wind turbines, and other technologies necessary to burn fewer fossil fuels and reduce overall carbon emissions.

EVs, for example, can have up to six times more minerals than a combustion vehicle.

As a result, the extraction and refining of these metals will need to be expedited to limit the rise of global temperatures.

Here’s the outlook for different metals under Wood Mackenzie’s Accelerated Energy Transition (AET) scenario, in which the world is on course to limit the rise in global temperatures since pre-industrial times to 1.5°C by the end of this century.

Graphite demand is expected to soar 1,100% by 2040, as demand for lithium is expected to jump 940% over this time.

A Challenge to Satisfy the Demand for Lithium

Lithium-ion batteries are indispensable for transport electrification and are also commonly used in cell phones, laptop computers, cordless power tools, and other devices.

Lithium demand in an AET scenario is estimated to reach 6.7 million tons by 2050, nine times more than 2022 levels.

In the same scenario, EV sales will double by 2030, making the demand for Li-ion batteries quadruple by 2050.

The ESG Challenge with Cobalt

Another metal in high demand is cobalt, used in rechargeable batteries in smartphones and laptops and also in lithium-ion batteries for vehicles.

Increasing production comes with significant environmental and social risks, as cobalt reserves and mine production are concentrated in regions and countries with substantial ESG problems.

Currently, 70% of mined cobalt comes from the Democratic Republic of Congo, where nearly three-quarters of the population lives in extreme poverty.

Around one-fifth of cobalt mined in the DRC comes from small-scale artisanal mines, many of which rely on child labor.

Considering other obstacles like rising costs due to reserve depletion and surging resource nationalism, a shortfall in the cobalt market can emerge as early as 2024, according to Wood Mackenzie. Battery recycling, if fully utilised, can ease the upcoming supply shortage, but it cannot fill the entire gap.

Rare Earths: Winners and Losers

Rare earths are used in EVs and wind turbines but also in petroleum refining and gas vehicles. Therefore, an accelerated energy transition presents a mixed bag.

Using permanent magnets in applications like electric motors, sensors, and magnetic recording and storage media is expected to boost demand for materials like neodymium (Nd) and praseodymium (Pr) oxide.

On the contrary, as the world shifts from gas vehicles to EVs, declining demand from catalytic converters in fossil fuel-powered vehicles will impact lanthanum (La) and cerium (Ce).

Taking all into consideration, the demand for rare earths in an accelerated energy transition is forecasted to increase by 233% between 2020 and 2050. In this scenario, existing producers would be impacted by a short- to medium-term supply deficit.

The ESG dilemma

There is a clear dilemma for energy transition metals in an era of unprecedented demand. Can vital energy transition metals markets ramp up production fast enough to satisfy demand, while also revolutionising supply chains to meet ever-more stringent ESG requirements?

Understanding the challenges and how to capitalise on this investment opportunity has become more important than ever.

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