By Sarthak Takyar
Minerals are crucial components for technologies such as solar panels, wind turbines, batteries, electrolysers and electric vehicles (EVs), all of which are essential for facilitating the energy transition. However, the supply, demand and concentration of these minerals are subject to geopolitical uncertainties, making this issue a potential geopolitical battleground.
There are primarily two reasons that lead to geopolitical tensions when securing the critical minerals needed for the energy transition. One, there is a limited supply volume with respect to the demand forecast. Two, the concentration of supply in select countries adds a layer of concern.
Mismatch in demand and supply
According to the International Energy Agency’s net zero emissions scenario, the demand for critical materials is expected to more than triple by 2030. The lack of strong measures to enhance material efficiency, recycling and mined supply could result in significant supply shortages for six crucial energy transition materials – cobalt, copper, graphite, lithium, neodymium and nickel. The Energy Transitions Commission’s report, titled “Material and Resource Requirements for the Energy Transition”, highlights the supply-demand gap for these six critical minerals.
Due to declining ore grades and diminishing output from existing mines, the demand-supply mismatch for copper could result in a supply shortfall of approximately 34 million metric tonnes (mmt) by 2030. Furthermore, the extensive and widespread need for copper renders any reduction in demand improbable.
Significantly increasing by 150 per cent, the maximum primary demand for cobalt is projected to reach 0.42 mmt by 2030. The gradual shift from cobalt-rich batteries could help alleviate supply imbalances; however, the estimated minimum primary demand still exceeds the current supply by over 50 per cent.
Going forward, sodium-ion batteries may play a role in decreasing the demand for lithium by 2030. However, it is anticipated that these batteries will constitute a negligible portion of the overall market, failing to meet the anticipated sevenfold increase in demand.
Likewise, there is an expected sixfold increase in demand for graphite, which may result in a 40 per cent shortfall in supply. However, the potential for using silicon or lithium instead of graphite in anodes could have significant long-term benefits, resulting in a slight demand decline. Due to the substantial concentration of neodymium supply in China, the supply gap will persist at approximately 30 per cent, propelled by a demand surge of 140 per cent.
On average, a supply shortage of around 20 per cent is anticipated among the six minerals by 2030. A key exception is nickel, whose projected demand of 5.5 mmt may be satisfied by 2030 as a result of expanding mining operations in Indonesia, driving a swift increase in supply.
Concentration of supply
According to the World Economic Forum’s white paper titled “Energy Transition and Geopolitics: Are Critical Minerals the New Oil?”, the top three producers of six key materials (rare earth, graphite, lithium, cobalt, nickel and copper) dominate between 50 per cent and 90 per cent of mining and processing operations. To compare with the concentration of oil reserves, the Organization of the Petroleum Exporting Countries holds just 40 per cent of global oil production; yet this lower concentration sparks significant concerns about the organisation’s influence over global oil supplies and prices.
In the critical minerals space, China has been the front runner in using its geopolitical power to secure supplies, being one of the largest users of these minerals. To this end, it has implemented robust policies, including essential financing, to secure its dominant position, particularly in processing, which is easier to control without the need for physical control over the raw materials. Most of these policies are designed to ensure stable supply for Chinese industries. The policies undertaken by China in this space, and the response from other countries, often lead to geopolitical tensions. India too is impacted by these developments, given its ambitious climate commitments and the imperative to ensure energy security.
China’s dominance and implications for India
China has been proactive in promoting manufacturing in most sectors, including the manufacturing of components needed for renewable energy generation. Rare earth elements (REEs) and critical minerals, such as lithium, cobalt, copper, gold and uranium, play a crucial role in the manufacturing of renewable energy components. They are fundamental to the manufacturing of solar panels, wind turbines and batteries used for storage and thus China has floated policies to control their supply. Additionally, REEs, which comprise 17 metals, serve as vital ingredients for producing EVs, magnets and various other technologies essential to the renewables sector. China’s energy security strategy now includes efforts to monopolise the production and distribution networks of these critical minerals.
A policy brief, titled “How Renewables are Shaping the India-China Relationship”, authored by Dr Niharika Tagotra and published by the Institute of Peace and Conflict Studies and the Planetary Security Initiative, gives a background on China’s geopolitical manoeuvre to secure critical minerals. In 1990, the Chinese government classified REEs as a “protected and strategic mineral”, effectively barring foreign investors from engaging in rare earth mining or participating in smelting and separation projects without forming joint ventures with Chinese companies. Separate rare earth export quotas are allocated to domestic rare earth producers and those involved in joint ventures with foreign entities. In addition, China’s government policies prioritise the export of “high-value downstream products” while discouraging the export of raw rare earth minerals. As a result, its share of global rare earth production reached nearly 57.57 per cent in 2020, totalling 140,000 mt. This monopoly on REE production has allowed the country to leverage its exports strategically. For instance, amid its trade tensions with the US in 2021, China imposed restrictions on the production and export of the 17 critical REEs crucial for manufacturing American F-35s, EVs, wind turbines, etc.
Other minerals such as lithium, indium and cobalt that are essential for producing renewable energy components are also under Chinese monopolistic control. Although Australia is the world’s top producer of lithium, much of the material is shipped to China in the form of spodumene, which is used in battery manufacturing for EVs. China’s Tianqi Lithium Corporation controls 46 per cent of the global lithium output and owns a key stake in Australian and Chilean lithium production companies, according to the policy brief. As a result, China has significant global lithium cell manufacturing capacity, effectively dominating the market for lithium-ion (Li-ion) batteries. Graphite is another mineral that is essential for the manufacture of Li-ion batteries, and China produces almost all of the world’s natural graphite, accounting for 70-80 per cent of the total output.
Apart from batteries, China holds a monopolistic position in the solar energy space. By 2021, it dominated approximately 64 per cent of the global polysilicon production, a crucial material for manufacturing solar ingots and wafers, and had the world’s entire production capacity for solar ingots and wafers. In addition, China had authority over 80 per cent of the worldwide solar cell manufacturing capability by 2020.
This near monopoly on solar supply chains carries significant implications for other countries, especially India. China’s strong presence in India’s renewable energy sector, particularly in solar cells and equipment, posed a major challenge, especially during the Covid-19 pandemic when supply chains were disrupted. The China Plus One strategy will reportedly be needed for the diversification of the supply chain. The border conflict with China has also underscored the need to become self-reliant in the renewable energy space.
Consequently, the Indian government has decided to implement tariff barriers in the form of basic customs duties on imported cells, modules and inverters. In addition, a non-tariff barrier in the form of the Approved List of Models and Manufacturers was put in place; however, it still suffers from policy flip-flops. In addition, the Indian government introduced the production-linked incentive scheme to promote the manufacture of high-efficiency solar PV modules and advanced chemistry cell batteries domestically. However, the extent to which the objective of promoting domestic manufacturing will be achieved remains uncertain. The production of these components will necessitate consistent and cost-effective access to raw materials, including critical minerals such as lithium, cobalt, copper and specific rare earth minerals, all of which are predominantly under Chinese control.
Another key initiative taken by India is the setting up of Khanij Bidesh India Limited (KABIL) in 2019. By 2020, KABIL commenced exploration activities in lithium-rich countries in Latin America, including Argentina, Bolivia and Chile. Furthermore, a significant foreign policy move by India has been to join the Quadrilateral Security Dialogue (Quad), consisting of Japan, Australia and the US. A key objective under the Quad is to secure the supply chain for critical areas such as semiconductors and clean energy. The 2022 Quad Dialogue emphasised the need for advancing efforts in green shipping, energy supply chains, disaster risk reduction and the exchange of climate information services. It also included plans to link Australia’s critical mineral resources with processing facilities and markets in other Quad member countries.
The way forward for India
As India shifts towards renewable energy production and EVs, there will be a surge in demand for various critical minerals. The transition to renewable energy will necessitate increased quantities of minerals such as copper, manganese, zinc and indium. Similarly, the transition to EVs will require more copper, lithium, cobalt and rare earth elements. According to a working paper by the Centre for Social and Economic Progress (CSEP), titled “Critical Minerals for India: Assessing Their Criticality and Projecting their Needs for Green Technologies”, India lacks reserves of nickel, cobalt, molybdenum, REE, neodymium and indium. Additionally, the demand for copper and silver surpasses the country’s current reserves. The working paper highlights that critical minerals such as niobium and silver cannot be substituted easily. Meanwhile, the supply risk is notably high for yttrium and scandium (heavy rare earths), followed by niobium and silicon. Another key risk pertains to managing the supply and demand gap, as India lacks adequate recycling capacity for most minerals except aluminium, copper and steel.
Going forward, a key concern is that India does not have the capacity to fulfil its green technology demand solely through domestic mining. Imports of minerals for domestic manufacturing or imports of finished products containing these minerals will be necessary. While India will rely on imports for these technologies in the next two decades, there is a need for further efforts to optimise the use of available minerals domestically for long-term sustainability. The renewable capacity installed today will require replacement in the next two to three decades, highlighting the importance of groundwork in exploration and mining for utilisation later.
Although India possesses resources such as nickel, cobalt, molybdenum and heavy REE, additional exploration is required to assess the reserve quantities. This is particularly crucial for heavy rare earth materials and cobalt due to their high supply risks. According to the CSEP, while nickel has a lower supply risk currently, its economic significance makes securing a domestic source beneficial in mitigating supply risks.
India has been unable to exert much geopolitical control over critical minerals so far, but this trend may change in the future. Earlier, it was considered that India has no reserves of lithium. In February 2023, the Geological Survey of India discovered an inferred 5.9 mt of lithium in the Salal-Haimana areas of Reasi district, Jammu & Kashmir, under the G3 stage mineral exploration project. This discovery holds great promise, as lithium is a crucial component for EV batteries and could substantially support the country’s goal to increase EV penetration to 30 per cent by 2030. However, the geological and grade continuity of these deposits still need to be verified.
India needs a multi-pronged approach to develop its mineral processing units and domestic battery-grade lithium refining capacity. While the reserves are a big positive, these may also lead to significant challenges. Lithium extraction brings forward a paradox in clean energy, due to which the socio-environmental consequences of extraction must be responsibly managed. Moreover, since the discovered lithium is hard rock and not brine, this requires relatively more natural resources for extraction, making it all the more important to ensure that these clean energy advancements do not negatively impact the environment or local communities.
With the objective of securing a critical mineral supply chain for the energy transition and attaining the net zero target by 2070, in November 2023, 20 blocks of critical minerals, including lithium ore reserves, were put up for auction and earmarked for mining licences. Potential bidders that expressed interest were Dalmia Cement, UltraTech Cement Limited, NLC India Limited and Shree Cement Limited. As of April 2024, the lithium reserves are being auctioned again as part of a third tranche.
This development has generated considerable enthusiasm, positioning India as a potential major player in the global lithium market. It will also allow the country to reduce its import dependency, particularly on geopolitical rivals such as China. Further, this aligns with the Atmanirbhar Bharat vision and marks a significant step towards the country’s pursuit of self-reliance. The discovery could potentially alter the future availability of lithium, in the medium and long term, eliminating the need to navigate the EV supply chain tensions between the US and China.
Going forward, the production and supply of critical minerals needed for the energy transition will become the new battleground for geopolitics. For India to take the lead, it should invest heavily in mineral exploration, develop resilient and diversified supply chains, forge trade agreements and acquire mining assets abroad. Further, developing mineral and metal recycling facilities will help reduce the need for mining large quantities. Meeting climate targets will involve tackling geopolitical dynamics and getting a headstart in the global critical minerals arena.
