Identifying ‘critical minerals’

Minerals, or more broadly, raw materials, might be described as ‘critical’ if they are considered to have a role in a country’s strategically important economic sectors. This could include being dependent on imports of a certain mineral/material. Governments including those of the EU and the United States have compiled lists that identify materials that are critical for their economies. By understanding possible risks to their supply, this helps to highlight their exposure more broadly to a range of political and economic risks.

No single list defining criteria for ‘critical’ minerals or raw materials exists: criteria and context vary substantially by country. However, criteria used to identify critical minerals often include the political and economic stability of producing countries, ‘substitutability’ of minerals and the production share by country. A mineral might be classed as critical if there is instability in the producing country, as this might imply a threat to stable supply; if it is difficult to substitute one mineral for another, making a particular mineral used for a certain purpose very precious and creating a high dependency on stable supply; and if very few countries dominate production, meaning they are able to control large parts of supply, causing a significant dependency on only a few producing countries.

For national governments, how they assess and identify a mineral as ‘critical’ has traditionally been based on their assessment of need for certain minerals by the military, information and communication technologies, and strategic industries. Geopolitical considerations have typically dominated research on the topic due to their salience to supply risks. In this context, the production of semiconductors (which are crucial to technology from smart phones to jetfighters) has received considerable attention due to geopolitical factors associated with the supply chain of critical raw materials it relies on.

The related concept of ‘conflict minerals’ focuses on how exploitation and trade contribute to or benefit from violations in human rights, international humanitarian law, or crimes under international law. For example, the mining of cobalt in the Democratic Republic of Congo (DRC) has often been connected to human rights abuses, including child labour, and serves as an example for the weak governance structure associated with ‘artisanal’ or small-scale mining.

Why are minerals important for the low-carbon transition?

The criticality of minerals can also be discussed and assessed in the context of the climate transition. The technologies required to enable a low-carbon transition will require more of these raw materials than their carbon-intensive counterparts. For instance, producing an electric car requires six times more raw materials than a conventional vehicle, and an onshore wind plant demands nine times more minerals than a gas-fired power plant.

The necessary scaling-up of relevant technologies, including solar panels and supportive grid infrastructure, will cause significant demand for, and dependency on, a variety of materials, including copper, lithium, nickel, cobalt and rare earth elements (REEs). These materials are set to rival the role formerly played by fossil fuels. They have been labelled ‘transition-critical materials’ (TCMs), as they will have to serve as critical inputs for the low-carbon technologies needed to bring about the energy transition required for the world to reach net zero emissions in line with the Paris Agreement.

Although there are commonalities in the way critical minerals more generally and transition-critical minerals are discussed, it is useful to distinguish between them because the criticality of TCMs is determined on the basis of the global need for low-carbon technologies rather than on the strategic economic importance of a given mineral for any single economy. As a result, there will be discrepancies between the lists of relevant materials for each context.

How will demand for critical materials change in the future?

Demand for these materials is set to significantly increase in the coming years as more and more people move to electric vehicles and renewable energy increasingly replaces fossil fuels. Numerous studies estimate future material demand under different transition scenarios, including those by the Network for Greening the Financial System, International Energy Agency, World Bank, and the ‘SET-Plan’ scenarios developed by the EU. Under the net zero scenario, total material demand could increase six or seven times, according to these reports. The World Bank predicts an annual increase in demand for cobalt, graphite, and lithium of as much as 450%.

To meet this demand, the relative rate of production, as well as absolute annual production, will have to increase significantly in the coming few years. While overall demand is set to greatly increase, the timing of significant rises in demand will differ between ‘transition scenarios’ – different predictions of how long it will take for the world to move to net zero, based on a range of political and socioeconomic factors. As we cannot be sure of the path the world will follow and how long it will take, uncertainties over demand will persist. A delayed transition to net zero, which is a possible scenario in which action is delayed at first until there is a sudden rush to decarbonise by 2050, could lead to sudden increases in demand at a later point. The very sudden and significant increase in demand driven by the rapid deployment of low-carbon technologies could create bottlenecks in the supply of these materials, which would in turn have a substantial impact on the deployment of low-carbon technologies. This could jeopardise the realisation of a transition that is aligned with the goals of the Paris Agreement in limiting temperature rise to 2 or 1.5°C. In contrast, less disruption would be expected in the case of a smooth and gradual transition to net zero by 2050 that starts now.

How will the supply of critical materials develop in the future?

While most materials are abundant in necessary quantities to achieve a low-carbon transition, they are not necessarily available in concentrations that make extraction at current prices economically viable. There are several conditions that mean it is impossible to scale up the supply of most materials rapidly in the short term. This is caused by the long development lead times needed to open new mines and establish refining capacity, which in turn is heavily influenced by geographical location, ore grade and financing conditions. These development processes can take more than a decade for some materials. These constraints, which may cause supply to be fixed and not scalable in the short run, can amplify the impact of risk within supply chains.

Geopolitical dynamics are a major source of risk to supply. The geopolitical dimension relates to dependence on the global value chains to supply materials. This dependence is a source of significant vulnerability and risk for import-dependent economies, exacerbated by a reliance on supply chains that are subject to high geographical and market concentration. Exporting governments can therefore use economic statecraft (tools such as sanctions and trade agreements) to their advantage, as shown by the response to a geopolitical incident between Japan and China in 2010, which resulted in a Chinese embargo on rare-earth exports to Japan, which threatened the latter’s highly import-dependent industrial sectors.

What is the environmental impact of the mining of transition-critical minerals?

The mining and refining of these minerals will have significant negative environmental impacts resulting from extraction, processing and manufacturing – for example, mining might necessitate the destruction of habitats such as forests and cause pollution of water sources from leached chemicals. These negative impacts mean that scaling up supply to meet increasing demand is at odds with stricter environmental regulation and broader social factors: plans to develop new mines usually face strong local opposition, especially in Europe. There will be complicated trade-offs between, for example, the protection of rainforests in biodiversity hotspots and the mining of the materials underneath for low-carbon technologies. Some countries are also exploring the viability of deep sea and seabed mining, and will have to consider how this could negatively impact fishing and other sources of livelihoods. Furthermore, the impacts of climate change, especially flooding and water stress, are becoming more severe and could themselves pose a threat to sources of critical mineral supply.

This explainer was written by Simon Dikau, Hugh Miller, Capucine Nobletz and Romain Svartzman with Georgina Kyriacou.

Keep in touch with the Grantham Research Institute at LSE
Sign up to our newsletters and get the latest analysis, research, commentary and details of upcoming events.