The stumbling block in ‘the race of our lives’: transition-critical materials, financial risks and the NGFS climate scenarios 

Several ‘critical’ raw materials are needed to expand the deployment of low-carbon technologies and thus play a central role in the low-carbon transition. They include metals, minerals and rare earth elements. However, the reliable and affordable supply of these resources is subject to supply-side risks and demand-induced pressures.

This paper empirically estimates the material demand requirements for so-called ‘transition-critical materials’ (TCMs) implied under two climate scenarios modelled by the Network for Greening the Financial System, namely ‘Net Zero 2050’, where the 1.5°C target is met, and ‘Delayed Transition’, where emissions do not start to fall until 2030, putting the 2°C target in jeopardy.

The authors determine the implied material demand between 2021 and 2040 for nine TCMs and find several materials to be subject to significant demand-induced pressures under both scenarios. In absolute terms, annual demand under the ‘Delayed Transition’ scenario is greater than under the ‘Net Zero by 2050’ scenario by 2035. The results indicate potentially serious mismatches between supply and demand (i.e. supply ‘bottlenecks’) for three materials – copper, lithium and nickel – which are exacerbated if the transition is delayed.

Key points for decision-makers

• The low-carbon transition will significantly increase the demand for transition-critical materials (TCMs), which are needed to manufacture crucial technologies such as solar panels and electric vehicles (EVs).
• A broad range of materials is required for the deployment of different low-carbon technologies, each of which is exposed to specific supply-side risk and demand-induced pressure.
• The authors have developed a methodology to identify the criticality of materials in the context of the climate transition.
• The paper finds serious risks to the economic supply of TCMs under two contrasting transition scenarios, which call into question the ability to meet climate goals.
• Under the ‘Net Zero by 2050’ scenario, absolute annual demand for all focus materials increases from 4.7 million tonnes (Mt) in 2021 to 32.8Mt in 2040.
• Under the ‘Delayed Transition’ scenario, TCM demand is estimated both including and excluding EVs (so that the scenario effect can be established) and finds that total demand increases from 1.7Mt to 42.9Mt including EVs, and from 0.94Mt to 32.1Mt excluding EVs, between 2021 and 2040.
• The results indicate there is a material risk of bottlenecks in the supply of these materials, which would have a substantial impact on the deployment of low-carbon technologies. This may raise the potential for transition risks that jeopardise the realisation of a Paris-aligned transition.