## 6.1 Demand for Critical Minerals Offsets Losses

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### Availability of substantive text for Section 6.1
- The supplied content does not include the substantive text of Section 6.1 beyond the table of contents listing "6.1 Demand for Critical Minerals Offsets Losses".
- No quantitative estimates, offset calculations, country-level effects, or policy prescriptions specific to Section 6.1 are present in the provided extract.

### Related mentions and contextual material from the supplied extract
- Australia "has fostered growth in commodities that are likely to remain in demand throughout the energy transition. This includes natural gas which can act as a bridge fuel, iron ore and metallurgical coal needed for steel production, and critical minerals needed for renewable energy."
- The paper uses the IMF-ENV global CGE model to assess energy transition pathways and impacts; the remit of the paper includes sectoral shifts and commodity demand that would encompass minerals relevant for renewable energy deployment.

### Implication for Section 6.1 (based only on available text)
- The only direct support for Section 6.1 in the supplied extract is the statement that critical minerals are among commodities Australia has promoted as likely to remain in demand during the energy transition.
- No additional substantive findings, projections, or policy recommendations specific to "Demand for Critical Minerals Offsets Losses" are available in the provided content.

### Relevant cross-references in the document (for context)
- Chapter 6 (“Beyond the Model: Critical Minerals, Commodity Heterogeneity, and Technology”) contains material on:
  - Projected increases in demand for cobalt, lithium, nickel, and rare earth metals between 2023 and 2030 under IEA scenarios.
  - The market value of the sum of energy transition minerals is expected to approximately double (no dollar figure provided in the extract).
  - Boer, Pescatori and Steurmer (2024) estimate production value of copper, nickel, cobalt and lithium could rise nearly four-fold by 2040 (no dollar figure provided in the extract).
  - Asia Pacific major suppliers identified by the IEA: China, Indonesia, and Australia.

*Source: wpiea2026001-source-pdf - 6.1 Demand for Critical Minerals Offsets Losses (extracted content provided).*

### 6.1 Demand for Critical Minerals Offsets Losses ........................................................................

### 6.1 Demand for Critical Minerals Offsets Losses

### Extracted content availability
- The supplied content does not include the substantive text of Section 6.1 beyond the table of contents listing "6.1 Demand for Critical Minerals Offsets Losses".
- No detailed findings, projections, scenarios, or policy recommendations specific to Section 6.1 are present in the provided extract.

### Related mentions within the supplied extract
- The introduction notes that Australia "has fostered growth in commodities that are likely to remain in demand throughout the energy transition. This includes natural gas which can act as a bridge fuel, iron ore and metallurgical coal needed for steel production, and critical minerals needed for renewable energy."
- The paper uses the IMF-ENV global CGE model to assess energy transition pathways and impacts; the remit of the paper includes sectoral shifts and commodity demand that would encompass minerals relevant for renewable energy deployment.

### Implication for Section 6.1 (based only on available text)
- The only direct support for Section 6.1 in the supplied extract is the statement that critical minerals are among commodities Australia has promoted as likely to remain in demand during the energy transition.
- No quantitative estimates, offset calculations, country-level effects, or policy prescriptions related to "Demand for Critical Minerals Offsets Losses" are present in the provided content.

*Source: wpiea2026001-source-pdf - 6.1 Demand for Critical Minerals Offsets Losses (extracted content provided).*

### 3. Model simulations

### 3. Model simulations

### Model structure and capabilities
- IMF-ENV is a global dynamic computable general equilibrium model built on a near global database of input-output tables covering 160 countries and 76 commodities.
- Sectoral and regional detail:
  - Macroeconomic and sectoral dynamics defined for each region using regional CES production functions, primary factors (land, labor, capital, natural resources), and intermediate inputs.
  - Tracks economic impacts and GHG emissions for 36 production activities and 28 traded commodities.
  - Explicit representation of emission-intensive sectors: fossil fuel extraction, fossil power generation, and energy intensive and trade exposed (EITE) sectors.
  - Power generation can switch to low-emission technologies: solar PV, wind, hydropower, nuclear. Negative emissions possible in LULUCF, but LULUCF emissions are exogenously determined and unaffected by policy.
- Capital vintage differentiation to capture domestic capital reallocation frictions and the costs of ongoing investments, unplanned retirements, and gradual decommissioning—especially in extraction and energy sectors.
- International linkage: calibrated individually to each G20 country and aggregates the rest of the world into six regions (including Asia Pacific), interconnected through bilateral trade of commodities to capture cross-border effects on trade, commodity prices, and GHG emissions.

### Calibration, baseline, and key assumptions
- Baseline calibrated to historical macroeconomic, energy, and emission trends up to 2023, with projections to 2035.
- Calibration components:
  - Historical calibration for regional GDP growth rates and population growth rates from IMF’s World Economic Outlook (WEO).
  - Regional GHG emissions from UNFCCC (Annex-I), EDGAR (non-Annex-I), and FAO (LULUCF).
  - Electricity generation from IRENA for 2017 to 2021.
  - Medium-term macroeconomic projections from IMF’s WEO; long-term projections based on the SSP2 scenario.
- Baseline coal demand:
  - Global coal supply in the baseline calibrated to IEA (2023) current policies scenario; baseline coal demand falls by 15 percent in 2035 relative to 2022 (this change exogenously imposed in the baseline).
- Model solution:
  - New policies introduced starting in 2023 in policy scenarios; model solves for equilibrium in commodities and factor markets domestically and globally in each year from 2023 to 2035.
- Important caveats:
  - Labor: less detailed microeconomic frictions; assumes frictionless movement of labor between sectors (may understate short-run adjustment costs).
  - Technology: does not explicitly model endogenous technological change (may overestimate transition costs if CCUS, green hydrogen, etc., scale before 2035).
  - Data granularity: critical minerals production and differentiation between metallurgical versus thermal coal are not disaggregated—grouped within broader minerals and a single coal extraction sector.

### Policy scenarios modeled
- Scenarios vary by global ambition and targeted fossil fuel; all four imply progressively lower global coal demand.
- General assumptions:
  - No abated fossil fuel power generation by 2035 in scenarios (consistent with IPCC scenarios).
  - Regional emissions endogenous except in the Below 2C scenario, where regional emission trajectories are exogenously defined using NGFS Phase IV projections to align with a global 2°C temperature target by end-century.
- Scenario definitions:
  - G7: Coal demand for power generation falls to zero in G7 economies by 2035 (focuses on unabated coal; implicitly models no CCUS deployment over the next decade).
  - G7 plus: G7 phase-down plus reduced coal demand for power generation in China and India aligned with their 2030 NDC targets (moderate reduction; China and India not expected to eliminate coal power by 2035).
  - Below 2C: All countries constrained by a regional emissions budget aligned with a global 2°C target; implemented via an economy-wide carbon tax (fuel-neutral, least-cost benchmark).
- Policy instrument distinction:
  - G7 and G7 plus: regulatory measures specifically targeting coal-fired power generation.
  - Below 2C: fuel-neutral regional emissions caps met via carbon taxation.

### Global results and key quantitative findings
- Baseline (by 2035):
  - About 82 percent of global coal capital is in the Asia Pacific region; China holds 31 percent of global coal capital.
  - Asia Pacific’s share of global capital in natural gas is approximately 15 percent by 2035, with Australia and Other Developing Asia each representing about 5 to 5.4 percent.
- Policy scenario coal demand outcomes:
  - Below 2C scenario: global coal demand reduction of about 45 percent by 2035 (relative to baseline/time series shown).
- Capital stock impacts and stranded asset estimates:
  - Global gap in coal capital stock between baseline and Below 2C could be 32 percent by 2035 (indicative of potential stranded assets if transition accelerates).
  - Asia Pacific stranded assets estimate: 23 percent by 2035 (lower than global due to more resilient demand and relatively lower extraction costs).
- Natural gas capital responses:
  - If policy targets coal alone (G7 or G7 plus): natural gas capital stock could rise by 18 percent (global).
  - Under a fuel-agnostic transition (Below 2C): natural gas capital stock could decline by 16 percent (global).
  - Asia Pacific natural gas capital could rise by 14 percent or fall by 20 percent by 2035 depending on scenario.
- Distributional shifts in capital:
  - Under G7 and G7 plus, coal capital becomes more concentrated in Asia Pacific (increases in Indonesia, India, China; declines in rest of world).
  - Under Below 2C, share of coal capital in Asia Pacific rises to nearly 87 percent with concentration in Australia and Indonesia (favored for lower extraction and transport costs); domestic coal capital in India and China partly declines due to domestic decarbonization.
- Market shares:
  - As global coal demand falls, market shares of low-cost producers like Australia and Indonesia increase.

### Implications for investment and transition risks
- Speed and design of transition materially affect magnitude and location of coal production and capital:
  - A faster, more ambitious transition increases the likelihood that capital invested under baseline assumptions will become stranded.
  - If investments proceed assuming low policy ambition, roughly one third of global coal capital stock and about one quarter of coal capital stock in Asia Pacific could become stranded.
- Natural gas investment uncertainty:
  - Policies focused only on coal can create rationale for gas expansion to fill energy shortfalls; fuel-agnostic policies remove that rationale.
  - Uncertainty in international commitments and technological developments increases risks of both over- and under-investment in fossil fuels.

### Case study — Australia: structural shifts and resilience
- Australia’s positioning:
  - Large global exporter across fossil fuels (coal, gas, small oil), electrification minerals (iron ore, nickel, copper), and renewable minerals (lithium, rare earth metals, cobalt).
  - Domestic transition: Net Zero by 2050 legislated (Climate Change Act, September 2022); 2030 NDC target legislated as a 43 percent reduction in emissions from 2005 levels; aim of securing an 82 percent share of renewable energy in electricity generation by 2030.
- Baseline structural dynamics:
  - Coal and gas output fall in the baseline and are partially replaced by electricity production, particularly renewables; output declines more slowly than capital because existing capital continues to generate output even as new investment falls.
- Scenario-driven outcomes for Australia (relative to baseline, 2035):
  - Gas extraction sector output could be 7.5 percent higher or 4 percent lower.
  - Coal extraction sector output could be over 10 percent lower.
  - Capital stock declines in coal (and variable changes in gas) mirror global patterns but with somewhat lower variability due to Australia’s low extraction costs.
- Resilience factors:
  - Australia’s low extraction costs support a likely increase in global coal market share in 3 of the 4 scenarios.
  - Diversified economy and range of trading partners enable shifts in production and absorption of short-term shocks.
  - Historical use of fossil fuel revenues has helped maintain low debt and borrowing costs.
- Policy measures supporting transition in Australia:
  - Petroleum Resource Rent Tax: taxes profits at a rate of 40 percent for profits from sale of marketable petroleum commodities.
  - Capacity Investment Scheme (CIS): national framework to foster investments in renewables, battery storage and grid reliability.
  - Future Made in Australia (FMiA) program packages:
    - Production tax incentives for renewable hydrogen: AU$6.7 billion over ten years from 2024–25.
    - Production tax incentives for processed critical minerals: AU$7.0 billion over 11 years from 2023–24.
    - Support for battery manufacturing: AU $549 million over 8 years from 2023-24.

*Source: IMF staff simulations and analysis as presented in Section 3 (Model simulations) of the provided IMF chapter.*

### 6. Beyond the Model: Critical Minerals,

### 6. Beyond the Model: Critical Minerals, Commodity Heterogeneity, and Technology

### 6.1 Demand for Critical Minerals Offsets Losses
- Asia-Pacific possesses substantial critical minerals whose demand is inversely correlated with global demand for fossil fuels, creating an upside risk if prices rise.
- IEA projections (Demand for Critical Minerals in 2030 under Different Scenarios) show demand in 2030 for cobalt, lithium, nickel, and rare earth metals increases substantially between 2023 and 2030 across three scenarios: Stated Policies scenario, Announced Pledges scenario, Net Zero Emissions by 2050 scenario.
- The market value of the sum of energy transition minerals is expected to approximately double, but the scale of gains is far smaller than the current size of fossil fuel exports.
- Separate estimates (Boer, Pescatori and Steurmer, 2024) indicate production value of copper, nickel, cobalt and lithium could rise nearly four-fold by 2040, potentially becoming as important as the oil market.
- Asia Pacific major suppliers identified by the IEA: China, Indonesia, and Australia.

### 6.2 Low Average Extraction Costs and Commodity Heterogeneity
- Variation in average extraction cost and differing fossil-fuel quality create heterogeneous risks across countries; these are not fully captured by the model’s representative extraction sector approach.
- Example: Australia benefits from an average coal extraction cost below the world average and coal with lower carbon content than the global average; this implies:
  - Initial impacts on prices may be larger than on quantities.
  - Australia may see an increase in global market share relative to the baseline IMF-ENV assumption even as revenues from coal fall.
- Countries with higher extraction costs and higher carbon content of coal are more vulnerable to near-term demand changes.
- Mine-level heterogeneity matters: each country has a mix of mines with a range of extraction costs that may exit or persist as international commodity prices fluctuate (Figure 9D).
- Average extraction costs for critical minerals vary substantially and are influenced by new discoveries and technological development.
  - Data suggest mines in Australia, Indonesia, Laos, Mongolia, PNG, and the Philippines have average copper extraction costs below the global average.
  - Late 2024 and early 2025 saw a substantial fall in global nickel prices driven by a surge in Indonesian production, reflecting new investment and policies to promote domestic processing.
- Asia Pacific has a high proportion of metallurgical (coking) coal, an essential input to steel manufacturing, which may be more resilient in the short term:
  - China is the largest global producer of metallurgical coal and production has been rising.
  - Around half of Australia’s coal exports are metallurgical coal.
  - IEA forecasts (World Energy Outlook 2024) show that relative to 2023 levels steam coal will fall by 32 percent and metallurgical coal will fall by 11 percent by 2035.
- Downside risks to market share:
  - Geoeconomic fragmentation or prioritization of more expensive domestic production over imports (example: Chinese ban on Australian coal imports in late 2020 reduced bilateral coal imports from 17 percent in 2020 to close to zero in 2021-2022).
  - Faster or more ambitious global decarbonization than modeled could reduce market shares further.

### 6.3 Technological Change Impacts Demand
- Large-scale innovation and technology scaling will determine demand for renewables, critical minerals, and fossil fuels; uncertainty remains high.
- Key technologies and their potential impacts:
  - Carbon dioxide removal (CDR) and CCUS: could allow continued fossil fuel use in hard-to-abate sectors but large-scale deployment by 2050 is highly uncertain.
    - Causes of CCUS uncertainty: high cost and energy requirements; variable policy and regulatory environments; availability of viable storage space; unpredictable technological breakthroughs.
    - Some G7 economies have recently provided incentives toward CCUS under green industrial policy packages.
    - Expert optimism for large-scale coal with CCUS in the second half of the century has declined over the last decade.
  - Battery storage: supports higher integration of renewables in power sectors by easing variability and grid integration.
  - Green hydrogen: can decarbonize steel production and provide a clean fuel alternative for aviation; if economically viable, could substitute for metallurgical coal in steelmaking.
    - In Australia, modelling suggests that alongside CCUS technologies, clean hydrogen will need to contribute about 50 percent of the emissions reductions in heavy industry to meet the Net Zero 2050 target (DCCEEW, 2021).
- Implications:
  - If green hydrogen reduces coal use in steel production, Asia-Pacific coal demand could fall more rapidly than current forecasts.
  - Technological progress reducing costs of renewables and storage would accelerate transition and reshape demand for critical minerals and fossil fuels.
  - Pace of innovation will be influenced by global policy variability, infrastructural challenges, and readiness to transition away from fossil fuels.

### Table: Percent CCUS Assumed in Global Fossil Fuel Production (IPCC AR6 database categories)
- Baseline Scenario (2.7°C warming)
  - Coal: 2040 = 1.7 ; 2060 = 8.3 ; 2080 = 17.0 ; 2100 = 26.6
  - Crude Oil: 2040 = 0.1 ; 2060 = 0.2 ; 2080 = 0.2 ; 2100 = 0.6
  - Natural Gas: 2040 = 0.7 ; 2060 = 2.0 ; 2080 = 3.6 ; 2100 = 7.2
- Optimistic Scenario (1.8°C warming)
  - Coal: 2040 = 20.1 ; 2060 = 53.6 ; 2080 = 64.9 ; 2100 = 63.9
  - Crude Oil: 2040 = 1.6 ; 2060 = 3.3 ; 2080 = 3.6 ; 2100 = 3.6
  - Natural Gas: 2040 = 11.1 ; 2060 = 32.9 ; 2080 = 35.4 ; 2100 = 31.2
- Pessimistic Scenario (3.6°C warming)
  - Coal: 2040 = 0.4 ; 2060 = 1.9 ; 2080 = 3.4 ; 2100 = 4.9
  - Crude Oil: 2040 = 9.8 ; 2060 = 9.7 ; 2080 = 9.7 ; 2100 = 9.7
  - Natural Gas: 2040 = 0.2 ; 2060 = 0.4 ; 2080 = 0.7 ; 2100 = 0.7
- Note: These figures show the average share of coal, crude oil and natural gas production with CCUS in the IPCC AR6 database categories corresponding to the Fund baseline, optimistic and pessimistic scenarios. The nominal level also depends on the level of demand, meaning the share could rise while the level is falling.

### Key takeaways and risks
- Critical minerals demand is projected to increase substantially by 2030 and market value may approximately double, but projected gains likely fall short of fossil fuel export revenues.
- Commodity heterogeneity (extraction costs, carbon content, mine-level variation) creates uneven country-level impacts; low average extraction cost producers may gain market share while still facing falling revenues.
- Technological advances (CCUS, battery storage, green hydrogen) could materially change demand pathways; their large-scale adoption is highly uncertain under current policies.
- Geoeconomic fragmentation, faster-than-modeled decarbonization, or protectionist domestic production policies present downside risks to exporters’ market shares.

*Source: Chapter 6, "Beyond the Model: Critical Minerals, Commodity Heterogeneity, and Technology," wpiea2026001-source-pdf.*

### Annex II. Additional Figures

### Annex II. Additional Figures

### Figure A1. APD Fossil Fuel Production During the Energy Transition
- Panels:
  - A. Coal
  - B. Crude Oil
  - C. Natural Gas
- Scenario labels and alignments preserved exactly as in source:
  - Optimistic Scenario, 1.8°C Average Warming by 2100:
    - Production SSP1-2.6 aligned Range
    - SSP1-2.6 aligned Ensemble Median
  - Baseline Scenario, 2.7°C Average Warming by 2100:
    - Production SSP2-4.5 aligned Range
    - SSP2-4.5 aligned Ensemble Median
  - Pessimistic Scenario, 3.6°C Average Warming by 2100:
    - Production SSP3-7.0 aligned Range
    - SSP3-7.0 aligned Ensemble Median
- Axes and numeric scales shown in the figure (preserved exactly):
  - For Coal and Crude Oil panels: 0 50 100 150 200 250 300 350
    - Years shown: 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050
    - Production (EJ)
  - For one set of smaller-scale panels: 0 5 10 15 20 25 30
    - Years shown: 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050
    - Production (EJ)
  - For Natural Gas larger-scale panels: 0 10 20 30 40 50 60
    - Years shown: 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050
    - Production (EJ)
- Source for figure: Staff calculations based on data from IEA World Energy Balances (2024) and IPCC AR6 Scenarios Database (2022).

### Figure A2. Historical and Projected Fossil Fuel Production of Large Exporters in APD
- Scenario: Baseline Scenario, 2.7°C Average Warming by 2100
- Panels and country groupings:
  - A. Coal
    - Australia
    - China
    - Indonesia
    - Mongolia
  - B. Natural Gas
    - Australia
    - Indonesia
    - Malaysia
    - Myanmar
- Notes and assumptions:
  - Projections assume that each country’s share of global production is constant at historical 2022 levels.
- Source: The Global Energy Transition Tool (2024) based on data from IEA World Energy Balances (2024) and IPCC AR6 Scenarios Database (2022).

### Figure A3. APD Historical and Projected Shares of Global Fossil Fuel Production
- Panels:
  - A. Coal
  - B. Crude Oil
  - C. Natural Gas
- Source: The Global Energy Transition Tool (2024) based on data from IEA World Energy Balances (2024).

### Figure A4. Historical and Projected Fossil Fuel Production under Baseline Production Shares using IMF-ENV
- Panels shown for Coal and Natural Gas with country examples:
  - Coal: Australia, Indonesia
  - Natural Gas: Australia, Indonesia
- Notes and assumptions:
  - Historical data from the Global Energy Transition Tool (2024) based on data from IEA World Energy Balances (2024).
  - Projections are estimates from IMF-ENV.
  - Unlike Figure A2 where projected shares are kept fixed to those in 2022, in this chart projections assume that each country’s share of global production is aligned with the IMF-ENV baseline model results in 2035.
- Source: Historical data from the Global Energy Transition Tool (2024) based on data from IEA World Energy Balances (2024) and projections are estimates from IMF-ENV.

### Key methodological and projection features across figures
- Scenario temperature outcomes by 2100 are presented verbatim:
  - 1.8°C Average Warming by 2100 (Optimistic)
  - 2.7°C Average Warming by 2100 (Baseline)
  - 3.6°C Average Warming by 2100 (Pessimistic)
- Scenario alignments to SSP pathways are presented verbatim:
  - SSP1-2.6
  - SSP2-4.5
  - SSP3-7.0
- Production units consistently reported as "Production (EJ)" in the figures.
- Two distinct projection-assumption approaches are used in the annex:
  - Constant national shares at 2022 levels for country projections (Figure A2).
  - Shares aligned with IMF-ENV baseline model results in 2035 for country projections (Figure A4).

*Source: Annex II. Additional Figures, The Economic Implications of the Energy Transition in Asia-Pacific, Working Paper No. WP/2026/001*

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_Source: https://www.imf.org/-/media/files/publications/wp/2026/english/wpiea2026001-source-pdf.pdf_