A Critical Matter

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New trade restrictions in commodity markets more broadly have doubled since Russia’s invasion of Ukraine.
The International Energy Agency predicts demand by 2030 will change as follows:
- copper will need to grow by a factor of 1.5,
- nickel and cobalt to double,
- lithium to increase six times by 2030.
A typical EV battery pack needs about 8 kilograms of lithium, 35 kilograms of nickel, and 14 kilograms of cobalt.
Two-thirds of the world’s cobalt is mined in the Democratic Republic of the Congo.
The top three producers of nickel and lithium control more than 60 percent of supply.
Minerals are often hard to substitute; demand responds only slowly when prices rise amid shortages.

Concentrated global production combined with widespread demand:
- high concentration of production (examples above),
- mining production difficult to relocate and requires time and expensive investment,
- low reactivity of supply and demand (limited substitution and slow response to price changes).
These factors create acute vulnerability to trade disruptions and export controls, increasing the risk of sharp price swings and supply shortages.

IMF researchers simulated markets split into two hypothetical blocs that refuse to trade with each other (aligned along a 2022 UN vote on Ukraine).
China-Russia+ bloc unable to import copper, nickel, lithium, and cobalt from major mining countries would face:
- an additional price increase of 300 percent, on average,
- higher acquisition costs leading to lower investment in solar panels and wind turbines and fewer EVs.
US-Europe+ bloc would experience:
- an oversupply of most mined minerals,
- constrained use by the time needed to scale up refining capacity,
- only small gains by 2030: slightly more EVs but no gains in renewable-energy capacity.
Aggregate effect on decarbonization:
- Global net investment in renewable technology and production of EVs would be about 30 percent lower, if greenhouse gas emissions are used as weights to aggregate region-specific results.

Multilateral cooperation is essential to prevent spirals of trade restrictions.
- An agreement on enhanced World Trade Organization rules on export restrictions and tariffs as well as discriminatory subsidies would be the best solution.
- If full cooperation is impossible, prioritize establishing a “green corridor” at minimum: agreement to maintain the free flow of critical minerals and not to discriminate between firms from different countries.
Improve market information and coordination:
- An international initiative to improve data sharing and standardization in mineral markets.
- Establish an institution or platform, similar to the International Energy Agency or the Food and Agriculture Organization, focused solely on critical minerals.
National and industrial policy steps:
- Diversify sources of commodity supplies.
- Greater investment in mining, exploration, and storage.
- Critical mineral recycling.
- Design industrial policies to ensure equal treatment of firms across competitive markets to prevent adverse cross-country spillovers, minimize distortions and inefficiencies, and mitigate fiscal risks and harmful political economy outcomes.
- Recognize that “friend-shoring” policies and local-content provisions can distort markets and raise costs; develop a framework for international consultation on friend-shoring to identify negative cross-border spillovers and mitigate adverse consequences.

Fragmentation in critical mineral markets could make the clean energy transition more costly and potentially delay efforts to mitigate climate change.
Multilateral cooperation on trade policies and improved data sharing would reduce obstacles to scaling renewable energy and EV production.
Critical minerals may become as important to the world economy as oil is today, underscoring the need for better understanding of complex value chains.

Source: A Critical Matter by Christopher Evans, Marika Santoro, and Martin Stuermer (F&D Magazine, December 2023).

F&D: A Critical Matter
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