## A Critical Matter

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**Canonical URL:** [A Critical Matter](https://www.imf.org/en/publications/fandd/issues/2023/12/a-critical-matter-evans-santora-stuermer)

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## Bibliographic details
- Authors: CHRISTOPHER EVANS, MARIKA SANTORO, MARTIN STUERMER
- Published: December 1, 2023

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### Key findings: market pressures and scale of demand
- 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.

### Why critical mineral markets are extremely vulnerable
- 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.

### Illustrative fragmentation scenario and impacts on the energy transition
- 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.

### Policy recommendations and multilateral initiatives
- 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.

### Conclusion
- 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).*

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## Content in this bundle

- **F&D: A Critical Matter**
  - [F&D: A Critical Matter (Markdown version)](/-/media/files/publications/fandd/article/2023/december/62-65-stuermer-final.pdf.md){rel="alternate" type="text/markdown"}
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_Source: https://www.imf.org/en/publications/fandd/issues/2023/12/a-critical-matter-evans-santora-stuermer_