Paper 2

Balancing Trade Relations Amidst the Shift to Renewable Energy Sources

Executive Summary:

The global shift towards renewable energy sources has significantly increased the demand for critical minerals such as lithium, nickel, and rare earth elements, which are indispensable for battery storage and electric vehicles. Thus, it is imperative to understand the evolving dynamics of the global energy landscape, particularly the critical role of minerals such as lithium, nickel, and rare earth elements, which are essential for renewable technologies like battery storage and electric vehicles. This paper aims to resolve the challenge on balancing trade relations with nations rich in these resources, considering the economic opportunities and diplomatic challenges presented by our reliance on imports.

The surge in demand for critical minerals is driven by the record deployment of clean energy technologies. According to “Critical Minerals Market Review 2023” by the International Energy Agency (IEA), deployment of clean energy technologies had led to a tripling in demand for lithium, a 70% increase for cobalt, and a 40% rise for nickel from 2017 to 2022. The market size for key energy transition minerals has doubled, reaching USD 320 billion in 2022, driven by a 60% increase in electric car sales and a doubling of energy storage system capacity additions in 2022 alone. The share of clean energy applications in total demand for these minerals has also grown significantly, indicating a robust and expanding market that our trade policies must address.

On the other hand, a variety of critical minerals experienced widespread price increases during 2021 and the early part of 2022, with substantial volatility, particularly affecting lithium and nickel prices. These continuously rising and fluctuating mineral prices have underscored the significant role of raw material costs in the total cost of transforming our energy systems. This interplay between surging demand and supply challenges highlights the complexities and implications of the critical minerals sector in the context of clean energy technologies.

There are three layers of supply-side challenges: ensuring future supplies can keep pace with demand, diversifying sources, and securing clean and responsible supplies. While new projects indicate that supply is catching up with clean energy ambitions, the adequacy of future supply is not assured. The geographical concentration of production and refining operations, particularly in China and Indonesia, poses risks to supply chain diversification. To address these challenges, a comprehensive trade strategy is necessary to secure diversified and responsible sources of critical minerals. This strategy should involve investing in domestic mining and processing capabilities, engaging in international cooperation for mineral project development, and promoting sustainable and responsible practices in the critical minerals supply chain. policy interventions to ensure adequate and sustainable mineral supplies to meet the needs of the energy transition, as well as the significance of international cooperation and investment in diversified regions to enhance supply chain diversity and reliability.

The importance role f policy interventions need also be recgonized to ensure adequate and sustainable mineral supplies to meet the needs of the energy transition, as well as the significance of international cooperation and investment in diversified regions to enhance supply chain diversity and reliability. Governments worldwide are implementing investment programs to support energy transitions, often including critical minerals. This includes investing in domestic mining and processing capabilities, engaging in international cooperation to co-develop critical mineral projects, and negotiating bilateral trade agreements that prioritize materials sourced from partner countries. The US Infrastructure Investment and Jobs Act and the IRA’s provisions for clean vehicle acquisition are examples of domestic policies that align with these objectives. The IRA introduced a USD 7,500 credit for clean vehicle acquisition, contingent on sourcing a significant portion of critical minerals from the United States or free trade agreement partners. Over USD 45 billion of investments have been announced for battery supply chain projects since the enactment of the IRA. Besides, the IEA is also developing a voluntary critical mineral security program with its member countries to enhance preparedness against potential disruptions. Furthermore, environmental, social, and governance (ESG) considerations are becoming increasingly important. The EU’s battery regulation and policies aimed at increasing recycling scale are steps in the right direction: importers and manufacturers to track the country of origin of the raw materials used in batteries. Policies aimed at increasing the scale of recycling are also gaining traction.

Our trade relations must also reflect these values, ensuring that our imports come from sources that adhere to responsible environmental and social practices. At the same time, the competitiveness of the mining policies should be reviewed to enhance their self-sufficiency in critical minerals while maintaining environmental protection measures. This includes identifying strategic projects and streamlining processes, such as establishing “one-stop-shop” permits, which integrate various regulatory processes into a single channel, thereby reducing the complexity and time required to obtain multiple permits from different agencies, or reducing permit delays. Bsides, while striving for self-sufficiency, it is crucial to uphold environmental protection. This dual focus ensures that the pursuit of mineral security does not come at the expense of environmental integrity, and can align with broader sustainable development goals and responsible sourcing practices.

In conclusion,the demand for critical minerals is set to increase rapidly, with electric vehicles and battery storage as the main drivers. balancing our trade relations in the context of a renewable energy transition requires a multifaceted approach that considers the rapid growth in demand for critical minerals, the need for diversified and secure supply chains, and the importance of ESG standards.By doing so, we can seize the economic opportunities presented by the global shift towards renewable energy sources while mitigating the diplomatic challenges associated with critical mineral imports.