The race for critical minerals: time for G20 to frame an action plan

Critical minerals are those non-fuel mineral resources that have a high risk of supply chain disruption and which serve an essential function in the economy. Critical minerals are drivers of economic activity and also play an important role in national security. Several critical minerals are used in different technologies as shown below:  

• Energy technologies: solar photovoltaic, solar thermal, wind turbine generators, EV motor
• Minerals: Indium, gallium, germanium, selenium, tellurium, neodymium, lanthanum, tantalum, vanadium, lithium, silicon, platinum, cobalt, nickel, arsenic, silver
• Battery technologies: electric and hybrid vehicles, stationary storage batteries
• Minerals: Cobalt, graphite, lithium, manganese, vanadium
• Aerospace, communications and defense: fighter jets, drones, tanks, radios, radars, shielding, combat equipment
• Minerals: Vanadium, rhenium, cobalt, nickel, niobium, neodymium, samarium, cobalt, yttrium, terbium, europium, erbium
• Others: Computing, electronics, lighting, automotive, fuel cell, green hydrogen
• Minerals: Praseodymium, samarium, scandium, europium, gallium, indium, germanium, tin, cerium, lanthanum, zinc, selenium, Platinum group metals

Declining supply-demand ratio 

Critical minerals are essential for clean energy transition but the supply-demand gap of critical minerals is widening. The demand for lithium is expected to grow by about 40 times; nickel, cobalt and graphite by 20 times, and for neodymium (rare earth element), demand is expected to triple from its current level by 2040. 

Figure 1 shows the ratio of supply to demand of critical minerals which is calculated as the cumulative production volume for 2021-2050, fixed at the 2020 output level divided by the total metal demand for 2021-2050. As is evident, critical minerals especially graphite, cobalt, vanadium and nickel have a ratio lower than 0.5 and are likely to face supply shortages if their annual production is not increased rapidly from 2020 levels.

Figure 1. Ratio of supply to demand of selected minerals (Fig. source)

High resource concentration 

Similar to crude oil and natural gas, critical minerals are concentrated in a few countries, leading to supply security risks. The Herfindahl-Hirschman Index (HHI), is a dimensionless quantity that can be used to measure the concentration of mineral-producing countries. HHI is calculated by squaring the market share of each supplier country and ranges from 0 to 10,000. For e.g., if there are two supplier countries, with a 75% and 25% market share, the HHI would be 752 + 252 = 6250, indicating a high supplier concentration. Similarly, in the case of a single producer country, the market share would be 100 and HHI would equal 10,000, demonstrating a monopoly. On the contrary, a lower HHI implies a diversity of suppliers and a balanced market. The following are commonly interpreted HHI values:

• HHI value below 1,500: low resource concentration, well diversified
• HHI value below 1,500 – 2,500: moderate concentration
• HHI value below 2,500 or greater: High concentration, higher supply risks

Some analysts use slightly different values such as 1000 (instead of 1500) and 1800 or 2000 (instead of 2500) for their assessment. 

The Herfindahl-Hirschman Indices of minerals in 2020 is shown in Figure 2. Gold (Au) has a HHI of 500 (left panel) indicating diversified suppliers, while HHI for Gallium (Ga) is 9000 (right panel), signifying high supplier concentration and risks. 

Figure 2. Herfindahl-Hirschman indices of minerals in 2020 (Fig. Source)

The HHI of some of the important minerals required for energy transition along with the top supplier countries are shown in Table 1, which range between 1200-5100. In comparison, the HHI of crude oil production in 2020 was 763, indicating that critical minerals face much higher supply security concerns.   

Table 1. Critical minerals, top supplier country and HHI

G7 countries – a head start 

The Group of Seven (G-7), consists of seven member states of Canada, France, Germany, Italy, Japan, the United Kingdom, the United States and the European Union (EU). All G7 members acknowledge the growing role and importance of critical minerals. In response to the high mineral concentration and supply security concerns, all G7 countries have independently formulated their critical mineral strategies. The United States, United Kingdom, Japan and Canada have their national country strategies, while France, Germany and Italy which are a part of the European Union (EU), share the regulations for critical raw materials adopted by the European Parliament. These country strategies provide several incentives to support domestic production of critical minerals, for example, in the US through the Inflation Reduction Act (IRA) of 2022, and in EU countries through the European Critical Raw Materials Act.

The G7 is also taking collective action. Japan assumed the G7 Presidency for 2023 and the G7 Ministers' Meeting on Climate, Energy and Environment was held in April 2023 at Sapporo, Japan. A 36-page communiqué was released where G7 countries pledged to achieve 2050 net-zero goals. The communiqué acknowledged the growing importance of critical minerals and raw materials for meeting the ambitions of a net-zero economy. It also highlighted the threats and risks to critical mineral supply chain disruption caused lack of diversification of existing suppliers. The need for creating responsible and resilient critical minerals supply chains, supporting open, transparent, rules- and market-based trade in critical minerals with traceability, opposing market-distorting measures and monopolistic policies for critical minerals was recognized. 

For supporting the clean energy transition, the G7 communiqué also proposed a “Five-Point Plan for Critical Mineral Security”. The recommendations included the need for long-term supply and demand forecasting, creating responsible mineral supply chains, developing recycling capabilities, promoting innovation for developing substitute materials, and preparing for short-term supply disruptions. 

To strengthen G7’s resilience, the T7 policy brief on critical minerals also offered solutions to mitigate supply chain vulnerabilities and to address the negative environmental and socioeconomic impacts of mining critical minerals. It recommended the following measures: boosting domestic production; promoting public–private partnerships; fostering cooperation for knowledge-sharing among members; building stronger trade agreements with source countries; and partnering with G20 to align strategies and policies. These recommendations would inform the background policy discussions and hopefully will find a way in the outcome document of the 49th G7 Summit, scheduled to be held from 19-21 May 23 at Hiroshima.

G20 countries need to catch up 

The Group of Twenty (G-20) includes emerging economies such as Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey, along with countries of the G7. 

The G20 represents over 80% of the global GDP and two-thirds of the world's population. As the G20 is responsible for the lion’s share of primary energy use and GHG emissions, the global energy transition will be shaped in these countries.

The flurry of announcements on supporting critical mineral infrastructure in G7 countries suggests that the race for critical minerals has already begun. This is shaping several geopolitical trends such as resource nationalisation, onshoring and friend shoring, supporting legislation and subsidies. Considering the high competition for scarce resources, the G20 members must step on the gas to catch up with the G7 countries, which are already ahead in the race. 

Although Canada and the US have domestic critical mineral resources, none of the G7 countries are top producers of critical minerals (Table 1). On the other hand,  several G20 countries such as Australia, Indonesia, South Africa and China are leading producers of critical minerals and therefore have a larger role to play in mineral supply security. The G20, which includes the high-income countries of the G7 and lower and upper-middle-income countries such as India, Brazil and Turkey, therefore provides a wider discussion platform to implement coordinated international responses on critical mineral security. Instead of forming an exclusive critical mineral club, an inclusive approach where the perspective of developing countries is presented and their aspirations and needs are addressed, therefore having a much larger chance of success.

The discussions on critical minerals in the G20 are relatively new. The T20, Saudi Arabia 2020 policy brief on, ‘Framing Energy And Minerals For Future Pathways’ recommended including non-fuel minerals in deliberations; funding research to develop a multidimensional mineral criticality index; promoting transparency in data, processing, and technology; fostering technical collaborations with relevant multilateral agencies; and sharing the best practices for the sector. Considering the growing relevance, the Indian Presidency for G20 has addressed critical minerals in the G20 energy transition working group meetings. 

The ongoing discussions will also be informed by the T20 policy brief on critical minerals. An action plan for G20 countries must include the need for diversifying supplies, long-term supply and demand forecasting, creating responsible mineral supply chains, improving extraction and refining efficiency, investing in the development of a circular economy, developing recycling capabilities, promoting innovation for developing substitute materials and alternatives, and preparing for short term supply disruptions. While a collective approach for addressing the multiple challenges must be built on strengthening partnerships for critical mineral supply chains, individual countries of the G20 should simultaneously accelerate the adoption of their own national critical mineral strategies to enable the clean energy transition. 

Conclusion 

The 18th G20 Heads of State and Government Summit, to be held in New Delhi in September 2023, must comprehensively address the challenges with workable solutions and adopt a G20 action plan for critical minerals. The G20 Must Build on the G7 Five-Point Plan for Critical Minerals, which could thereafter be developed as country roadmaps. Being two most prominent democracies in Asia and representing the global north and south, Japan and India can leverage this year’s G7 and G20 summits to shape a global strategy for a reliable and secure critical minerals supply that is pivotal to the global energy transition and a net-zero emissions future.