Expanding Critical Minerals Supply Chains for the Clean Energy Transition

Estimates of future demand for critical minerals vary widely due to differences in covered technologies, minerals, methodologies, and assumptions. Despite these differences, sourcing and processing critical minerals will need to occur at an unprecedented scale and speed over the next few decades to achieve net-zero targets.

The International Energy Agency (IEA) has developed three scenarios, each assuming different levels of ambition and alignment with the Paris Agreement: 

1. Stated Policies Scenario (STEPS): Includes current policies or policies or those that governments are developing. 
2. Announced Pledges Scenario (APS): Assumes all long-term emissions and energy access pledges are fully implemented on time, limiting temperature rise to 1.7°C above preindustrial levels by 2100 (with a 50% probability). 
3. Net Zero Emissions by 2050 Scenario (NZE): The most ambitious scenario, assuming even faster deployment of clean energy technologies to limit global warming to 1.5°C. 

Table 1: Mineral Demand for Clean Energy Technologies by Mineral, 2022, 2030, 2040, and 2050 (kilotons)

REE = rare earth element

Source: Asian Development Bank calculations using data from the International Energy Agency Critical Minerals Data Explorer(accessed 11 October 2023).

Over the next 2–3 decades, demand for total critical minerals is expected to double under STEPS, more than triple under APS, and more than quadruple under NZE. Demand for raw minerals is projected to continue increasing until 2050 when recycling may become more common.

The huge spike in demand relative to 2022 under the NZE scenario underscores the importance of action in the coming decades. To achieve net zero by 2050, demand for lithium is expected to increase 8.6 times (8.6x) by 2030, 16.2x by 2040, and 16.1x by 2050. Nickel demand is projected to grow 7.6x by 2030, 9.5x by 2040, and 8.2x by 2050. Graphite demand is expected to increase 7.6x by 2030, 9.1x by 2040, and 5.9x by 2050.

Projected demand for each critical mineral by technology use highlights the importance of electric vehicles (EVs) and battery storage as key drivers of demand growth. The shift to low-carbon power generation will also increase mineral demand. These trajectories and risks are of course subject to technological developments, policy changes, and market and geopolitical dynamics. While available reserves of critical minerals are believed to be sufficient to meet long-term demand (United States Geological Survey 2023), shortfalls in a few minerals are projected in the near to medium term.

Mineral-dependent clean technology supply chains are highly complex (Figure 1). These supply chains encompass everything from extracting raw materials to processing, purification, refining, component manufacturing for clean energy technologies, and recycling mineral wastes. The dynamics at each step of the supply chain can differ significantly between clean technologies. Supply chains also involve extensive global networks, with each segment typically involving multiple producers.

Figure 1: Schematic Representation of a Mineral-Dependent Supply Chain

Source: Ayuk et al. 2020, cited in International Renewable Energy Agency (IRENA). 2023. Geopolitics of the Energy Transition Critical Minerals. Abu Dhabi. 

Despite their complexity, these supply chains are highly geographically concentrated (Figure 2). Upstream, a few producers—mostly in developing countries—are vital for many critical minerals. However, the bulk of extracted minerals are exported raw. Geographic concentration is even higher in the processing stage. This geographic concentration extends throughout the supply chains of clean energy technologies. For instance, the People's Republic of China (PRC), Japan, and the Republic of Korea dominate the midstream section of the battery materials supply chain. The PRC and India are also key players in wind turbines and components, alongside Germany, Spain, and the US. Meanwhile, the downstream segment is dominated by a few mature players in the PRC, EU, and US.

Figure 2: Largest Producers and Users of Selected Critical Minerals in the Energy Transition

DRC = Democratic Republic of Congo, EU = European Union, EV = electric vehicle, PRC = People’s Republic of China, PV = photovoltaic, REE = rare earth element, ROK = Republic of Korea, US = United States. 

Source: International Energy Agency. 2021. The Role of Critical Minerals in Clean Energy Transitions. Paris.

Trade flows reflect the intricate connections of critical minerals supply chains globally. Some dominant players, particularly the PRC, play an outsized role in global supply chains for critical minerals from upstream to downstream. 

Mining projects and clean energy technology manufacturing, besides their overreliance on a few suppliers and economies, tend to have long lead times and face considerable financial risks. Mines take an average of 16.5 years to move from discovery to production (IEA 2021). Clean energy technology manufacturing facilities take between 3 and 5 years to develop, depending on the type of technology.

Price volatility is often a notable feature of metals and minerals. High price volatility discourages investment and creates challenges for companies planning clean energy technology projects. Geographic concentration, significant upfront capital demand, and long lead times for mining development are the main reasons for volatility, but other factors also contribute. Insufficient data on the production, demand, trade, and inventories of critical minerals, particularly lithium, graphite, and cobalt, create market uncertainty, increase price volatility, and delay investment (Stuermer and Wittenstein 2023). Moreover, critical minerals are typically traded in over-the-counter markets, which lack transparency. This opacity makes it difficult to determine who is buying or selling in a particular transaction, leaving the market vulnerable to manipulation, including speculative and other disruptive practices (Krol-Sinclair 2023). 

The urgent need to accelerate the clean energy transition has driven global demand for critical minerals. According to IEA and PwC data, investments in critical minerals surged significantly in 2021 and 2022, with a notable rise in exploration spending, mining mergers, and venture capital, particularly in lithium exploration and startup funding.

Resource-rich and resource-seeking countries in Asia and the Pacific can partner to develop resilient and responsible critical mineral and clean energy technology supply chains for a clean energy future. To capitalize on the net-zero transition and create substantial employment, regional cooperation, and integration of critical mineral production with global clean energy supply chains are essential, alongside improvements in trade, investment, infrastructure connectivity, and human capital.

Building exploration, mining, and processing capacities are prerequisites for integrating mineral-rich developing member economies (DMEs) into global supply chains for clean energy technologies. Many DMEs face challenges in building mining and related sector capacity due to a lack of geological surveys, incoherent policies, weak legal and regulatory frameworks, opaque licensing and taxation regulations, and limited institutional capacity. 

Some DMEs are well-positioned to strengthen their roles in global value chains through industry diversification and foster social and economic development. Developing midstream and downstream capabilities can help avoid the resource curse and support a just transition.

National green clusters or net-zero industrial parks can help integrate the mineral supply chain with the regional value chain in the clean energy transition. Initiatives like the “Transitioning Industrial Clusters Towards Net Zero” by the World Economic Forum, Accenture, and the Electric Power Research Institute aim to create such parks. These parks support industries in reducing carbon emissions while sharing risks, infrastructure, and natural resources. By mobilizing finance, promoting knowledge sharing, and strengthening innovation, industrial clusters can accelerate their net-zero targets and implementation strategies.

Economic corridor development can strengthen national and regional industrial clusters. These programs need strong policy support to improve infrastructure for transport, energy, and digital connectivity; and to develop industrial clusters, cross-border production networks, and a business-enabling environment. This approach can increase investment attractiveness across critical minerals and clean energy manufacturing supply chains.

Government policies and incentives that encourage EV manufacturing, infrastructure development, R&D investment, and skills and education are critical for the growth of clean energy manufacturing industries. In ASEAN, government support and tax incentives for EV manufacturers and consumers have promoted the industry. As a result, ASEAN economies have attracted investor interest across the EV supply chain.

Global partnerships and regional cooperation are vital to unlocking investment potential. Multinational companies are investing heavily throughout clean energy manufacturing supply chains. Once fully implemented, the Regional Comprehensive Economic Partnership can further expand regional supply chains for critical minerals and clean energy manufacturing by reducing tariff and nontariff barriers and strengthening trade institutions.

Asian Development Bank. 2024. Building Resilient and Responsible Critical Minerals Supply Chains for the Clean Energy Transition.